Hi, I am looking for some guidance on how to mark options where the strike is well above the ATM level i.e. I don't see the strikes quoted in BBG, Tullet etc,and a dealer would charge more for the hassle of writing the option.Other people must have this problem as well, so I am looking for some guidance onsimple, reasonable methods to extend the skew/smile beyond the reasonable bounds.My question is on Interest rates but as options are options, insight from other assetsis greatly appreciated. So, in my case, I am interested on how to extend the skewbeyond 9% or 10%, all the way to 15-20%.Simply, how do you guys mark this?Thanks for any help

Since nobody is answering, a couple thoughts. 1. Fit your entire implied vol. surface to a good model. or ...2. Fit just the maturity you need to a parameterized method, like Gatheral'sSVI, that respects some theory for extreme large strikes. After fitting, you have your answer.

I had the same problem before, I ended up looking everywhere for higher strike option quotes from FO or even MO from the OTC market.I did get these bid/offer quotes finally, but they're usually a few days old.With this information (a few days old), how would one recommend in marking the curve for today?Maybe use the difference between the ATM vol to adjust the OTM options? A parallel shift of the curve? Take into account of the skew difference as well? Or are there any models out that which can calibrate today's curve with option prices from a few days old?

I use a model that interpolates, extrapolates and all that jazz... Thus, it's what Alan has suggested.

Thanks all for your answers, after a bit more thought, rates are different than equity for instance,as rates are mean reverting. So I'll try pricing with a better model and forgetting about Black vol,as you have suggested.

You may wish to look at SABR, notwithstanding its known faults... I believe it is, effectively, the industry standard.

I'll try SABR, my HW model calibration is a bit tricky as it needs first the cap Black Vol at that strike...Thanks for your suggestions

getting of the point slightly, i have being wondering how does a trader market make in vols (CPFLs or Swaptions)? Lets assume that the trader has no idea where Vol is in the market (obviously he'll know if it's high, low ect.) (finger in the wind type scenario) and does'nt have access to any of the broker screens. If he wanted to trade in this market how does he make up his surface? He'll obviously have access to his curve points data ect. I've an idea how he'd do this but if somebody could give a clear explanation i would be greatful. How does a trader make up a vol engine? Also what is the best way of trading say usd swaption vol against 1's? very few screens actually quote it? So what sort of adjustments are made? Do i just multiply the vega by the basis?