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Calculating normalised swaption volatility
Posted: June 21st, 2011, 1:32 am
by Derivs
Can anyone give me a simple explanation (without too much techy stuff) how to compute swaption normailsed volatility from the BS vol?Much appreciated.
Calculating normalised swaption volatility
Posted: June 22nd, 2011, 5:56 pm
by pimpel
You can either take approximation given in one of the Pat Hagan's papers, or calculate Black76 price, then take the Bachelier formula and search for normal vol, that will give you the Black76 price.
Calculating normalised swaption volatility
Posted: June 23rd, 2011, 3:31 am
by Derivs
I don't suppose anyone could provide the link to Pat Hagan's paper with the approximations? I don't seem to be able to find the right one.Many thanks
Calculating normalised swaption volatility
Posted: June 23rd, 2011, 12:03 pm
by dicesare
QuoteOriginally posted by: DerivsI don't suppose anyone could provide the link to Pat Hagan's paper with the approximations? I don't seem to be able to find the right one.Many thanksformula A.64 in Managing Smile Risk