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SABR/LMM : correlation between the volatily of foward rates
Hello,I am using the book "SABR/LMM" written by Rebonato.The correlation between forward rates : same approach as in a classical LMM model (ok)The correlation between forward rates and volatility : exogenously given by the market data (through the calibration)What about the correlation between the volatility ?What are the classical approaches ? Thank you for your time
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- Phunfactory
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SABR/LMM : correlation between the volatily of foward rates
The issue isn't well described in Rebonatos book. However there is a thesis out there which tells you how it works. You can obtain the Vol/Vol correlations from fitting Swap or CMS dynamics in your SABRLMM.
Last edited by Phunfactory on April 30th, 2015, 10:00 pm, edited 1 time in total.
SABR/LMM : correlation between the volatily of foward rates
Hi,We describe a couple of methods of its calibration in our soon to be published book . For one of the two we also provide calibration examples done on real market data.