Bootstrapping Caplet Volas from ATM Cap/Floor Volas

[Andreas Spengler-2]

Hi,

I am currently using QL in a project to price Structured Floaters; as part
of the incoming data I would like to use to parameterize the LFM we are
receiving (annualized) atm cap/floor volatilities...

I tried using OptionletStripper1/2 to get caplet volas from those;
however, OptionletStripper2 is not usable since it relies on
OptionletStripper1 which in turn needs a vol surface instead of a vol curve.

Anyhow, "faking" a vol surface by setting all values (in strike dimension)
to the atm vols returned only zeros upon calling
OptionletStripper1::optionletVolatilities()

Am I doing something fundementally wrong here and/or is there some other
class/method which I can use for the purpose?


Thanks for any help and best regards,

Andreas



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[Peter Caspers-2]

Hi Andreas,

when I try something like this

     
    boost::shared_ptr<YieldTermStructure> yts(new FlatForward(0,TARGET(),0.05,Actual365Fixed()));
    boost::shared_ptr<IborIndex> euribor6m(new Euribor(6*Months,Handle<YieldTermStructure>(yts)));
    std::vector<Period> optionTenors;
    optionTenors.push_back(1*Years);
    optionTenors.push_back(2*Years);
    optionTenors.push_back(3*Years);
    optionTenors.push_back(4*Years);
    optionTenors.push_back(5*Years);
    std::vector<Rate> strikes;
    strikes.push_back(0.03);
    strikes.push_back(0.04);
    strikes.push_back(0.05);
    strikes.push_back(0.06);
    strikes.push_back(0.07);
    Matrix flatVols(5,5,0.20);
    boost::shared_ptr<CapFloorTermVolSurface> caps(new CapFloorTermVolSurface(0,TARGET(),ModifiedFollowing,optionTenors,strikes,flatVols));
    boost::shared_ptr<OptionletStripper> stripper(new OptionletStripper1(caps,euribor6m));
    boost::shared_ptr<OptionletVolatilityStructure> caplets(new StrippedOptionletAdapter(stripper));
    for(int i=0;i<strikes.size();i++) {
        for(int j=0;j<10;j++) {
            std::cout << caplets->volatility(j*6*Months,strikes[i]) << " ";
        }
        std::cout << std::endl;
    }


I get


0.199999 0.2 0.2 0.2 0.2 0.20006 0.200001 0.2 0.200018 0.2
0.199999 0.199999 0.2 0.2 0.2 0.200091 0.200001 0.2 0.200025 0.2
0.2 0.2 0.2 0.2 0.2 0.199817 0.199998 0.2 0.199949 0.2
0.2 0.2 0.2 0.2 0.2 0.199881 0.199999 0.2 0.199965 0.2
0.2 0.2 0.2 0.2 0.2 0.199911 0.199999 0.2 0.199973 0.2


which looks reasonable. Is that of any help for you?

Regards
Peter


Am 04.05.2012 10:00, schrieb Andreas Spengler:

Hi,

I am currently using QL in a project to price Structured Floaters; as part
of the incoming data I would like to use to parameterize the LFM we are
receiving (annualized) atm cap/floor volatilities...

I tried using OptionletStripper1/2 to get caplet volas from those;
however, OptionletStripper2 is not usable since it relies on
OptionletStripper1 which in turn needs a vol surface instead of a vol curve.

Anyhow, "faking" a vol surface by setting all values (in strike dimension)
to the atm vols returned only zeros upon calling
OptionletStripper1::optionletVolatilities()

Am I doing something fundementally wrong here and/or is there some other
class/method which I can use for the purpose?


Thanks for any help and best regards,

Andreas



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will include endpoint security, mobile security and the latest in malware 
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Exclusive live event will cover all the ways today's security and
threat landscape has changed and how IT managers can respond. Discussions
will include endpoint security, mobile security and the latest in malware
threats. http://www.accelacomm.com/jaw/sfrnl04242012/114/50122263/
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