Fwd: implied vol + the greeks

[tallent_e]

hi all.

i want to make 2 questions.

1)
i have a question regarding the extreme values of impliedVolatility, described at http://quantlib.org/reference/class_quant_lib_1_1_vanilla_option.html#95c0837ce9c4bcc4cb9b9ff975f3bfe1

there, it reads :
Volatility impliedVolatility(
 Real price,const boost::shared_ptr & process,
 Real accuracy = 1.0e-4,
 Size maxEvaluations = 100,
 Volatility minVol = 1.0e-7,
 Volatility maxVol = 4.0 )
 const

i am OK with all the parameters, the latest expected.
isn't there a problem with maxVol ?  i mean wouldn't it makes sense to allow a higher volatility value ?

i wrote a short piece of code, with a maxVol value = 1.0e4 . that works. but, it doesn't if i write 4.0.
 

2) i wrote my c++/quantlib code. i then benchmarked my results against the E.Haug's excel pricer (the complete guide ...).
fortunately, my calculation results are right (cool!) expect that i have to divide the Rho and Vega obtained values by 100 to get Haug's results.
that is a matter of % i guess, but i don't understand where/why it comes into play.

i posted my code on my blog site (http://quantcorner.wordpress.com/2011/02/06/quantlib-the-greeks-and-other-useful-option-related-values/), if you wish to have a look at it.

thank you
édouard

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[Luigi Ballabio]

On Mon, 2011-02-07 at 09:45 +0000, [hidden email] wrote:

> 1)
> i have a question regarding the extreme values of impliedVolatility, described at http://quantlib.org/reference/class_quant_lib_1_1_vanilla_option.html#95c0837ce9c4bcc4cb9b9ff975f3bfe1
>
> there, it reads :
> Volatility impliedVolatility(
>  Real price,const boost::shared_ptr & process,
>  Real accuracy = 1.0e-4,
>  Size maxEvaluations = 100,
>  Volatility minVol = 1.0e-7,
>  Volatility maxVol = 4.0 )
>  const
>
> i am OK with all the parameters, the latest expected.
> isn't there a problem with maxVol ?  i mean wouldn't it makes sense to allow a higher volatility value ?
>
> i wrote a short piece of code, with a maxVol value = 1.0e4 . that works. but, it doesn't if i write 4.0.

4.0 means 400%, so it should work except in extreme cases.  In fact, I
tried your example without passing any of the default parameters to the
impliedVolatility method (i.e., I just pass the NPV and the process) and
I get back 0.20 as expected.  Are you sure that the code that failed is
the same code you posted?

> 2) i wrote my c++/quantlib code. i then benchmarked my results against
> the E.Haug's excel pricer (the complete guide ...).
> fortunately, my calculation results are right (cool!) expect that i
> have to divide the Rho and Vega obtained values by 100 to get Haug's
> results.
> that is a matter of % i guess, but i don't understand where/why it
> comes into play.

The greeks returned by QuantLib are the derivatives.  For instance, to
estimate how much the price will move if the rate moves by 1% (that is,
from 5% to 6%) you'll have to multiply the returned rho by 1%.  Maybe
Haug is returning the latter value already?

Luigi

--

The most exciting phrase to hear in science, the one that heralds new
discoveries, is not "Eureka!" but "That's funny..."
-- Isaac Asimov



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[tallent_e]

hello all.

thank you for your reply, Luigi.

as regard 4.0 in the impliedVolatility method.

you're right, that actually works.

i might have compiled my ode with different vallue parameters.

cheers,

édouard 

--
http://quantcorner.wordpress.com

On Feb 7, 2011, Luigi Ballabio <[hidden email]> wrote:

On Mon, 2011-02-07 at 09:45 +0000, [hidden email] wrote:

> 1)
> i have a question regarding the extreme values of impliedVolatility, described at http://quantlib.org/reference/class_quant_lib_1_1_vanilla_option.html#95c0837ce9c4bcc4cb9b9ff975f3bfe1
>
> there, it reads :
> Volatility impliedVolatility(
> Real price,const boost::shared_ptr & process,
> Real accuracy = 1.0e-4,
> Size maxEvaluations = 100,
> Volatility minVol = 1.0e-7,
> Volatility maxVol = 4.0 )
> const
>
> i am OK with all the parameters, the latest expected.
> isn't there a problem with maxVol ? i mean wouldn't it makes sense to allow a higher volatility value ?
>
> i wrote a short piece of code, with a maxVol value = 1.0e4 . that works. but, it doesn't if i write 4.0.

4.0 means 400%, so it should work except in extreme cases. In fact, I
tried your example without passing any of the default parameters to the
impliedVolatility method (i.e., I just pass the NPV and the process) and
I get back 0.20 as expected. Are you sure that the code that failed is
the same code you posted?

> 2) i wrote my c++/quantlib code. i then benchmarked my results against
> the E.Haug's excel pricer (the complete guide ...).
> fortunately, my calculation results are right (cool!) expect that i
> have to divide the Rho and Vega obtained values by 100 to get Haug's
> results.
> that is a matter of % i guess, but i don't understand where/why it
> comes into play.

The greeks returned by QuantLib are the derivatives. For instance, to
estimate how much the price will move if the rate moves by 1% (that is,
from 5% to 6%) you'll have to multiply the returned rho by 1%. Maybe
Haug is returning the latter value already?

Luigi

--

The most exciting phrase to hear in science, the one that heralds new
discoveries, is not "Eureka!" but "That's funny..."
-- Isaac Asimov

------------------------------------------------------------------------------
The modern datacenter depends on network connectivity to access resources
and provide services. The best practices for maximizing a physical server's
connectivity to a physical network are well understood - see how these
rules translate into the virtual world?
http://p.sf.net/sfu/oracle-sfdevnlfb
_______________________________________________
QuantLib-users mailing list
[hidden email]
https://lists.sourceforge.net/lists/listinfo/quantlib-users