How to calibrate a Market Model
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How to calibrate a Market Model
 
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In
QuantLib there exist several classes deriving from the MarketModel
class. One
of them is the FlatVol, which I have used successfully
to price a
european swaption. But
the FlatVol constructor looks as follows:
which
means that I need to know the volatilities and corr
inputs. My
problem is how to get these inputs by relying only on market
data consisting of
caplet and swaption vols. Does
some sort of calibrator class exist that is capable of
producing these inputs
(or the whole FlatVol object preferably), after being fed
with the market data? If
this is not yet implemented with respect to FlatVol, does
such an implementation
at least exist for some other class deriving from
MarketModel? I
have seen the three classes CTSMMCapletCalibration, CTSMMCapletOriginalCalibration
and CTSMMCapletAlphaFormCalibration, which almost
do the job, but
they have the shortcoming that their constructors take a
vector of PiecewiseConstantVariance
rather than a vector of numbers for the required input of
swaption
volatilities. Unfortunately the market does not supply us with
a PiecewiseConstantVarianceobject,
so I don't know how to proceed! Many thanks in advance
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Fwd: How to calibrate a Market Model
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Hi, as I have not received any response to my question below yet, I repost it here because the issue is very important. I am looking for a calibration solution with regard to market models. If none exists, could somebody please confirm this is the case and whether any plans exist to introduce one? Unfortunately without calibration, the whole market model implementation - as it stands - has only academic meaning. cheers Yannis -------- Forwarded Message --------
In QuantLib there exist
several classes deriving from the MarketModel class. One of them is the FlatVol,
which I have used successfully to price a european swaption. But the FlatVol constructor
looks as follows:
which means that I need
to know the volatilities and corr inputs. My problem is how to get
these inputs by relying only on market data consisting of
caplet and swaption vols. Does some sort of
calibrator class exist that is capable of producing these
inputs (or the whole FlatVol object preferably), after being
fed with the market data? If this is not yet
implemented with respect to FlatVol, does such an
implementation at least exist for some other class deriving
from MarketModel? I have seen the three
classes CTSMMCapletCalibration, CTSMMCapletOriginalCalibration
and CTSMMCapletAlphaFormCalibration, which almost
do the job, but they have the shortcoming that their
constructors take a vector of PiecewiseConstantVariance rather
than a vector of numbers for the required input of swaption
volatilities. Unfortunately the market does not supply us with
a PiecewiseConstantVarianceobject, so I don't know how
to proceed! Many thanks in advance
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Re: Fwd: How to calibrate a Market Model
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It's been a long time since I looked at the market model, but the approach to calibration described in <https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=1092665> is included in the implementation, and it looks like there's an example of its use in the file `test-suite/marketmodel_smmcaplethomocalibration.cpp`. There's another couple of test files with a similar name that might use the methods you named in your original post. Let me know if that helps. Otherwise, I'll try reaching out to some of the implementors... Luigi On Thu, Feb 16, 2017 at 10:52 AM Ioannis Rigopoulos <[hidden email]> wrote:
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Re: Fwd: How to calibrate a Market Model
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Many thanks Luigi for your quick reply! I will look at what you have pointed in the next few days and I
will let you know as soon as I have concrete results. Yannis On 17.02.2017 15:42, Luigi Ballabio
wrote:
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