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
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