Fwd: How to calibrate a Market Model

Posted by Ioannis Rigopoulos on Feb 16, 2017; 8:12am
URL: http://quantlib.414.s1.nabble.com/How-to-calibrate-a-Market-Model-tp18057p18088.html

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 --------

Subject:	[Quantlib-users] How to calibrate a Market Model
Date:	Sat, 4 Feb 2017 17:52:57 +0100
From:	Ioannis Rigopoulos [hidden email]
To:	[hidden email]

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:

        FlatVol(  const std::vector<Volatility>& volatilities,    const boost::shared_ptr<PiecewiseConstantCorrelation>& corr,   .... )

 

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

Yannis

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