Re: Swaption Volatility...

Posted by Luigi Ballabio-4 on Mar 12, 2002; 12:38pm
URL: http://quantlib.414.s1.nabble.com/Swaption-Volatility-tp1889p1894.html

Hi,

At 8:15 PM +0000 3/12/02, Toyin Akin wrote:
>When you say "As a matter of fact, it does", do you mean that it does handle
>Strikes, underlying, option mat, or it does handle ATM vols only.

It was the latter. There's no strike info there.

>In addition, even though your class is called SwaptionVolatilityMatrix, it
>can easily handle cap/floor vols (or should that be caplet and
>floorlet vols), Basically underlyings less than one year.

True. But I rather had them separated for clarity.
For swaption volatilities we need a method

volatility(exerciseDate,length,strike);

for cap flat volatilities

volatility(endDate,tenor,strike)

in case we keep volatilities for different tenors in one object, or

volatility(endDate,strike)

if we use different instances for different tenors.
Finally, caplet volatilities would need

volatility(startDate,tenor,strike) or
volatility(startDate,strike)

It would not be that easy to create a single universal volatility
object whose volatility() method does different things depending on
the context.
But even if it were easy, I wouldn't do it. I very much prefer three
different classes for the above.

>I think it would be a shame if the strikes were omitted as a user can just
>construct your new vol object and then promtly forget about
>handling/generating them when pricing vanilla options.

This is the idea. Be patient.

>Could you do us a favour though (I'm on my knees), how about one example on
>using any of the term structure models along with calibration. I'm
>sure Sad must have at least some sort of rough test harness for this
>stuff. I'm itching to get my hands on it, but too lazy to work it
>out.

I'm sorry to break the news to you this way, but Sad is on a
well-deserved vacation right now...

>Then again, I know you guys work for a living and thus may not have time.
>Then again Saturday is a possibility...!!

Ok, _you_ tell my wife...

Bye,
        Luigi

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