Re: use of VulatilityStructure
Posted by Luigi Ballabio-4 on Apr 24, 2002; 2:11pm
URL: http://quantlib.414.s1.nabble.com/use-of-VulatilityStructure-tp2004p2005.html
Hi Vadim,
At 3:23 PM -0500 4/19/02, Vadim Ogranovich wrote:
>I have been searching for ways of representing and fitting volatility smiles
>of options in QL. The closest things that I found are all sorts of
>*VolatilityStructure classes.
>
>Here are few related questions:
>1. Is there any support for volatility smiles of options? This by itself is
>a two-level question: a) whether there is a class that represents a smile
>and b) whether there are methods that fit the smile to the current set of
>option prices.
I'm more familiar with fixed income than equities, but I guess that
what you would need is an OptionVolatilityStructure class to which
one can ask volatility(exerciseDate,strike). Is that so? In this
case, it could be modeled after FlatCapVolatilityStructure or
whatever the latter is called.
This would be only the interface, i.e., the abstract base class: then
one would have to implement the actual innards in derived classes.
What I mean is, the support for the smile in the interface consists
simply in the volatility() method taking the strike as a parameter.
The actual implementations in derived classes should model it.
As for (a), the answer is "not yet". As for (b), you might look at
the machinery that Sad put together for fitting volatility surfaces.
I haven't explored it yet, but I have a feeling that most of the math
is there and one has only to define the desired parametric form of
the curve.
>2. Are there means to incorporate time-dependent (but not stochastic)
>volatility in pricing of FdDividendAmericanOption. Here the answer is
>probably "yes, in principal you can" given what I have read in "The finite
>difference framework" of the user manual, but I am wondering is there an
>already canned solution.
No, not a canned one. We were thinking of it but got lost in other work to do.
>2. Out of curiosity, why *VolatilityStructure classes appear in .cpp files
>only?
You mean hpp, I guess. Quite simply, all their methods were short
enough to be declared as inline. Therefore, there was nothing to be
put in a cpp file.
Bye,
Luigi
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