Posted by
Luigi Ballabio on
Feb 06, 2008; 5:16pm
URL: http://quantlib.414.s1.nabble.com/Volatility-Surface-Interpolation-tp5741p5745.html
On Mon, 2008-02-04 at 19:27 +0100, Sebastián Miranda wrote:
> So that's the problem, I interpolate linearly... and no bilinearly...
> I can't be sure variance decreases !!
Hi Sebastian,
if you think that your volatilities make sense, you might remove the
check on variances and recompile QuantLib. Be aware that you're living
dangerously though...
Question for the volatility experts: I know that a decreasing variance
makes no sense---if it's the actual variance of an underlying. Since
we're talking of smiled volatility here (i.e., something that we use to
keep working in a Black-Scholes framework, but which is at best an
approximation of the true volatility of the underlying) should we still
require monotonicity along each strike? Moreover, does the market always
enforce it?
Thanks,
Luigi
--
There is no such thing as public opinion. There is only published
opinion.
-- Winston Churchill
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