Re: Volatility Surface Interpolation

Posted by Lapin on Mar 03, 2008; 11:11am
URL: http://quantlib.414.s1.nabble.com/Volatility-Surface-Interpolation-tp5741p5751.html

Sebastian,

 

You are also pricing American style options.

This leads to issues when trying to solve a single volatility for 1 term and strike.

 

 

2008/3/3, Sebastián Miranda <[hidden email]>:

Well, I think interpolation is OK, its not the problem, It think that my problem is whit Bloomberg option's prices (if you ask last closing price for an option, may be you get a 1 week old price... ) *and* with the option price valuation model, since I'm working with dividend paying equities is not easy... so I think I'm overpricing calls (so, mispricing vol) and mispricing puts (so overpricing vol) especially for long maturity terms (attached example log)...
...too many things to say it's just interpolation... :-(
(btw I'd changed a little the interpolation, attach code)

I'll really appreciate any suggestion...

thankx !!!

 Sebastián

On Mon, Mar 3, 2008 at 9:49 AM, Bojan Nikolic <[hidden email]> wrote:

Andrea <[hidden email]> writes:

> In case you have a matrix, it is a bit tricky because you normally
> have strikes that do not follow these lines, so you need to
> interpolate.

 

I think in Sebastián's case it was indeed the interpolation that was
causing problems. At least in my experience with FX options, you often
can not get away with linearly interpolating the smile.

Best,
Bojan


--
Bojan Nikolic

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