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Re: Volatility Surface Interpolation

Posted by Sebastián Miranda on Mar 03, 2008; 11:21am
URL: http://quantlib.414.s1.nabble.com/Volatility-Surface-Interpolation-tp5741p5752.html


Yes, most of them are American style options... but for long terms I'm trying to approximate with European options...
And, yes I have a lot of issues trying to get single volatility for calls and puts, so I'm considering just to use only calls but I'm not pretty sure that's the solution...

best regards,
 

  Sebastián



On Mon, Mar 3, 2008 at 12:11 PM, Guillaume Pealat <[hidden email]> wrote:
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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