Posted by
Klaus Spanderen-2 on
Nov 24, 2008; 8:56pm
URL: http://quantlib.414.s1.nabble.com/Re-Error-irregular-fixings-not-yet-supported-in-LMM-calibration-with-CapHelpers-tp6899p6901.html
Hi
> Then according to the book the parameters phi_{i} can be used to calibrate
> automatically caplet volatilities via: phi_{i}^2 =
> v_{i}[MKT]^2/(integral[0][T_{i-1}] sigma{i})^2, where v_{i}[MKT] are caplet
> volatilities inferred from market data. The additional free parameters a,
> b, c and d can be used for the swaption calibration.
>
> The market provides quoted ATM Cap volatilities e.g. starting from 2Y tenor
> up to 5 years. I'm wondering now how to get the corresponding caplet
> volatilities for the above calibration? Is there any stripping algorithm in
> QL to recover the caplet volatilities from the market quoted cap
> volatilities?
No, the optimizer has to choose the parameter of the volatility model to match
the ATM cap volatilities best (and at the same time to match the swaptions as
well). Within the calibration process the caps are priced using the
AnalyticCapFloorEngine (which is using the integratedCovariance method of the
volatility model). The LfmHullWhiteParameterization is using Caplet Vols to
set-up an Libor Model Process.
BTW.: The old libor model "legacy" code. Please have a look at the newer
market model implementation;-)
regards
Klaus
--
Klaus Spanderen
Ludwig Erhard Str. 12
48734 Reken (Germany)
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