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As is well known in order to calibrate an interest rate model (i.e. hull-white, LMM) i need to use the current market yield curve and volatility. But in the case I want to calibrate the model in a market without caps that is without the vol TS what is the recommended proxy? How could I use information in other markets(that is another country or product) in order to develop a proxy volatility term structure?

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  • $\begingroup$ You can calibrate your model on any available interest rate products, and your model will be good for pricing similar products. $\endgroup$ – Antoine Conze Dec 5 '17 at 12:22
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    $\begingroup$ In other words my questions is: how do I price caps in a market with only linear interest rate products i.e. CCS, IRS? $\endgroup$ – Mitor Jan 15 '18 at 16:26

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