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I'm using ATM 30D implied volatility in a model I'm building, but need to smooth out the data. Is the best way just to use exponential smoothing or are there any better alternatives?

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  • $\begingroup$ if you don't explain what you are doing there is not right or wrong answer so as it stands the question is not really meaningful. $\endgroup$ – Ezy Jan 13 at 15:24
  • $\begingroup$ I'm attempting to model a rate set by a third party. This entity has stated it uses different measure of market volatility to set this rate, so am using implied vol as one input. Using raw data however is a problem because there are some outliers that are causing issues with my model. General I can take care of outliers by smoothing data, but didn't know if there was another preferred method. $\endgroup$ – Ajk Jan 13 at 15:48
  • $\begingroup$ I agree with @Ezy: the question is still not precise enough. Where do you get this ATM implied vol from? from swaptions prices? What is the "data" you are referring to? $\endgroup$ – jherek Jan 17 at 13:41
  • $\begingroup$ The implied volatility is from options on futures. The data is the implied vol data points. $\endgroup$ – Ajk Jan 17 at 14:55
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There does not exist a “preferred method” which works in general. Usually interpolation schemes suitedness depends on specifics of the problem at hand and the particular utility of what you are trying to do.

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