assume I have following delta-term vol data from broker:

Spot 3.4550
                 O/N      1WK      2WK      3WK      1M       6WK      2M
Volatility       7.544    7.7      7.731    7.911    8.025    8.18     8.4
Forward Points   0.0004   0.0021   0.0045   0.0063   0.0079   0.0106   0.0164
EUR Depo Rate    0.405    1.205    1.145    1.128    1.1      1.11     1.13
PLN Depo Rate    4.216    5.028    4.586    4.187    3.558    3.58     3.626
Butterfly        0.157    0.19     0.229    0.268    0.34     0.368    0.44
RiskReversal     0.35     0.45     0.567    0.683    0.9      0.983    1.2

now I want to retrieve strikes from delta-term vol surface. there are few convensions of quoting delta and ATM condition. apart from this, lets assume that my appropriate formula for ATM strike is


because I need to specify time $\tau$ to put into my other calculations and I don't want to count days and wonder what basis etc, I would like to retrieve first $\tau$ from relationship above. it is then given by:


but still I need rates to compute other strikes. So what should they be:

we know that

$f=S+Forward Points$

and for instance

$f_{ON}=3.4550+ 0.0004=3.4554$

$f_{1M}=3.4550+ 0.0079=3.4629$

and ofcourse


now the question is how to use DEPO rates in $f(S,r_d,r_f,\tau)$ formula.

so what $r_d$, $r_f$ should be put into $f=Se^{(r_d-r_f)\tau}$ for 1M based on table presented? is this ready tu put into it so for $f_{1M}$ I have $r_d\tau=0.03558\tau$ or do I have to annualize it first or get equal rate in continuous compounding? please be exact and write down exact formula for say $1M$ $r_D$

I have tried just this rates ($r_d\tau=0.03558\tau$) and also rates continuously compounded ($r_{d,cont}=ln(1+r_d)$) but the results for strikes for delta different from ATM are still not exact nevertheless if I use spot, forward, spot p.a. or forward p.a. convention. I use QuantLib.

below are my results as ticks difference between quoted strike and retrieved from delta-term. I am not satisfied with such accuracy, the reason for this discrepancy is not correct use of rates and time convensions. enter image description here

here is result for EUR/USD, slightly better but still small error

enter image description here

  • $\begingroup$ Comments have been purged. $\endgroup$ – chrisaycock Mar 9 '13 at 21:39

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