Questions tagged [volatility-surface]
The volatility-surface tag has no usage guidance.
68
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40 views
Vega Surface with Local Volatility Model
I am trying to obtain the Vega of some equities with the Dupire local volatility model.
For this I have already validated the pricing model (I am using Monte Carlo) and now I am able to obtain the ...
0
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0answers
9 views
Handling different periodicity and expiry times of options for inclusion to volatility surface construction
I'm curious to know if considered "incorrect" to include (i) weekly, monthly and quarterly options, and (ii) options with different expiry times during the day?
Feels to me differing ...
0
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1answer
77 views
Volatility surface interpolation for Black-Scholes delta hedging
A general question for interpolation method for implied volatility between tenors. I've recently stumbled accross a dataset from http://www.math.ku.dk/rolf/Svend/, and I would like to interpolate the ...
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80 views
Implied and Local Volatility relation in Monte Carlo
I am implementing a Monte Carlo engine with the local volatility model based on Dupire.
Obviusly, I obtain the local volatility surface from the implied volatility surface and that surfaces has ...
0
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19 views
SABR Model and Adjustements to implied volatilies
After finding the volatility using a SABR model; does one need to readjust the volatilities accordingly to the different strike prices and skew. Intuitively, if the SABR model incorporates the ...
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60 views
Local Vol from Implied Vol formulas different
I am wondering why "LOCAL VOLATILITY MODELLING Roel van der Kamp July 13, 2009" (formula 2.23) has a different numerator compared to "The Volatility Surface. JIM GATHERAL" (formula ...
0
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1answer
93 views
Theoretical and practical drawbacks of using Deep Learning for calibration and pricing
I am investigating the suitability of using deep learning for pricing and calibration for the full implied volatility surface. Such examples of their application are in papers here and here. During ...
2
votes
1answer
101 views
Dupire (Local Vol with Imp Vol)
I am trying to implement a local volatility pricer using Monte Carlo and Dupire's equation in function of implied volatilities and I was told that first of all I have to check Dupire is well ...
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0answers
45 views
What's a sensible way to measure correlation in the volatility surface?
Lets say I construct a parametrisation of the volatility surface that lets me infer dynamics i.e correlation between strike vol.
Is computing the sample correlation (after controlling for spot-vol ...
1
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1answer
133 views
Clean noisy data from arbitrage
My problem is that I have a surface of implied black volatilites that is supposed to represent market data. However, the surface contains some slight arbitrage.
More precisely, the graph contains ...
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45 views
Local volatility from Impled Volatilty by Dupire (interpolation)
Hellow,
I'm doing my final project and now i have to implement Dupire's formula to get local volatilities from Implied volatilities.
I have already got the implied volatilities by Newton so i have the ...
2
votes
1answer
138 views
Does shifting/scaling the IV surface relatively/absolutely introduce arbitrage?
I am fitting a volatility surface for vanilla call options. I do this by fitting low-degree polynomials (or cubic splines) along the strike dimension per maturity and then linearly interpolating ...
3
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1answer
131 views
Warrant volatility surface differs for each issuer
I have written a rudimentary program for fitting volatility surfaces for warrants of call and put options for the purpose of some basic scenario analysis. In my country, trading options privately in a ...
2
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0answers
120 views
How to interpolate on an implied volatility surface based on forward moneyness?
Should be a simple matter, but perhaps I'm misunderstanding something fundamentally. Look first at the below image of the BVOL surface from Bloomberg, to my understanding from looking at the white ...
2
votes
2answers
744 views
Why use moneyness as an axis on a volatility surface
A simple volatility surface might have X axis = strike, Y axis = expiry and Z axis = implied volatility. But in many papers I see them use moneyness instead of strike. I have two questions.
Why do ...
1
vote
1answer
139 views
Newbie question on volatility surface building
I am trying to build a prototype equity volatility surface for pricing european call options, as a way of learning a new programming language that I am looking at.
Is there anything wrong with the ...
0
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1answer
64 views
Is the moneyness of a barrier option based on the strike value or the barrier when mapping to a volatility surface?
Say you have a down and in put barrier option with a strike of 100 and barrier at 60. If the stock price sits at 90, which value would you use to determine the moneyness? Is the option in or out of ...
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0answers
164 views
Hedging : effect of not matching the term structure of skew
Let us assume that we construct a pure stochastic volatility model calibrated to the implied volatility surface, but that the model does not replicate accurately the observed term structure of the ...
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44 views
VolCube in RQuantLib
Working with RQuantLib for the first time and trying to understand how the Swaption Vol Cube is being built. I am looking at volCF2CubeK.R file and my general understanding is that we are collecting ...
1
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1answer
78 views
Non-Trivial ATM Volatility in Vol smile construction from Market data on US Equities
have 2 quick questions please help.
Constructing vol smile (OTM puts & OTM calls) from US equity market data. for Parabolas fit or other methods, the choice/method for ATM vol is non-trivial, ...
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0answers
96 views
$\frac{\partial C_{BS}}{\partial T}$ in local volatility derivation in terms of implied volatility
In Gatheral's book, in the derivation of local volatility in terms of implied volatility, we use the regular Dupire formula
$$
\frac{\partial C}{\partial T} = \frac{1}{2} \sigma^{2}K^{2}\frac{\partial^...
0
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1answer
206 views
Implied Volatility vs Actual Volatility Calculation
To build a term structure I need different volatilities; as I don't get them at every strike, I use interpolation technique to calculate the rest and plot. This is how I calculate the implied vols. ...
3
votes
1answer
159 views
LIBOR market model with stochastic volatility
I have read that there are 3 types of pricing models: local volatility, stochastic volatility and stochastic-local volatility models (LSV).
I am now looking at interest rates exotics pricing models ...
3
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2answers
564 views
Interpolation of FX Vol Surface from non-uniform strike vs tenor grid
TL;DR
I'm trying to fit a vol surface to market FX options quotes in order to build a local vol model to price with. Unlike listed options that typically have a nice rectangular grid of strikes and ...
2
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1answer
371 views
simulate volatility surface
Assuming I have a stochastic volatility model for an asset, if I wanted to use it for pricing I would proceed in the following way:
Use Euler discretization to simulate a sample path of the price and ...
3
votes
1answer
109 views
Options when there's no VolSurf - Emerging/Frontier Markets
Context:
Most emerging/frontier markets have no or very thinly traded volatility surfaces for their equity markets (single name and indices alike), furthermore, they usually have restrictions on Short-...
0
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1answer
114 views
Book/ Articles recommendation for Volatility models
I am looking for references on volatility models. I want to gain more insights on these models but have a little background as of now. Thus, looking for references that can pick the topic from basics ...
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68 views
How do we compute FX volatility for any given FX strike and time to maturity?
I want to implement a function which is passed two inputs: a strike and a time to maturity (which can be arbitrary within a specified range) and returns an FX volatility for this strike and maturity ...
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0answers
43 views
Terminology : definition of skew for a volatility smile
Is there a generally accepted definition of skew for volatility smiles? Is skew always defined as
$$
\frac{\partial{\widehat{\sigma}(K,T)}}{\partial{K}},
$$
where $\hat{\sigma}:[0;+\infty)\times[0;+\...
2
votes
1answer
256 views
FX convention and volatility calibration
In general, call/put options are quoted with respect to their Black-Scholes volatility.
In the FX market we define the risk reversal volatility as $$\sigma_{25-RR} = \sigma_{25-Call} - \sigma_{25-Put}...
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1answer
90 views
What is the use of implied volatility, the skewness and its surface? [closed]
I am leaning about options, saw various video lectures and read some literature including John C Hull. After a while I forgot where I started and where I am currently and I unable to connect dots. The ...
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0answers
52 views
What is the use of volatility surface and how do traders use it? [closed]
I was going through a use case where
At time $t_{t}$, the price of a call option is $C1$ and the price of underlying stock is $S1$
At time $t_{t+1}$ day, the price of a call option is $C2$ and the ...
3
votes
1answer
167 views
FX ATM-volatility quotes
Is the implied volatility ATM the same for a currency pair as for the inverted currency pair. I.e, can I expect the same volatility quote ATM for (for an instance) EURUSD as for USDEUR? And does this ...
3
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2answers
665 views
What does it mean to “calibrate vols”
As a beginner, it can sometimes be hard to discern what different terms and phrases mean in QF. I've heard multiple people such as academics and market-makers say things like "calibrate vols" or "...
0
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1answer
72 views
How to extrapolate shorter tenor from volatility surface?
Overnight(ON) volatility is the first input of a volatility surface, 1 weeks, 2 weeks and so on...
Say I have a volatility surface with ON expiry of 1 day, is there anyway to extrapolate volatility ...
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0answers
197 views
FX Smile Polynomial Fitting
I am unable to reproduce the example of FX polynomial smile interpolation on page 59 of the book FX Option Pricing by Iain Clark shown below. Consider just the ATM volatility as a specific case. I ...
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vote
1answer
476 views
Swaption Vol surface
¿How can I get the implied vol from a swaption when I have a vol surface with the maturity of the option and the tenor of the swap? For example I want to know what is the volatility for a swaption ...
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1answer
135 views
Volatility time weights calculation
I. Clark introduces the concept of volatility time in Foreign Exchange Option Pricing under which the implied volatility should be interpolated in time with the formula below:
where w is a weight ...
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1answer
162 views
Delta Skew Measure as volatility changes
I'm reading Trading Volatility (Colin Bennett) and there's a phrase regarding delta skew measure on p. 208 that I don't quite understand:
An example of skew measured by delta is [25 delta put - 25 ...
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2answers
81 views
calibration - negative call price [closed]
Im trying to calibrate a stochastic volatility model to market. I end with an MSE of 2-3 with approximately 500 quotes. Some out of the money options with call-price under 1 dollar ends up being ...
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0answers
70 views
Relationship between Calendar Spread Arbitrage and Probability Density Function (pdf)
We all know that the butterfly spread no-arbitrage condition can be expressed as an inequality restriction on the second-order derivative $\partial ^2C/\partial K^2 \geq 0$, which also means the ...
0
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1answer
84 views
Does the Heston calibration have to be done on an arbitrage-free surface?
In a similar way to local volatility?
I'm trying to calibrate a surface, but the results aren't convincing, so I was wondering if it was necessary to first use a way to regulate it (splines, ...
1
vote
1answer
98 views
Should we calculate the implied volatility surface with Put+Call?
We have Sungard data (MarketPlace8), but for nearby maturities the ask-bid of the calls are all the same when we are out of the money (call), so should we calculate the implied volatilities of calls ...
1
vote
1answer
94 views
Surface plots of the mean-variance efficient frontier
3d surface plots contain an X, Y and Z axis. For the mean-variance efficient frontier:
X axis is portfolio volatility ($\sigma_p$)
Y axis is portfolio expected return ($\mu_p$)
any ideas for what ...
3
votes
1answer
287 views
How to get the local volatility from IV surface?
I have to work on Dupire's model.
If I understand Fengler's paper well enough we can get the local volatility from implied volatility smoothed surface because if not it would look all bumpy like the ...
5
votes
1answer
574 views
Different volatility surface ( Local vol, Stochastic vol etc.)
Despite many questions about local and stochastic volatility available on this forum, i still have a few doubts left. Essentially I am seeking validation whether I am interpreting things correctly.
...
2
votes
1answer
180 views
FX smile extrapolation
Typically, 5 points data is available for smile construction : 25D RR, 25D SM, 10D RR, 10D SM and ATM. Questions: 1. How is a smooth smile curve generated with the help of these? 2. How is ...
2
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1answer
384 views
Smile Strangle and Market Strangle
What is the difference between Smile Strangle margin and Market Strangle Margin in fx derivative market? Is it just variation in convention or is there any mathematical relationship between the two?
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3answers
699 views
Why is volatility skew/smile for long term options flatter compare to short term options?
Volatility skew/smile for long term options is flatter compared to short term options, could someone help to explain why is that the case? Thanks
2
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0answers
118 views
Vol surface fitting to options on commodity futures
Trying to fit variants of SVI (Zeliade method, SSVI etc) to options on futures price data. One of the core ideas of the SVI parameterization is the absence of calendar spread arbitrage.
I think the ...
