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2

Pricing of vanillas is basically interpolation of existing (or past) quotes. It is easier to interpolate in implied volatility space , than in price space. Reasons are we need to interpolate in multidimensional space (maturity, strike,forward, etc) and satisfy non-arbitrage conditions. Using Black-scholes formula is convenient mapping which would also ...


3

If you want to compare quotes across markets or over time it can be useful to use fixed points: eg the 110%/90% points to compute skew or the +/-25 delta points for risk-reversal. You can't rely on quotes existing at exactly those points so you would want to interpolate.


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The problem is that you are not pricing the same thing, and for two reasons: The vanilla instruments you are pricing should start on spot date and have a maturity with that start as reference The frequency of the fixed leg on the OIS swap should be annual. If you change you code to: print('TENOR \t PV \t fairrate% \t fairrate% + fairspread%') calendar = ql....


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