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If i understand this correctly, you want to be able to infer a future volatility surface, given the current simulation parameters you have. What you're essentially trying to do it include the modelling of forward vol/skew in your MC. Getting the forward vol surface vaguely correct is quite important to price some types of derivative - i.e. anything that has ...


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I think your list covers the approach quite well. What I would add to point 3(i) is that there is a (generally positive) spread of implied vols to realized vols. In this case what might be useful is to combine point 2 with point 3(i) i.e. ascertain the implied/realized spread from the proxy market and apply that to the realized vol obtained from your ...


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Volatility surface explains the variance evenly spread across the duration, starting from effective time when it is published. For 8 hours expiry, referring to ON volatility is enough. Next, calculate the duration by taking the difference of the expiry of ON volatility and the effective time of the surface. Usually surface will be expiring at GMT14 and 15 on ...


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