Timeline for Can you use a forward rate curve to infer the SABR model parameters?
Current License: CC BY-SA 4.0
14 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| Dec 8, 2024 at 14:20 | history | edited | AKdemy | edited tags | |
| Apr 14, 2023 at 23:09 | vote | accept | FledglingQuant | ||
| Apr 11, 2023 at 7:31 | answer | added | AKdemy | timeline score: 1 | |
| Apr 10, 2023 at 20:32 | comment | added | FledglingQuant | Ah I see. That is something I did not know, and sounds like quite an oversight. Thanks for your insight and responses. | |
| Apr 10, 2023 at 20:00 | comment | added | AKdemy | I see. Sounds like an interesting question / topic but I would be quite surprised if that works. Option implied Vols frequently exhibit very pronounced smiles (IVOL for far OTM options are significantly larger compared to ATM), meaning they imply different vol processes. In other words, for each strike and maturity there is a different implied volatility which can be interpreted as the market’s expectation of future volatility between today and the maturity date in the scenario implied by the strike. | |
| Apr 10, 2023 at 19:48 | comment | added | FledglingQuant | You are not missing the obvious, as I don’t think I was clear in my original post. I am not trying to improve the way the parameters are inferred, I am just using the SABR parameters as an example of the method (it’s a pure stats diss) and wasn’t entirely sure if the resulting parameters would be the same as those obtained from fitting to option prices. | |
| Apr 10, 2023 at 19:37 | comment | added | AKdemy | Ok, maybe I am missing the obvious but why not look at actual options which are quoted and traded products as opposed to using a convoluted method that might get you close to something that is readily available in the first place? | |
| Apr 10, 2023 at 19:20 | comment | added | FledglingQuant | I have verified the scheme by forward simulating the SDE system and feeding a thinned set of forward rates into the scheme. The posterior means of the Parameters seem to be very close to the true values used to forward simulate. So, I am basically asking if would be valid to use these values to input into the formulas for pricing under SABR. I.e getting the 3M LIBOR curve and doing a similar process | |
| Apr 10, 2023 at 19:17 | comment | added | FledglingQuant | Thanks for your response. Given observations of the forward rate, the MCMC method I'm using can simulate the most likely latent volatility process values that would cause those observations and then infer the parameters from that. Very similar to this: arxiv.org/abs/2009.05318 | |
| Apr 10, 2023 at 16:18 | comment | added | AKdemy | Yes, but how would you infer the parameters of a vol surface from a forward? As shown here, the parameters control the height, skew and smile of the vol surface. | |
| Apr 10, 2023 at 16:13 | comment | added | FledglingQuant | I meant using the forward curve to infer the parameters and then use the usual methods of pricing once you have the parameters | |
| Apr 10, 2023 at 15:55 | comment | added | AKdemy | How exactly would you use a forward to imply an implied vol smile? | |
| S Apr 10, 2023 at 15:40 | review | First questions | |||
| Apr 10, 2023 at 17:30 | |||||
| S Apr 10, 2023 at 15:40 | history | asked | FledglingQuant | CC BY-SA 4.0 |