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Old 13-08-2012, 04:18 PM   #8
stompk
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Join Date: Mar 2009
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Quote:
Originally Posted by monay View Post
That is very interesting. The Eygptian God Set of the original "set up" tricked God Osirus into laying in a jeweled box. Once his brother was in the box Set closed the lid and killed Osirus.
Profound response. Thanks!

Quote:
2. The volatility cube
Andrew Lesniewski
February 4, 2008

2 Options on LIBOR based instruments 2
2.1 Black’s model . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Valuation of caps and floors . . . . . . . . . . . . . . . . . . . . . 4
2.3 Valuation of swaptions . . . . . . . . . . . . . . . . . . . . . . . 6
3 Beyond Black’s model 7
3.1 Normal model . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Shifted lognormal model . . . . . . . . . . . . . . . . . . . . . . 8
3.3 The CEV model . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4 Stochastic volatility and the SABR model 10
4.1 Implied volatility . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Calibration of SABR . . . . . . . . . . . . . . . . . . . . . . . . 12
5 Building the vol cube 13
5.1 ATM swaption volatilities . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Stripping cap volatility . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Adding the third dimension . . . . . . . . . . . . . . . . . . . . . 14
http://www.math.nyu.edu/~alberts/spring07/Lecture2.pdf
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