Re: [Quantlib-users] RFR option matters

[Peter C. <pca...@gm...>]

In our code the vol type "normal / lognormal" and shift size for
lognormal vols will depend on the vol term structure you feed into the
coupon pricer. I think it's fine to combine the linear vol decay
formula with any vol type / shift, even if the inspiration for that
formula comes from Ho-Lee.

In actual calculations we always use normal vols. Glad to hear that
this is in line with BBG and backed up by Mr Mercurio, what more can
you wish for? :-)

On Wed, 8 Dec 2021 at 19:55, R M <rm...@gm...> wrote:
>
> I spoke with Mercurio today. Bloomberg are implementing adjustments based on a linear vol decay of normal rates. This is probably what we will go for as well, at least for automated things.
>
> Get Outlook for iOS
> ________________________________
> From: Ryan McCrickerd <rmc...@ch...>
> Sent: Tuesday, December 7, 2021 8:24:32 PM
> To: Peter Caspers <pca...@gm...>
> Cc: QuantLib users <qua...@li...>
> Subject: Re: [Quantlib-users] RFR option matters
>
> That’s great, thanks.
>
> One thing I am a little confused by is that in section 6.3 of Lyashenko & Mercurio (cited in your code) they specify a log normal / black rate, which is not actually consistent with a piecewise linear vol decay. This decay is derived in appendix A instead from a Gaussian short rate model, which produces shifted log normal dynamics for forward/backward rates. But the shift is so large that these are practically Gaussian, like the short rate.
>
> So do you plan on using BlackOvernightIndexedCouponPricer with a (very) shifted rate, or would it make more sense to define a NormalOvernightIndexedCouponPricer?
>
> Regards,
> Ryan
>
> Get Outlook for iOS
> ________________________________
> From: Peter Caspers <pca...@gm...>
> Sent: Tuesday, December 7, 2021 8:40:21 AM
> To: R M <rm...@gm...>
> Cc: QuantLib users <qua...@li...>
> Subject: Re: [Quantlib-users] RFR option matters
>
> Hi Ryan,
>
> we started with this
>
> https://urldefense.com/v3/__https://github.com/OpenSourceRisk/Engine/blob/master/QuantExt/qle/cashflows/blackovernightindexedcouponpricer.cpp*L43__;Iw!!EbLleU--iSTUgtNy!-cgw--C4C8zcw1uAbQpSSeqg_yWQ-D4JcDLjU7lLG7-2ngiczr2x0EDsQq-eJJLip4D9--BJ$ [github[.]com]
>
> However I am sure this will require amendments going forward as a
> "market formula" for RFR Caps evolves.
>
> Thanks
> Peter
>
> On Mon, 22 Nov 2021 at 15:47, R M <rm...@gm...> wrote:
> >
> > Hello QuantLib users,
> >
> > My employer is going through the rigmarole of sourcing RFR option data (e.g. SONIA cap/floor/swaption premiums/vols).
> >
> > It always amazes me that when you ask a data provider for details on the instrument to which a data point corresponds, you don't get a response like "yes, that information is clearly fundamental, here you go". It's more like "everyone knows". But recently we had one provider tell us that their RFR cap/floor data relates to cap/floors that include the first period, and another told us that theirs don't. It also transpired that one provider was using middle-of-period time-to-maturities for mapping cap/floor premiums to vols, which just seems barbaric to me. (I guess this is to blame for that.)
> >
> > I don't think QL has started implementing vol surface construction from RFR option data (?), for which these issues are... fundamental. But have discussions on this begun? If not, happy to open a GitHub issue and continue this there.
> >
> > Regards,
> > Ryan
> > _______________________________________________
> > QuantLib-users mailing list
> > Qua...@li...
> > https://urldefense.com/v3/__https://lists.sourceforge.net/lists/listinfo/quantlib-users__;!!EbLleU--iSTUgtNy!-cgw--C4C8zcw1uAbQpSSeqg_yWQ-D4JcDLjU7lLG7-2ngiczr2x0EDsQq-eJJLip7Mdv2tq$ [lists[.]sourceforge[.]net]
>
>
> _______________________________________________
> QuantLib-users mailing list
> Qua...@li...
> https://urldefense.com/v3/__https://lists.sourceforge.net/lists/listinfo/quantlib-users__;!!EbLleU--iSTUgtNy!-cgw--C4C8zcw1uAbQpSSeqg_yWQ-D4JcDLjU7lLG7-2ngiczr2x0EDsQq-eJJLip7Mdv2tq$ [lists[.]sourceforge[.]net]
>
> Disclaimer
>
> Chatham Financial Europe, Ltd is authorised and regulated by the Financial Conduct Authority of the United Kingdom with reference number 197251.
>
> The privacy and security of your personal data is important to us. Your details may be stored in our client and contacts database for the purpose of sending you business communications, updates, newsletters, event invitations and other information which we think is relevant to you. If you would like further information about the types of personal data we hold about you, our legal grounds for doing so, how we collect and protect your personal data and your rights in relation to such data, please see Chatham's Privacy Policy.
>
> The information contained in this e-mail is confidential and is only for the use of the intended recipient. If you are not the intended recipient, any further copying, use, distribution or disclosure of the contents of this e-mail is strictly prohibited and may be unlawful. If you have received this e-mail in error, please notify the sender immediately and permanently expunge the original e-mail, and any electronic copies, from your system and destroy any hard copy versions of the e-mail. Where the content of this e-mail is personal or otherwise unconnected with our or our clients' business, we accept no responsibility or liability for such content. Telephone calls may be monitored and/or recorded.