Re: [Quantlib-users] Missing sabr interpolation for capfloor vols in both QuantLib and ORE

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

Hi Ioannis,

I agree with you, SABR is a popular method to model volatility smiles,
especially for rates and we should support it for both swaptions and
cap / floors. It's on my personal short list for sure (since a while!)
and also loosely on the ORE roadmap, clients keep asking for this.

Actually, it is kind of supported already in QuantExt because you can
use SABRInteprolation with the StrippedOptionletAdapter (the version
of this class in QuantExt). I never tried this though, and we don't
expose this in the OREData curve builder, for a reason:

I think there is more work to do, since when you model a whole cap
surface or swaption cube with SABR you want to make sure that the SABR
parameters vary smoothly for different expiries (and swap lengths),
otherwise your interpolated vols might be useless.

We also definitely want to look into arbitrage-free flavours of SABR
like we started here

https://github.com/OpenSourceRisk/Engine/blob/master/QuantExt/qle/models/normalsabr.hpp#L37

Anyway, we'll keep you posted.

Thanks
Peter







On Thu, 27 Jul 2023 at 15:11, Ioannis Rigopoulos <qua...@de...> wrote:
>
> Hi Peter,
>
> I am asking you directly regarding my recent QuantLib inquiry below
> because I saw your name as being the last contributor to
> strippedoptionletadapter.cpp and I have not received any response yet.
>
> Since you also are an expert in the ORE library, I would also like to
> ask you if that library supports the SABR calibration of capfloors.
>
> Many thanks!
>
> Ioannis
>
> On 7/21/2023 9:25 PM, Ioannis Rigopoulos wrote:
> > Does anybody know why sabr interpolation of capfloor volatilities
> > seems to be unsupported in both quantlib and ore although it is
> > apparently common practice in the industry?
> >
> > More specifically, in strippedoptionletadapter.cpp there is a
> > commented out code segment starting with "strikeInterpolations_[i] =
> > ext::shared_ptr<SABRInterpolation>(...)".
> >
> > Does anybody know why this segment has been commented out?
> >
> >
>
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