Re: [Quantlib-users] Quantlib-Python Swaption Volatility Cube

[Giuseppe T. <tr...@gm...>]

Hi Greg,

The fact that you are getting "double" of what is expected makes me think
in the object otm_vol_spreads you don't have the spreads (that is, vol(ATM)
- vol(Strike)) but you have the actual vols or at least you have them for
the strike spread = 0. In that case indeed you would get exactly double the
true ATM vol because you would be summing the ATM vol from the vol matrix
with a "spread" that is not 0 but the ATM vol again.

In summary, check whether in otm_vol_spreads you have a column of Zeros for
the strike spread = 0.

Il Mer 27 Set 2023, 16:10 Gre...@ca... <
Gre...@ca...> ha scritto:

> Hi Aleksis,
>
>
>
> Thank you for confirming how the strike is determined for the vol cube, I
> was not positive if it should be relative to ATM or absolute. However,
> neither seem to produce the correct vol.
>
>
>
>
>
> When I plug my forward rate into the vol cube to represent ATM, I still
> get a different number. I wasn’t positive if it should be in percent or
> decimal, so I am showing both here. Interestingly, the vol cube is roughly
> double what I am expecting. Are you able to advise if I am doing something
> else wrong with building my cube?
>
>
>
> Thanks again,
>
> Greg
>
>
>
> *From:* Aleksis Ali Raza <ale...@go...>
> *Sent:* Wednesday, September 27, 2023 1:12 AM
> *To:* Gregory Zuroff (GQQZ) <Gre...@ca...>
> *Cc:* qua...@li...
> *Subject:* Re: [Quantlib-users] Quantlib-Python Swaption Volatility Cube
>
>
>
> hi, you seem to be enquiring for a 0 strike 3m10y swaption volatility. the
> third (rate) parameter in the volatility attribute is absolute strike
> level, not spread to atm.
>
>
>
> because the swaption vol matrix doesn’t include skew data while the
> volcube does, these would agree on ATM vols, but the cube would return a
> skew adjusted vol for an off-strike enquiry (as in your case) while the
> swaption matrix would just give the ATM vol in both cases.
>
>
>
> On Sep 27, 2023, at 1:49 AM, Gre...@ca... wrote:
>
>
>
> Hello,
>
>
>
> I am hoping you can help me better understand how to create a swaption vol
> cube using normal vols.
>
>
>
> I successfully create the ATM vol surface
>
>
>
> swaption_vol_matrix = ql.SwaptionVolatilityMatrix(
>
>     calendar,
>
>     bdc,
>
>     option_tenors,
>
>     swap_tenors,
>
>     ql.Matrix(normal_atm_vols),
>
>     day_counter,
>
>     False,
>
>     ql.Normal
>
> )
>
>
>
>
>
> I am able to confirm that the vols are as expected
>
> swaption_vol_matrix.volatility(today + ql.Period('3m'), ql.Period('10y'),
> 0)
>
> This volatility function returns the same vol for 3m10y that I supplied.
>
>
>
> I then format all of my swaption vols into a cube such that I have one row
> for each expiry X swap tenor combination and one column for each strike
> spread [-2.25, 2.25]
>
> swaptions.query('cusip.str.startswith("SR")').pivot(index=['expiry',
> 'tenor'], columns='strike', values='vol')
>
>
>
> I convert this dataframe to numpy such that I have a 2d numpy array of
> size (120, 19) which is (num expiries * num tenors, num strike spreads).
>
>
>
> These are SOFR swaptions, so I create an OvernightIndexedSwapIndex.
>
> base_index = ql.OvernightIndexedSwapIndex('SOFR', ql.Period('1d'), 2,
> ql.USDCurrency(), sofr_handle)
>
>
>
> Finally, I try to actually create the vol cube
>
>
>
> vol_cube = ql.SwaptionVolatilityStructureHandle(
>
>     ql.InterpolatedSwaptionVolatilityCube(
>
>         ql.SwaptionVolatilityStructureHandle(swaption_vol_matrix),
>
>         option_tenors,
>
>         swap_tenors,
>
>         strikes,
>
>         otm_vol_spreads,
>
>         base_index,
>
>         base_index,
>
>         False
>
>     )
>
> )
>
>
>
> However, when I check the same point on the cube that I confirmed on the
> ATM surface, the vol is wrong.
>
> vol_cube.volatility(today + ql.Period('3m'), ql.Period('10y'), 0)
>
>
>
>
>
> Could you please help me understand what I am doing wrong in creating my
> vol cube?
>
>
>
> Thanks,
> Greg
>
>
>
> *Gregory Zuroff, CFA*
>
> Fundamental Research Group
>
> *Direct:* (310) 996-9413
>
> *Email:* Gre...@ca...
>
> 11100 Santa Monica Blvd. Los Angeles, CA 90025
>
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>
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