CapeTools Volatility Curves
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In total there are 10 functions present within the CapeTools Volatility Curves category of functions.
General Description
These functions create volatility curves (or grids). These curves (whether one-dimensional or two-dimensional) can utilise a variety of interpolation methodologies in order to acquire a volatility value from the curve.
The following interest rate volatility curves can also serve as input to the interest rate risk engine (CapeTools IR Risk) in order to compute VEGA and VOLGA risk parameters for an interest rate structure :
The ATMVolMatrix object only models At-The-Money volatility. You provide a matrix of option start - underlying length combinations.
The ExpiryKVolMatrix object can model interst rate smiles, however it does this for only one underlying instrument (ie - volatility structure on caps/floors/swaptions where the underlying length (ie - 5Y swap rate) is the same for all points). You provide a matrix of option start - option strike combinations.
A single SABRVolCurve object can model the entire volatilities for all interest rate options within an interst rate market. Thus one object can model the smiles for all caps/floors/swaptions (regardless of instrument length, 3M, 5Y, 10Y or option starting times).
An alternative to the SABRVolCurve object would be a three-dimensional object that would have Option-Length, Underlying-Length and Strike as the three dimensions of the cube. However such an object (although would capture the volatility smile) would not be able to model the true movement of the volatility smile. It is also a difficult object to work with.
You can also use the EquitySABRVolCurve function to model equity type volatility curves via the SABR model.
Function list.
- ATMVolMatrix - Creates a ATM volatility matrix.
- EquityExpiryKVolMatrix - Creates an equity/FX/commodity volatility matrix.
- EquitySABRVolCurve - Creates an equity/FX/commodity SABR object to model the dynamics of the volatility curve (smile).
- ExpiryKVolMatrix - Creates a volatility matrix.
- FlatVolCurve - Creates a vol curve from a single input.
- FlatVolFXCorr - Creates a Volatility-FX Correlation object from a single input.
- SABRVolCurve - Creates a SABR curve to model the dynamics of the volatility curve (smile).
- VectorVolCurve - Creates a 2 column curve of vols where the first column is option maturities (in Tenors), the 2nd, volatility values.
- VectorVolFXCorr - Creates a 2 column curve of Volatility-FX correlations where the first column is Forward dates (in Tenors), the 2nd column, correlation values.
- VolFXCorrMatrix - Creates a Volatility-FX correlation matrix.
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