Implied/Realised Vol ratio for negative rates?
Implied/Realised Vol ratio for negative rates?
Loading saved threads...
oronimbus · External communityPost link
External question — Quantitative Finance Stack Exchange
Author: oronimbus
Original post: https://quant.stackexchange.com/questions/50882
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
I'm trying to calculate the implied vs realised vol ratio for different swaptions across major currencies. This works fine for the likes of USD and GBP as rates are positive. However I'm struggling with adapting this to EUR. For the implied vol data I can directly use the quoted normal ATM bpVol by a broker. For the realised volatility however, I'm calculating the basis point equivalent using
$\sigma_N = \sigma_R \cdot \sqrt{252} \cdot F_{ATM}$
where
$\sigma_R$
is just the stdev over some period. For the standard deviation I can either use daily percentage returns or absolute differences as log-returns obviously won't work.
Now every time rates start to approach zero (and dip below) the I/R-vol ratio starts to go haywire:
My questions are:
is my approach wrong and
is there any other way to get a bpVol equivalent for realised volatility? The only other solution that came
to mind is using shifted Black volatilities (I need to check if I can
get those...) and %-realised vol instead.
Thanks
Quote
Report
VolGuy · External communityPost link
External answer — Quantitative Finance Stack Exchange
Author: VolGuy
Original post: https://quant.stackexchange.com/a/57631
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
realized bp vol is simply standard deviation of abs changes in yields over the horizon you are looking at. Level of rates won't matter.
Quote
Report
Post Reply
Checking account access…