Reply To: Formula Volatility Surface with no Gridpoint Rows

#8808
Israr Ahmed
Keymaster

OK.. so it seems that the Composite Vol Curve without gridpoints will take the gridpoint structure of the FIRST Vol Curve that’s attached to it. That essentially works as replace_curve_dseq(1).

So this is really good. This FIRST Vol Curve doesn’t need to have any other functional role apart from setting the granularity.

In my case I created this 1st Vol Curve at Daily Granularity.
The 2nd and 3rd Vol Curves are Monthly Granularity.

I then created a Composite Formula that uses the 2nd and 3rd Vol Curve ( monthly granularity ) together with Time Variable which now allows me to get a Daily Granularity output without having any Daily Gridpoints.

The Vega’s show up on the parent 2nd and 3rd Monthly Granularity Vol Curve.

So far the formula looks like as per below and its working as a POC :

VOL_MONTH = vol(2);
VOL_CASH = vol(3);
T = vol_date ;
t = DATE_Today();

VOL_D = sqrt( ( ( (T-t-1 )/365 )*( VOL_MONTH)*(VOL_MONTH) + ( 1/365)*( VOL_CASH )*(VOL_CASH) ) /( ( T – t )/365.0) ) ;

vol_result = VOL_D;

This will probably get a bit more complex ( date resolving for option expiry dates ) .

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