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Enron Mail |
Cc: vince.kaminski@enron.com, vasant.shanbhogue@enron.com,
vladimir.gorny@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: vince.kaminski@enron.com, vasant.shanbhogue@enron.com, vladimir.gorny@enron.com X-From: Tanya Tamarchenko X-To: Naveen Andrews, Alex Huang X-cc: Vince J Kaminski, Vasant Shanbhogue, Vladimir Gorny X-bcc: X-Folder: \Vincent_Kaminski_Jun2001_6\Notes Folders\All documents X-Origin: Kaminski-V X-FileName: vkamins.nsf Following up on our discussions I implemented one method for creating forward forward curve from implied vol curve. I sorted out 12 forward curves from an original forward vol curve, each of 12 curves corresponding to certain month. Then I fitted each of 12 curves with a function: y=a+A/power(x+b, beta) I figured out that when beta is from (0, .5) the above function is suitable for performing our bootstrapping routine of deriving ff vols from implied, because: y(x+t) * y(x+t) * (x+t) - y(x) * y(x) * tx< 0 for all x, t. (I have to double check on this again. Also when beta<0.5 there are some combinations of parameters a, A, b, beta for which above equality holds). Even with restriction on beta this class of functions represents quite a variety of shapes. Below you see the example of fitting as well as the example of ff vol curve constructed from implied vol curve for NG. I'll try this for power as well. Any comments?
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