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Recently the SABR model has been developed to manage the option smile which is observed in derivatives markets. Typically, calibration of such models is straightforward as there is adequate data available for robust extraction of the parameters required asinputs to the model. The paper considers calibration of the model in situations where input data is(More)
input is perturbed (the method is not local). In Hagan and West [2006] we introduced two new interpolation methods—the monotone convex method and the minimal method. In this paper we will review the monotone convex method and highlight why this method has a very high pedigree in terms of the construction quality criteria that one should be interested in.(More)
1. VaR cannot be used for calculating diversification If f is a risk measure, the diversification benefit of aggregating portfolio's A and B is defined to be (1) f (A) + f (B) − f (A + B) When using full revaluation VaR as the methodology for computing a risk measure, its quite possible to get negative diversification. Pathological examples are possible,(More)
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