Vanna-Volga Method for Normal Volatilities

@article{Perederiy2018VannaVolgaMF,
  title={Vanna-Volga Method for Normal Volatilities},
  author={V. Perederiy},
  journal={Risk Management \& Analysis in Financial Institutions eJournal},
  year={2018}
}
  • V. Perederiy
  • Published 2018
  • Economics, Mathematics
  • Risk Management & Analysis in Financial Institutions eJournal
Vanna-volga is a popular method for interpolation/extrapolation of volatility smiles. The technique is widely used in the FX markets context, due to its ability to consistently construct the entire lognormal smile using only three lognormal market quotes. However, the derivation of vanna-volga method itself is free of distributional assumptions. To this end, it is surprising there have been actually no attempts to apply the method to Normal volatilities which are the current standard for… Expand
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