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Constructing Daily Term Structure

Quantitative Finance Asked on December 6, 2020

I am very new to QuantLib and am trying to do Swaption Model calibration following the example here:http://gouthamanbalaraman.com/blog/short-interest-rate-model-calibration-quantlib.html

Appreciate if someone could help me with the following question:

  1. what is model behind the implied volatility data as the input for calibration? On bloomberg there are black model and normal model. I am thinking is black model as the vol for normal model is generally much smaller.

  2. How to feed in the term structure from the market and do the interpolation? Using Bloomberg I can get the discount factors and the zero rate for 1 week up to 50 years. How should I provide this data into the YieldTermStructureHandle function to construct my term structure?

One Answer

  1. You are correct. By default QuantLib expects black vols (lognormal). In the example you sent, that would be approx. 11%.

  2. In that example, a flat forward rate is being used to build a curve object. Alternatively, you can feed market instruments (deposites, fras, swaps) to bootstrap a curve. You can check out a simple example in the post link or check out the excelent QuantLib cookbook for examples of building curves

Answered by David Duarte on December 6, 2020

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