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|Piterbarg's paper - calibration of instantaneous skew
This file demonstrates how instantaneous values are backed out from everage parameters. as mentioned in paper "Time to Smile" by Piterbarg, the avergae or effective parameters are calibrated to market prices of options. Using the formulas for effective parameters, the instantaeous parameters are then backed out in an iterative way.
Input parameters are taken from "Test results" section of Pierbarg's paper. Following is output of this program:
0.00000 1.00000 1.00000
1.00000 0.85000 0.84583
2.00000 0.71000 0.70672
3.00000 0.56000 0.55303
4.00000 0.41000 0.40841
5.00000 0.26000 0.24904
6.00000 0.10000 0.10079
7.00000 -0.05000 -0.06346
1st column : expiry
2nd column : instaneous skew mentioned in paper
3rd column : calibrated/calculated value of instanaeous skew
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570 0 bytes Octave Matlab http://www.quantcode.com/
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