Finding Swaption Volatility Quotes for SABR-LMM Calibration

Summary

The document explains how to obtain strike-dependent volatility inputs for calibrating a SABR-LMM interest-rate model when at-the-money swaption volatilities are the only quotes a researcher has found. It points to Bloomberg and similar market-data services as possible sources of in-the-money and out-of-the-money volatility or price quotes across expiry and tenor combinations.

For the most liquid currencies, USD and EUR, quoted straddles and collars at several basis-point offsets from at-the-money-forward levels can be used to infer implied volatilities at different strikes. Those strike-specific volatilities can support calibration of SABR parameters, followed by calibration of the LMM component. The answer gives a practical data-discovery route, but does not provide terminal identifiers, extraction steps, pricing details, or a worked calibration. Availability depends on the data service and subscription, and the suggested currency coverage is limited to the most liquid markets.

Key ideas

• Bloomberg services may provide in-the-money and out-of-the-money swaption volatility or price quotes across expiry and tenor pairs.
• Straddle and collar quotes at specified offsets from at-the-money-forward levels can help infer strike-specific implied volatilities.
• Strike-dependent volatility observations can be used to calibrate SABR parameters before calibrating the LMM component.
• Quote availability depends on the subscribed market-data service, and the discussion focuses on USD and EUR.

Tags

# Calibrate SABR-LMM using only data from Bloomberg?


# Calibrate SABR-LMM using only data from Bloomberg?












I'm exploring the SABR-LMM model. In particular, have been trying to study the effect of the parameters and their time evolution.

However, the data seems to be a major issue here. Prices for caps/floors or swaptions are hard to find. For instance, I have only been able to find ATM swaption vols.

Is it possible to do any calibration of this model using only Bloomberg data (or any database academics typically have access to?)

Thanks.

## Answer by Kiann (score 1, accepted)

https://quant.stackexchange.com/a/41984

Bloomberg (and depending on the service one subscribes to) has ITM/OTM volatility quotes and price quotes for a wide-range of expiry/tenor pairs.

The most liquid currencies are USD, and EUR. You should be able to find quotes named straddles and collars (risk reversals and butterflies in the FX world) that relate to 50, 100, 200 and 400bps relative to ATMF. These allow you to extract the implied vols at different strikes, from which to calibrate the SABR parameters and then the LMM model.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.