What is calibration in valuation/pricing process
What is calibration in valuation/pricing process?
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While a quant has to value an exotic contract then he looks to the exchange-traded vanillas to provide him some insight in what volatility to utilize. It is calibration.
Assume Morgan Guaranty, Ltd. is quoting swap rates as follows: 7.75 - 8.10 percent annually against six-month dollar LIBOR for dollars and 11.25 - 11.65 percent annually against six-month dollar LIBOR for British pound sterling. At what rates will Morgan Gua
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