Explicit Caplet Implied Volatilities for Quadratic Term-Structure Models
arXiv:2212.04425
Abstract
We derive an explicit asymptotic approximation for implied volatilities of caplets under the assumption that the short-rate is described by a generic quadratic term-structure model. In addition to providing an asymptotic accuracy result, we perform experiments in order to gauge the numerical accuracy of our approximation.
22 pages, 4 figures. arXiv admin note: substantial text overlap with arXiv:2106.04518