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Peter Caspers

Hi Miro,

yes you are correct, to calibrate both a constant reversion an a stepwise volatility you will need two different swaptions with the same expiry to satisfy the requirements of the LM optimiser. And yes, maybe we should add a check and throw an error message that is clearer than the one coming from the optimiser itself.

However, ORE also allows to use an exogenous mean reversion and only bootstrap the model volatility, in fact this is the way the examples calibrate their LGM models and in a sense is also a more natural approach: Since the mean reversion can be seen as a parameter determining the inter-temporal correlation structure of the model and Bermudan swaptions are sensitive to this (while Europeans are not), one can argue that the reversion should be implied from Bermudan swaption premiums. If no information on Bermudan swaption premiums is available, the reversion is a parameter that is not easy to determine in a reasonable way in my opinion.

We very much appreciate contributions to the ORE project, so feel free to open a ticket on github or / and provide a solution for the issues you observe.

Best Regards

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