question

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YERAY SOSA ALONSO avatar image
17 ●3 ●5 ●9

FX volatility smile

Hi,

I have a doubt regarding the volatility smile that can be retrieved through the quantitative-analytics-curves-and-surfaces/v1/surfaces endpoint. I am making the http request with this body:

{
  "universe": [
    {
      "underlyingType": "Fx",
      "surfaceTag": "FxVol-GBPEUR",
      "underlyingDefinition": {
        "fxCrossCode": "GBPEUR"
      },
      "surfaceLayout": {
        "format": "Matrix"
      },
      "surfaceParameters": {
        "xAxis": "Date",
        "yAxis": "Strike",
        "calculationDate": "2018-08-20T00:00:00Z",
        "returnAtm": true
      }
    }
  ]
}

When I change the fxCrossCode to EURGBP, since the strikes of the response are very similar, I expected to get the same volatility data, but it didn't happen. I realized that the strikes are not exactly the same when fxCrossCode is changed, so I plotted the smile for the 02/08/2018 expiry, and this is the result.

1627300393107.png

I would like to understand why these smiles are different. Thanks in advance.

rdp-apiapirefinitiv-data-platformforexvolatility
1627300393107.png (25.4 KiB)
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1 Answer

Upvote
Alex Putkov.1 avatar image
39.2k ●75 ●11 ●27

@YERAY SOSA ALONSO

I have raised a case with Refinitiv Helpdesk on your behalf for this issue. For your reference the case number is 10125413.
The root cause of the problem will need to be confirmed by the support team. But as I see it, the service appears to return incorrect values for the strikes when inverse currency pair is used in the request. For GBPEUR currency pair the values of the strikes should be greater than 1. It seems that the service instead returns the strikes for regular EURGBP pair, which are less than 1. The shape of the smile returned for GBPEUR looks correct to me. It should be a mirror image of the smile for EURGBP. But it should be plotted against the strikes for GBPEUR, not against the strikes for EURGBP. And if one were to inverse the strikes for GBPEUR and plot the corresponding volatilities against inverted strikes, then the resulting curve should match the curve returned for EURGBP.
Refinitiv Support team will investigate the issue. They will reach out to you, should they have any questions, and to keep you informed of their progress.

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YERAY SOSA ALONSO avatar image YERAY SOSA ALONSO
Thanks for the support, I look forward to hearing from you.
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