Today in the late afternoon, I had the privilege to talk (as announced in earlier posts) at the Johannes Kepler symposium, and I really enjoyed it. A very heterogeneous audience of maybe 60 persons - academic staff, bank professionals, colleagues, consultanta, interested high school students, lawyers, personal friends, students (in alphabetical order) - gave me a good time and a few challenging discusiions.
When valuating the swap, I tried to use only publicly available data. I estimated volatilities from historical data, obtained Libor rates from the Federal Bank of St. Louis and exchange rates from the Austian National Bank.
The historical volatility (one year moving window, no fading memory) of the EUR CHF exchange rate had lowest values around 2 percent and highest values of 16%.
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| FX volatility estimated from historical data. |
Observe that the collapse of Lehman Brothers led to not so high volatilities as the EUR crisis did. From the beginning of the Swiss National Bank intervention to support a EUR=1.2 CHF rate, volatilites became very low again.
