How To Fix RY489 - Cannot determine volatility with vanna-volga method

RY489 - Overview

• Message type: E = Error

• Message class: RY - Messages for RM Basis

• Message number: 489

• Message text: Cannot determine volatility with vanna-volga method

What causes this issue?

You are using a volatility type with moneyness definition <LS>Option
Delta</> and you have set the volatility smile construction method to
<LS>Vanna-Volga Approximation</> in the evaluation type.
The system was not able to determine a volatility to be used in the
option valuation. This can have several possible reasons:
No market data was found for one of the required volatilities used in
the smile construction. The required market data is:
25% delta call volatility (moneyness value 0.25)
At-the-money volatility (moneyness value 0.5)
25% delta put volatility (moneyness value 0.75 or -0.25)
Numerical error in the vanna-volga equation due to invalid input

System Response

The system tries using the at-the-money-volatility. If it cannot find
the at-the-money volatility, then, instead of using the central
volatility database, it tries to find a volatility in the
underlying-specific volatility database without moneyness. As a
consequence, the volatility smile effect is ignored.

How to fix this error?

Check the market data for completeness.

Procedure for System Administrators

The system issues an error message and will not allow you to continue with this transaction until the error is resolved.

Error message extract from SAP system. Copyright SAP SE.

Smart SAP Assistant

• What is the cause and solution for SAP error message RY489 - Cannot determine volatility with vanna-volga method ?

  The SAP error message RY489, which states "Cannot determine volatility with vanna-volga method," typically occurs in the context of financial derivatives pricing, particularly when using the Vanna-Volga method for calculating implied volatility. This method is often used for pricing options, especially in foreign exchange markets.
  
  Cause:
  The error can arise due to several reasons:
  
  
  Missing Market Data: The Vanna-Volga method requires specific market data, such as spot rates, forward rates, and volatility surfaces. If any of this data is missing or incorrectly configured, the calculation cannot proceed.
  
  
  Inconsistent Data: If the input data (like strikes, maturities, or market quotes) is inconsistent or does not align with the expected format, the method may fail to compute the volatility.
  
  
  Model Parameters: The parameters used in the Vanna-Volga model may not be set correctly. This includes the calibration of the model to the market data.
  
  
  
  Configuration Issues: There may be issues with the configuration of the financial instruments or