Re: [Quantlib-dev] Exception in Bond::cleanPriceFromZSpread(...)

[Luca B. <luc...@gm...>]

On Wed, Jul 16, 2008 at 11:01 AM, Luigi Ballabio
<lui...@gm...> wrote:
> On Tue, 2008-07-15 at 12:21 -0400, Luca Billi wrote:
>> the following code throws an exception when
>> bond.cleanPriceFromZSpread(...) is called.
>> The issue comes from the fact that, in this example, there's no
>> settlement adjustment, so the function
>> ZeroSpreadedTermStructure::zeroYieldImpl(Time t) needs to be evaluated
>> for t=0.
>>
>> I got around this issue by adding the seemingly harmless
>>
>> if(t==0.) return 1.;
>>
>> at line 86 of file ql/termstructures/yield/zeroyieldstructure.hpp
>>
>> Anyone has a better idea?
>
> I'd rather fix ZeroSpreadedTermStructure::zeroYieldImpl so that it works
> at t=0. Did you happen to investigate what goes wrong inside there?
>
> Later,
>        Luigi
>
>

The exception is thrown by InterestRate::equivalentRate(), which, I
think, is called to convert the yield+spread to continuous
compounding.

I think the exception is legitimate: interest rates on zero intervals
are meaningless, whereas discount factors are not:

exp(-r*t) = 1 for t=0, regardless of r.

That's why I think that, when t=0, it's ok to avoid calling
ZeroSpreadedTermStructure::zeroYieldImpl(), which operates in the
yield space and is not required when t=0, and return immediatly 1.

Luca