[Quantlib-dev] callable bonds & bond options vs swaptions?

[Chris K. <chr...@ya...>]

Hi,

the setup for callable bonds is rather different from swaptions, and maybe it can be improved.

Swaption (const boost::shared_ptr< VanillaSwap > &swap, const boost::shared_ptr< Exercise > &exercise, Settlement::Type delivery=Settlement::Physical)

... the Swaption takes a Swap and some data.  Swaption is descendant of Option.  A callable bond:

CallableFixedRateBond (Natural settlementDays, Real faceAmount, const Schedule &schedule, const std::vector< Rate > &coupons, const DayCounter &accrualDayCounter, BusinessDayConvention paymentConvention=Following, Real redemption=100.0, const Date &issueDate=Date(), const CallabilitySchedule &putCallSchedule=CallabilitySchedule())

... has a complete description and is a descendant of Bond, via CallableBond, not Option.

Now, granted, a swaption is an option on a swap and nothing happens before exercise whereas a bond may be paying coupons.  However, it would be more parsimonious to copy the swaption definition idea for callable bonds and bond options, e.g.

CallableBond(const boost::shared_ptr< Bond > &bond, const CallabilitySchedule &putCallSchedule=CallabilitySchedule())
... descendant of Bond - and can define Puttable and Callable versions from the Callability vector. N.B. a CallabilitySchedule is a typedef for std::vector<boost::shared_ptr< Callability > >

BondOption(const boost::shared_ptr< Bond > &bond, const CallabilitySchedule &putCallSchedule=CallabilitySchedule(), Settlement::Type delivery=Settlement::Physical)
... descendant of Option.  N.B. we need a Callability not an Exercise because we need the strike (in a swaption the strike is the fixed rate in the swap).

Any comments?  This approach could be applied to ConvertibleBond as well.

Regards,
Chris