Re: [Quantlib-dev] Jamshidian engine with start delay

[Ferdinando A. <na...@am...>]

I'm ok with your extension provided that the new values collapse back to
the old ones (with a reasonable tolerance) in the case of expiry date being
equal the value date.
Is the data you've posted related to this case?

It's a while now I do not work for a vol desk, but I would never
underestimate the huge difference of analytic vs numerical methods when it
comes to calibration.

This said I would also add that I'm always amazed how poor the production
setup is, even in very sophisticated banks. Old models stick around for
very long time, just because of the huge effort required to update them in
production systems. The multi-curve framework updates I've seen so far
rival with Mary Shelley's Frankenstein approach


On Sat, May 11, 2013 at 1:37 PM, Peter Caspers <pca...@gm...>wrote:

>  Hello,
>
> in the JamshidianSwaptionEngine the option expiry date and the value date
> of the underlying swap are handled a bit simplified assuming both dates
> equal (see the warning in the code). Though the impact is usually not very
> big we might want to improve this detail in the library ? See below for a
> possible approach. Thank you Sebastian for our discussions on the topic.
>
> Aside I would be interested whether the Jamshidian method is still in use
> for model calibration in the world of multi curve enhanced models (where by
> enhanced I mean something simple like a static spread correction) because I
> believe the generalization of the method to this setting is not
> straightforward. Also I feel that numerical integration does nearly a just
> as efficient and accurate job and it directly allows for multiple curve
> computations. Or do you ignore multi curve in the calibration phase and
> only adjust the curves for the actual pricing ?
>
> Back to Jamshidian and the start delay. Some theoretical background and
> numerical examples can be found here
>
> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2246054
>
> A possible implementation goes as follows. First we need to provide an
> extended zerobond option method, which we can add to AffineModel in
> model.hpp
>
>
> https://github.com/pcaspers/quantlib/commit/e16b4ea5ffbfe33bd6acd0ee6cb3ecd8a43f72a4
> <https://github.com/pcaspers/quantlib/commit/b65c50a1147d6ea386b33e4e09b09901200d71ac>
> The default implementation uses the same simplification as mentioned above
> ignoring the bond start delay. To improve the pricing in the
> JamshidianEngine we have to overwrite this method in the model
> implementations for which we want it. For the Hull White model I did it here
>
>
> https://github.com/pcaspers/quantlib/commit/e8b5912cac2e236fe59a885e8cd1e2ed9243cc47
>
> Finally we have to modify the Jamshidian engine a bit
>
>
> https://github.com/pcaspers/quantlib/commit/019f37a498846d9a6e89a897300f126c01d6ef86
>
> (maybe we should keep some warning in the code because you are not forced
> to support the start delay in your model implementations)
>
> Not suprisingly the test suite breaks when comparing computation results
> to cached values computed with the simplified engine, so the cached values
> should be updated (given that we believe in the new engine)
>
> 1>  Testing Hull-White calibration against cached values...
> 1>  shortratemodels.cpp(126): error in
> "QuantLib::detail::quantlib_test_case(&ShortRateModelTest::testCachedHullWhite)":
> Failed to reproduce cached calibration results:
> 1>  calculated: a = 0.0464041, sigma = 0.00579912, f(a) = 0.1158,
> 1>  expected:   a = 0.0488565, sigma = 0.00593662, f(a) = 0.121599,
> 1>  difference: a = -0.00245242, sigma = -0.000137495, f(a) = -0.00579896,
> 1>  end criteria = StationaryFunctionValue
>
> regards
>   Peter
>
>
>
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