Re: [Quantlib-dev] Using Inflation Term Structure instead of CPI indices when they overlap

[Luigi B. <lui...@gm...>]

Hi Francois,
    sorry it took lo long---it seems that your post slipped through a
crack and I lost track of it. So, in case you haven't gone ahead or
given up yet: yes, I think you should enable the forecastTodaysFixing
parameter so it's used in the ZeroInflationIndex::fixing() method. As
for the CPICoupon, I'm not sure. A parameter that allows both
behaviors seems safer at this point. In any case, I suggest you check
if there are any test cases for this, and if not (as it's likely) you
might add a few of them so we're sure that you get your desired
behavior and nothing else breaks.

Later,
    Luigi



On Mon, Jun 9, 2014 at 12:33 PM, Francois Botha <ig...@gm...> wrote:
> Hi,
>
> This is a continuation of the discussion at
> http://quantlib.10058.n7.nabble.com/Valuing-CPI-Bond-at-real-yield-curve-td15354.html
> .
>
> To recap: I want to value a CPI Bond by discounting at the real yield curve
> and input a zero inflation curve consisting only of 0 rates. I've
> successfully constructed that curve using InterpolatedZeroCurve. This curve
> is used for forecasting CPI indices. I also input historic CPI indices from
> far back to the most recent available.
>
> I'm now in a tricky situation where there is a bit of overlap. Suppose my
> settlement date is 2014-05-27 and my observation lag is 4 months. What I
> want to do is use actual CPI indices up to the lagged date of 2014-01-27
> (calculated by linear interpolation between 2014-01-01 and 2014-02-01) and
> for anything after that I want to use the zero inflation curve, which
> implies any index that is looked up for a date after 2014-01-27 will be
> exactly the same (no growth).
>
> My zero inflation curve already has a base date of 2014-01-27, and my
> historic CPI indices go up to April 2014. So there is a bit of overlap. At
> the moment, the ZeroInflationIndex.fixing() method prefers to use CPI
> indices if they are available. I want to rather use the zero inflation
> curve. There is a forecastTodaysFixing parameter which is currently ignored.
>
> I propose to implement the forecastTodaysFixing so that when a 'true' is
> passed to it, the method will rather using the forecasting part and thus use
> the zero inflation curve. In CPICoupon, where this method is called, I will
> check whether the zero inflation curve base date is before the CPICoupon's
> fixing date and if so, pass 'true'. Or the alternative is to introduce a new
> parameter in the CPIBond constructor and pass this through to CPICoupon to
> determine which of the two curves get preference.
>
> I'm posting here to ask what I should look out for? I don't want to
> introduce a breaking change. The fixing date methods are quite tricky and it
> took me a while to get my head around it. Any advice will be appreciated.
>
> As a sidenote, limiting the historic CPI indices up to an earlier date
> doesn't solve the problem. The algorithm uses the availability and
> observation lags to deduce up to which date the CPI index should be used. So
> if I exclude indices after 2014-02-01, then a lookup error occurs.
>
> regards,
> Francois Botha
>
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