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

[Francois B. <ig...@gm...>]

Thanks Luigi,

I'm almost done with a Pull Request for this. It solves my usecase and
you'll be glad to know that it concludes all my issues with bond yield
curve bootstrapping :).

Before I can submit this PR, I have to complete the CPI reference period
fix that Peter and I are working on.

Francois Botha


On 18 July 2014 14:47, Luigi Ballabio <lui...@gm...> wrote:

> 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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