Re: [Quantlib-users] Pricing swaps with short first accrual periods

[Peter C. <pca...@gm...>]

I guess a "full" solution supporting both front and back stubs
(requiring projected fixings) could consist of

- a new curve class taking the Euribor1M and Euribor3M projection
curves as input and giving an interpolated Euribor2M projection curve
as an output (to support the Ibor tenors that are still real, but for
which you can't directly bootstrap a forward curve)
- an interpolated Ibor index class taking two Ibor indices and weights
and managing the interpolation of historical and projected fixings
- an interpolated Ibor coupon class on top of the interpolated Ibor index class

This is how we handle this anyway. As you say, for historical fixings
you can use a dummy index + coupon and set the fixing value manually.
For projected fixings, you could try to use two coupons (say on
Euribor1M and 3M) for the same accrual period and use their nominals
to interpolate the effective rate. You still have the problem to set
up the Euribor2M projection curve then though.

It's maybe a bit late to introduce all that to QuantLib though :-)

Best regards,
Peter

On Fri, 11 Dec 2020 at 22:35, Mike DelMedico <mik...@gm...> wrote:
>
> Tom,
>
> This has been on my list to tackle for a while. Basically you need to build schedules AND (assuming it’s a short front stub) override the first cash flow of the swap object using the interpolated fixing from your two curves (2m + 3m in this case). Given that 2m is getting the axe soon, I think I’ll probably just go with the simpler version of interpolating off the 1m and 3m curves and assign the stub fixing that way.
>
> Luigi gave me some starting pointers to look at several months ago, let me see if I can dig them up and pass them along. I’d be happy to work with you on this if you’d like.
>
>
> Regards,
> Mike
>
>
>
> On Fri, Dec 11, 2020 at 15:22 Arkadiy Naumov <ark...@gm...> wrote:
>>
>> Hi Tom,
>>
>> As far as I understand, this is all transparent in QL, in a sense that all you have to is to build a swap with appropriate payments schedule. Nothing special is required for the curve (unless you are really keen on very particular interpolation between very particular points) - a curve is  able to generate fixing values for any arbitrary tenor on its own.
>>
>> Sent from my iPhone
>>
>> > On Dec 11, 2020, at 3:32 PM, Tom Anderson <tw...@ur...> wrote:
>> >
>> > Hello,
>> >
>> > Certain difficult people might like to trade swaps whose tenors are not integer multiples of their index tenors. For example, a 26.5 month swap against 3-month LIBOR, which, assuming backward date generation, has a 2.5-month first accrual period. My understanding is that in this case, the cashflow for the first period is determined not by a fixing of 3-month LIBOR, but by linear interpolation between fixings of the closest tenors of LIBOR (2 and 3 month in this example).
>> >
>> > Can i model swaps like this with QuantLib?
>> >
>> > I'm assuming i'll have to build separate curves for the tenors i want to interpolate between, but how do i connect them to a swap?
>> >
>> > Thanks,
>> > tom
>> >
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