Re: [Quantlib-dev] Option pricing BARONE-ADESI/WHALEY and negative discount rate

[Lawrence S. <law...@gm...>]

Hi Jonathan

The actual code is very complicated and quite massive. But I can reproduce
the problem via the EquityOption Quantlib sample as follows:

Essentially to reproduce the problem, just set riskfree rate to -0.012. And
here is what I got:

Option type = Put
Maturity = May 17th, 1999
Underlying price = 36
Strike = 40
*Risk-free interest rate = -1.200000 %*
Dividend yield = 0.000000 %
Volatility = 20.000000 %


Method                             European      Bermudan      American
August 20th, 1998
November 20th, 1998
February 20th, 1999
May 20th, 1999
Black-Scholes                      5.781564      N/A           N/A
Black Vasicek Model                5.274950      N/A           N/A
Heston semi-analytic               5.781563      N/A           N/A
Bates semi-analytic                5.781563      N/A           N/A
forward + displacement (-3.875e+14 + 0) must be positive

On Tue, Jan 18, 2022 at 7:27 AM Jonathan Sweemer <sw...@gm...> wrote:

> Hi Lawrence,
>
> Are you able to share a snippet of the source code that crashes for you?
>
> On Mon, Jan 17, 2022 at 11:45 PM Lawrence Sum <law...@gm...>
> wrote:
>
>> Hi,
>>
>> I am still using QuantLib 1.22/Windows and testing negative
>> discount rates for all option pricing methods. I noticed if the discount
>> rate is negative (I used -1.2%) and Barone-Adesi/Whaley will crash (forward
>> + displacement (-3.875e+14 + 0) must be positive). All other methods seemed
>> to produce reasonable prices. If the rate is exactly zero there is no
>> crash. Is this an issue to fix or this is expected?
>>
>> I cross-tested negative rate for  Barone-Adesi/Whaley using matlab/fin
>> toolkit and it worked there.
>>
>> Thanks
>> Lawrence Sum
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>