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

[Jonathan S. <sw...@gm...>]

I was able to reproduce this on my computer and it looks like the immediate
technical reason is a divide-by-nearly-zero error[1].

I would recommend opening an issue and/or a pull request on github.

[1]
https://github.com/lballabio/QuantLib/blob/master/ql/pricingengines/vanilla/baroneadesiwhaleyengine.cpp#L115
.

On Tue, Jan 18, 2022 at 10:47 PM Lawrence Sum <law...@gm...>
wrote:

> 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
>>> _______________________________________________
>>> QuantLib-dev mailing list
>>> Qua...@li...
>>> https://lists.sourceforge.net/lists/listinfo/quantlib-dev
>>>
>>