Re: [Quantlib-users] Queries on the impact of barrier hit on Barrier pricing

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

I can reproduce the exception that you're seeing. As for the explanation,
I'm not an expert in this code, but here's my take on it:

1. for Down-Out, when I pass the spot less than the barrier, I get
> RunTimeerror for interpolation range. Should I block the pricing at all in
> this case? Can't the engine handle it?

Generally you'd expect a down-and-out call to be quoted with spot above the
barrier, so starting with spot below the barrier is kind of a degenerate
case, as the product knocks out before it even starts, so I believe the
exception is warranted (though perhaps not as informative as it could be).

2. For Down-in, I am getting the same error whereas the option gets
> activated and is still live then why is this not priced by the engine? Am
> I doing something wrong?

Similar to question 1, you'd expect a down-and-in call to be quoted with
spot above the barrier, but in this case I agree that a case can be made
for the product to be live (i.e. knocked-in at inception), although it
would probably depend on the specific deal terms how to handle this case.
If you have any such deal terms to refer to, then you might want to submit
a pull request to handle them accordingly in the code.



On Mon, Jun 20, 2022 at 5:11 PM Ashish Bansal <ash...@gm...>
wrote:

> Following is the code that I am using to evaluate the barrier option. Here
> if I pass the spot which has crossed the barrier for knock-in or knock-out
> options, I get an error. The down-out is in the code and for down-in, I
> took the example given in row# 266 of with spot price as 94 from:
>
> https://github.com/lballabio/QuantLib/blob/master/test-suite/barrieroption.cpp
>
> My python code:
>
> ############################################################################
> import QuantLib as ql
>
> # Setting Barrier option parameters
> calculation_date = ql.Date(1, 6, 2021)
> maturity_date = ql.Date(25, 11, 2021)
> spot_price = 577.0
> strike_price = 770.0
> volatility = 43.56/100
> option_type = ql.Option.Call
> risk_free_rate = 0.175/100
> barrier_price = 400.0
> barrier_type = ql.Barrier.DownOut
> rebate = 0 # no rebate
> day_count = ql.Actual365Fixed()
> calendar = ql.TARGET()
>
>
> marketpremium = 18.64
>
> ql.Settings.instance().evaluationDate = calculation_date
>
> # Constructing the EU option in QL
> payoff = ql.PlainVanillaPayoff(option_type, strike_price)
> eu_exercise = ql.EuropeanExercise(maturity_date)
> barrier_eu_option =
> ql.BarrierOption(barrier_type,barrier_price,rebate,payoff, eu_exercise)
>
> # The Black-Scholes-Merton process is constructed
> spot_handle = ql.QuoteHandle(
> ql.SimpleQuote(spot_price)
> )
> flat_rate_ts = ql.YieldTermStructureHandle(
> ql.FlatForward(calculation_date,
>   risk_free_rate,
>   day_count)
> )
> flat_vol_ts = ql.BlackVolTermStructureHandle(
> ql.BlackConstantVol(calculation_date,
> calendar,
> volatility,
> day_count)
> )
> bs_process = ql.BlackScholesProcess(spot_handle,
>   flat_rate_ts,
>   flat_vol_ts)
>
> # compute the theoretical price using the AnalyticEuropeanEngine
>
> barrier_eu_option.setPricingEngine(ql.FdBlackScholesBarrierEngine(bs_process))
> br_eu_price = barrier_eu_option.NPV()
> print("The theoretical price for  EU barrier is %lf" % br_eu_price)
>
> ############################################################################
>
> Regards,
> Ashish
>
> On Fri, 17 Jun 2022 at 02:40, Jonathan Sweemer <sw...@gm...> wrote:
>
>> Hi Ashish, can you share your code or a link to it?
>>
>> 2022년 6월 17일 (금) 03:35, Ashish Bansal <ash...@gm...>님이 작성:
>>
>>> Hi,
>>>
>>> Any guidance on this error in barriers?
>>>
>>> Regards,
>>> Ashish
>>>
>>> On Tue, 14 Jun 2022 at 13:03, Ashish Bansal <ash...@gm...>
>>> wrote:
>>>
>>>> Dear team,
>>>>
>>>> I need some guidance on the pricing of the barrier option using
>>>> the FdBlackScholesBarrierEngine in the event that the barrier is hit:
>>>> 1. for Down-Out, when I pass the spot less than the barrier, I get
>>>> RunTimeerror for interpolation range. Should I block the pricing at all in
>>>> this case? Can't the engine handle it?
>>>> 2. For Down-in, I am getting the same error whereas the option gets
>>>> activated and is still live then why is this not priced by the engine? Am
>>>> I doing something wrong?
>>>>
>>>> What is the difference between FdBlackScholesBarrierEngine
>>>> and AnalyticBarrierEngine? I compared a few results and found a slight
>>>> difference in values. Any suggestion on which one to use?
>>>>
>>>> Any help would be appreciated.
>>>>
>>>> Thanks
>>>> Ashish
>>>>
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>>