Re: [Quantlib-users] how to calibrate GSR model based on european swaption vol surface

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

Hi Daniel

yes you'd change T in the ctor call ql.Gsr(...).

1. T is the maturity of the zero bond P(0, T) used as a numeraire in
the T-Forward measure
2. years
3. slightly higher than 60 I'd think to capture day counter /
convention / lag effects, maybe 61 is sufficient already

Thanks
Peter


On Wed, 24 Aug 2022 at 11:47, Daniel <gr...@gm...> wrote:
>
> Peter,
> Thank you for your reply.
> Just want to make sure overwriting T means I should change below statement
>       model  = ql.Gsr(term_structure,stepDates, sigmas,reversions,T=60);
> to use some other T value instead, am I right?
> Two questions:
> 1. What is the meaning of T here?
> 2. What is the unit for T (month, year)?
> 3. If my calibrated swaption has a maximum 30Y x 30Y matrix, what is the T value I should use?
>
> Thanks,
> Mark
>
>
> On Tue, Aug 23, 2022 at 1:30 PM Peter Caspers <pca...@gm...> wrote:
>>
>> Hi
>>
>> the GSR model operates in the T-forward measure with T=60 by default. You can overwrite T in the constructor if longer horizons are needed (as it appears to be the case in your setup).
>>
>> Best
>> Peter
>>
>>
>> Daniel <gr...@gm...> schrieb am Mo. 22. Aug. 2022 um 21:25:
>>>
>>> Thank you Dmitri for your information. Actually I increased the vol surface number to more than to be calibration volatility number, now I can solve for mean reversion and volatility now.
>>>
>>> But  experience another error when I tried to change the yield curve and volatility surface to some other type, I got below error.
>>>
>>> ---> 14 model.calibrate(swaptions, optimization_method, end_criteria)
>>>
>>> ~\.conda\envs\tf-gpu\lib\site-packages\QuantLib\QuantLib.py in calibrate(self, *args)
>>>
>>>        def calibrate(self, *args):
>>> >          return _QuantLib.Gsr_calibrate(self, *args)
>>>
>>>        def setParams(self, params):
>>>
>>> RuntimeError: G(t,w) should be called with (t,w)=(29.9985,60.0055) in Range [0,60].
>>>
>>>
>>> What does this runtimeError mean?
>>>
>>>
>>> Thanks,
>>>
>>> Mark
>>>
>>>
>>>
>>>
>>>
>>>
>>> On Mon, Aug 22, 2022 at 12:50 PM Dmitri Goloubentsev <dm...@ma...> wrote:
>>>>
>>>> Hi Mark,
>>>>
>>>>
>>>> The error is coming from LM optimiser. You should reduce number of points in your vol surface or add more calibration instruments or add some sort of regularisation.
>>>>
>>>> Kind regards,
>>>> Dmitri.
>>>>
>>>> On Mon, 22 Aug 2022, 17:26 Daniel, <gr...@gm...> wrote:
>>>>>
>>>>> All,
>>>>>
>>>>> Please forgive me if someone has answered a similar question before.
>>>>>
>>>>> I am trying to calibrate interest rate vol surface using GSR (gaussian short rate model) based on this post
>>>>> http://gouthamanbalaraman.com/blog/short-interest-rate-model-calibration-quantlib.html
>>>>>
>>>>> and I found a python example for GSR model calibration.
>>>>> https://github.com/mlungwitz/notebooks/blob/master/GSR_Example.ipynb
>>>>>
>>>>> What I tried to do is to calibrate the same european swaption vol surface in the 1st python example based on 2nd example gsr model specification, what I added is:
>>>>> gsr  = ql.Gsr(term_structure,stepDates, sigmas,reversions);
>>>>> engine = ql.Gaussian1dSwaptionEngine(gsr, 64, 7.0, True, False, term_structure)
>>>>> swaptions = create_swaption_helpers(data, index, term_structure, engine)
>>>>>
>>>>> optimization_method = ql.LevenbergMarquardt(1.0e-8,1.0e-8,1.0e-8)
>>>>> end_criteria = ql.EndCriteria(1000, 100, 1e-6, 1e-8, 1e-8)
>>>>> model.calibrate(swaptions, optimization_method, end_criteria)
>>>>>
>>>>> But this will give me this error:
>>>>>
>>>>> RuntimeError: less functions (5) than available variables (12)
>>>>>
>>>>> Is the error caused by Gaussian1dSwaptionEngine? Should I proceed with Gaussian1dNonstandardSwaptionEngine? What change should I do to make it work ?
>>>>>
>>>>>
>>>>> Thanks,
>>>>>
>>>>> Mark
>>>>>
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