[Quantlib-users] Aging a swap without changing the curve producing unexpected results

[Shaun V. <svi...@ve...>]

Hi All,

First, I want to thank Luigi & the community for all of the work on QuantLib.  I'm a new user so apologies if my question is stupid...

I've been trying to get a feel for the mechanics of library-specifically around TermStructures and Interest Rate Swaps.     In doing so, I wanted to test a base case:


  *   Create a simple YieldCurve instance using a 3M Short Rate future + 1Y-10Y Swap Rates
  *   Create a VanillaSwap on top of this structure
  *   Evaluate the NPV of this swap & examine the cashflows
  *   Advance the calendar 10 days [without changing the curve at all]
  *   Evaluate the NPV of the swap & examine the cashflows]

In the above experiment, given that I am not changing the curve, I would expect the cashflows to remain the same [while the NPVs would change].  However, I am unable get this working, despite running through several tutorials online (DIMA's slides, a couple of Luigi's videos).  I have gleaned that this might have something to do with adding fixing days to the indices?   But I'm not sure I understand the mechanics of why that would be or how I should think about managing fixings as I advance time in the library.

I'm happy to provide more information.... A messy version of the code is attached below:

import pandas as pd
import QuantLib as ql
from QuantLib import *

def show_cashflows(leg):
    for c in leg:
        print ('%20s | %s | %.4f%%' % (c.date(), c.amount(),
                                      as_coupon(c).rate()*100))


calendar = TARGET()

tddt = pd.to_datetime('today').date()
todaysDate = ql.Date(tddt.day, tddt.month, tddt.year)

Settings.instance().evaluationDate = todaysDate
settlementDate = calendar.advance(todaysDate, 12, ql.Months)

# market quotes
deposits = {  (3,Months): 0.047245}

swaps = {
    (1,Years): 0.05876,
    (2,Years): 0.045986,
    (4,Years): 0.038589,
    (5,Years): 0.036954,
    (6,Years): 0.035925,
    (7,Years): 0.0352,
    (8,Years): 0.034683,
    (9,Years): 0.03437,
    (10,Years): .034186
}


# convert them to Quote objects
for n,unit in deposits.keys():
    deposits[(n,unit)] = SimpleQuote(deposits[(n,unit)])
for n,unit in swaps.keys():
    swaps[(n,unit)] = SimpleQuote(swaps[(n,unit)])


# build rate helpers
dayCounter = Actual360()
settlementDays = 2
depositHelpers = [ DepositRateHelper(QuoteHandle(deposits[(n,unit)]),
                                     Period(n,unit), settlementDays,
                                     calendar, ModifiedFollowing,
                                     False, dayCounter)
                   for n, unit in [(3,Months) ]]


swapHelpers = [ SwapRateHelper(QuoteHandle(swaps[(n,unit)]),
                               Period(n,unit), calendar,
                               Annual, Unadjusted,
                               Actual360(), Euribor6M())
                for n, unit in swaps.keys() ]


# term-structure construction
helpers = depositHelpers + swapHelpers

# term structure handles...why do I need both?
discountTermStructure = RelinkableYieldTermStructureHandle()
forecastTermStructure = RelinkableYieldTermStructureHandle()

depoSwapCurve = PiecewiseLogCubicDiscount(settlementDays, TARGET(), helpers, Actual360())
depoSwapCurve.enableExtrapolation()

swapEngine = DiscountingSwapEngine(discountTermStructure)

# 5Y Swap
nominal = 1000000
maturity1 = calendar.advance(settlementDate,5,Years)


fixedRate = 0.036954

spread = 0.0

index = ql.USDLibor(ql.Period(3, ql.Months), forecastTermStructure)

floatingLegAdjustment = ModifiedFollowing
floatingLegDayCounter = index.dayCounter()

fixedSchedule1 = Schedule(settlementDate, maturity1,
                         Period(1, Years), calendar,
                         Unadjusted, Unadjusted,
                         DateGeneration.Forward, False)
floatingSchedule1 = Schedule(settlementDate, maturity1,
                            Period(6,Months), calendar,
                            ModifiedFollowing, ModifiedFollowing,
                            DateGeneration.Forward, False)

# when I create the swap using this method, the cashflows remain fixed upon advancing the day
spot1 = VanillaSwap(VanillaSwap.Receiver, nominal,
                   fixedSchedule1, fixedRate, Actual360(),
                   floatingSchedule1, index, spread,
                   floatingLegDayCounter)


spot1.setPricingEngine(swapEngine)
discountTermStructure.linkTo(depoSwapCurve)
forecastTermStructure.linkTo(depoSwapCurve)


Settings.instance().evaluationDate = todaysDate
print ('Fair Rate: {}'.format(spot1.fairRate()))
print('NPV: {}'.format(spot1.NPV()))
print('fixed cashflows:')
show_cashflows(spot1.fixedLeg())
print('floating cashflows:')
show_cashflows(spot1.floatingLeg())

## AFTER DOING THIS THE FLOATING CASHFLOWS CHANGE AND I WOULD NOT EXPECT THEM TO

Settings.instance().evaluationDate = calendar.advance(todaysDate, 20, Days)
print (spot1.fairRate())
print(spot1.NPV())
print ('Fair Rate: {}'.format(spot1.fairRate()))
print('NPV: {}'.format(spot1.NPV()))
print('fixed cashflows:')
show_cashflows(spot1.fixedLeg())
print('floating cashflows:')
show_cashflows(spot1.floatingLeg())