Re: [Quantlib-users] Qurious finding in ORE code

[Ioannis R. <qua...@de...>]

Hi Peter,

Yes. This now makes sense. I was not aware of this formula. Thank you 
for sharing the paper as it helped me understand the details of 
overnight index cap/floor pricing.

Thanks to ORE, I completed a sofr cap pricing for a client and 
everything went very smoothly. So, kudos for the excellent work! I do 
mention of course that the analytics come from ORE/Acadia.

Just parenthetically, I noticed that the 
QuantExt::OvernightIndexedCoupon does not distinguish between forward 
and backward looking term rates, which is fine for linear contracts, but 
not so for caps or swaptions because a backward looking rate exhibits 
higher variance than its forward looking counterpart. Your formulas 
imply that you treat the OvernightIndexedCoupon as if it were backward 
looking. I would be curious to know if you plan to add a corresponding 
boolean flag in the OvernightIndexedCoupon constructor and adjust the 
vol code discussed here to account for both forward and backward looking 
cases.

Ioannis

On 1/5/2023 10:38 AM, Peter Caspers wrote:
> Hi Ioannis
>
> this is a typo, the line should actually be
>
>              T += std::pow(fixingEndTime - T, 3.0) /
> std::pow(fixingEndTime - fixingStartTime, 2.0) / 3.0;
>
> This corresponds to the formula for v_j^B at the end of section 6.3 in
> https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3330240.
>
> We will fix this shortly.
>
> Thank you
> Peter
>
> On Wed, 4 Jan 2023 at 19:13, Ioannis Rigopoulos <qua...@de...> wrote:
>> Does anyone have a clue on why the statement (found in
>> blackovernightindexedcouponpricer.cpp)
>>
>> T += std::pow(fixingEndTime - T, 3.0) / std::pow(fixingEndTime - T, 2.0)
>> / 3.0;
>>
>> is not coded much more simply as
>>
>> T +=( fixingEndTime - T ) / 3.0;
>>
>> The two variables T and fixingEndTime  are both double.
>>
>> I am only asking in case there is some sort of sophisticated trick that
>> I am missing.
>>
>> Ioannis
>>
>>
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