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

[Jacek B. <jac...@gm...>]

Hi Peter,
Is this formula implemented in Quantlib as well? I'm trying to price RFR
caps, but couldn't find suitable classes. Is gsr the only option?

Jacek

pon., 9 sty 2023, 17:35 użytkownik Peter Caspers <pca...@gm...>
napisał:

> Thanks Ioannis!
>
> OvernightIndexedCoupon is always backward looking. We model forward
> looking term rates using the TermRateIndex class (derived from
> IborIndex) such as in SofrTerm in conjunction with e.g. IborCoupon or
> other IborIndex - based classes.
>
> Does that make sense?
>
> On Fri, 6 Jan 2023 at 18:22, Ioannis Rigopoulos <qua...@de...>
> wrote:
> >
> > 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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> > >>
> > >>
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