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

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

Hi Peter,

Thanks for letting me know that forward looking oi coupons are modeled 
through IborCoupon. It does make sense since the IborCoupon referencing 
a non-RFR ibor rate has always been forward looking.

I will make the link to QuantLib::CapFloor and test how it will work.

Ioannis

On 1/9/2023 7:20 PM, Peter Caspers wrote:
> Hi Jacek,
>
> I don't think it is at the moment. Even GSR won't work properly for
> OvernightIndexedCoupon.
>
> Thank you
> Peter
>
> On Mon, 9 Jan 2023 at 18:08, Jacek Bator <jac...@gm...> wrote:
>> 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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