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

SourceForge Headquarters 1320 Columbia Street Suite 310 San Diego, CA 92101 +1 (858) 422-6466

Peter,

I don't know if what I describe below relates to what you wrote about 
IborCoupon  versus OvernightIndexedCoupon.

While my bootstraping of a strike/tenor vol matrix runs smoothly, I 
encounter a serious problem when I tried to bootstrap the combination 
consisting of an atm tenor-only vol vector and a strike/tenor vol matrix.

The current code for the method 
OptionletStripperWithAtm<TimeInterpolator, 
SmileInterpolator>::performCalculations() contains the following:

if (isOis) {

     QL_FAIL("OIS cap vol stripping with ATM not yet supported.");

}

I tried to add my own code in that place, but I realized that the whole 
logic in OptionletStripperWithAtm is based on instruments of type 
QuantLib::CapFloor which cannot process correctly oi term rates.

Is there any way to solve this problem in the current ORE version?

In the mean time I will be trying to use the type 
CapFloorTermVolSurfaceSparse after having calculated manually the atm 
strikes of the caps in the atm vol vector. Hopefully this would work!

Ioannis

On 1/10/2023 1:12 PM, Ioannis Rigopoulos wrote:
> Let me also share one more thought regarding IborIndex and IborCoupon.
>
> I understand these two types are used almost everywhere in QuantLib 
> for good historical reasons and is therefore reasonable to elevate the 
> concept represented by IborIndex to include special types of term 
> rates, such as average overnight rates.
>
> I would then find it practical to enhance a bit the definition of 
> TermRateIndex with a boolean flag so that it captures both types of 
> averages, the forward looking average and the backward looking average.
>
> This would make the overall code smaller and simpler since the 
> IborCoupon would then represent both types of average and would also 
> make the OvernightIndexedCoupon redundant.
>
> Ioannis
>
> On 1/9/2023 9:23 PM, Ioannis Rigopoulos wrote:
>> 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
>>>>>>>>
>>>>>>>>
>>>>>>>> -- 
>>>>>>>> Diese E-Mail wurde von Avast-Antivirussoftware auf Viren geprüft.
>>>>>>>> www.avast.com
>>>>>>>>
>>>>>>>>
>>>>>>>> _______________________________________________
>>>>>>>> QuantLib-users mailing list
>>>>>>>> Qua...@li...
>>>>>>>> https://lists.sourceforge.net/lists/listinfo/quantlib-users
>>>>>> -- 
>>>>>> Diese E-Mail wurde von Avast-Antivirussoftware auf Viren geprüft.
>>>>>> www.avast.com
>>>>>
>>>>> _______________________________________________
>>>>> QuantLib-users mailing list
>>>>> Qua...@li...
>>>>> https://lists.sourceforge.net/lists/listinfo/quantlib-users
>>>>>
>>
>
>
> _______________________________________________
> QuantLib-users mailing list
> Qua...@li...
> https://lists.sourceforge.net/lists/listinfo/quantlib-users