Re: [Quantlib-users] Pricing CMS Steepeners Bonds with G2++ Model

[Philippe H. <pha...@ma...>]

G2++ is probably ok to decorrelate term rates. it is HW2F that I was referring to as far as not being very suitable given short rate model. Problem is how to build a curve and get CMS rates from a Python interface to the QL G2++ process. I do not see any available working interface to do that, as the existing Python API is not correct versus the C++ signature as mentioned below. If you're happy with HW2F then you probably have most of what is required although I never used it, so guessing. Best regards Philippe Hatstadt 203-252-0408 https://www.linkedin.com/in/philippe-hatstadt/ On Jul 25, 2024, at 6:37 AM, Valerio Santaniello <val...@gm...> wrote: Hi Philippe, thanks a lot for your explanations. I'm quite aware of the limitations of the G2++ model when used to price CMS related instruments but we use it for "risk management" purposes (if this is an excuse) rather than for P&L purposes. Therefore, the choice of the model has been made essentially for simplicity reasons. Having said that, I'll start delving into the implementations of the model ported to Python and see if I can find some workaround. P.S.: I just noticed that I wrongly quoted Peter Casper in my first email, so I added it in the recipients of this email. I hope this doesn't bother you Peter and does not go against the mailing list's rules. Best, Valerio Il giorno mer 24 lug 2024 alle ore 15:47 Philippe Hatstadt < pha...@ma... > ha scritto: Sorry, this is the thread I am referring to. https://sourceforge.net/p/quantlib/mailman/message/58733701/ Essentially, there is a working Python calibration routine for G2++. However, certain process C++ classes were not 100% migrated to Python and they currently do not work, as there is a mismatch in required parameters (curve handle missing for instance). So it's not clear how to generate paths of CMS rates from the calibrated engine, as the processes cannot be called. Using a 2-factor HW is not something I would spend time on if the goal is to price CMS spread options, or any contingent payoff that depends on short versus longer tenors, as HW2F is still a short rate model, and it is not capable of substantially decorrelating say CMS2Y versus CMS10Y. The latter is essential to build GNMA prepayment and OAS models, so HW2F would clearly underprice the (negative) convexity. Your product is a CMS steepener, so I think it may suffer form the same issues. I guess what I'm saying is that I am unsure that there is any Python way of doing this with QL for claims that depend on dual CMS tenors. Luigi had asked me if I could help finish the G2++ processes to work in Python, but I don't really have the bandwidth. it would be nice if someone did it at some point. Best regards Philippe Hatstadt 203-252-0408 https://www.linkedin.com/in/philippe-hatstadt/ On Jul 24, 2024, at 8:51 AM, Valerio Santaniello < val...@gm... > wrote: Hi Philippe, which class are you referring to? I read in this thread that @PeterCasper had a working code to price CMS Spread Options with HW2F model, which would be very helpful to start thinking about a workaround. Best, Valerio Il giorno mer 24 lug 2024 alle ore 11:47 Philippe Hatstadt < phi...@ex... > ha scritto: As far as I know, the G2++ engine only has a C++ calibration implementation. Lack of a Python interface for it was a show stopper for me but if that doesn’t stop you then you might be able to price CMS steepeners at least via MC form the engine although I am unsure if that exists in Python either. Regards Philippe Hatstadt +1-203-252-0408 > On Jul 24, 2024, at 4:34 AM, Valerio Santaniello < val...@gm... > wrote: > > > Hi, > > I am trying to price CMS Steepeners Bonds with a G2++ model in QuantLib Python. I looked at the pricers available, but it seems that the only option would be to build a CMSSpreadLeg and use the lognormalCMSSpreadPricer, which does not appear to implement the G2++ model. Am I right or is there something I am missing? > > Best, > Valerio > _______________________________________________ > QuantLib-users mailing list > Qua...@li... > https://lists.sourceforge.net/lists/listinfo/quantlib-users -- 31 East 32nd Street, 3rd Floor | New York, NY | 10016 < https://www.exosfinancial.com/ > < https://www.linkedin.com/company/meetexos/about/ > Broker-Dealer services offered through Exos Securities LLC, Member SIPC, FINRA. For important disclosures including Form CRS and Regulation BI click here < https://www.exosfinancial.com/general-disclosures >. Confidentiality Notice: The information contained in this email (including attachments) is only for the personal and confidential use of the sender and recipient named above. 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