Re: [Quantlib-users] How to create an Index using QuantLib where the coupon reset frequency is different from payment frequency?

[Luigi B. <lui...@gm...>]

Hi, an update: it turns out that sometimes SubPeriodsLeg doesn't do the
right thing, see <
https://implementingquantlib.substack.com/p/coupons-with-multiple-resets>.
I'll try to get a fix in the library in one of the next releases.

Luigi


On Tue, Aug 27, 2024 at 9:11 AM Luigi Ballabio <lui...@gm...>
wrote:

> Hi,
>     as Arkadiy says, they will have the same fixing, but there are other
> problems as well.
>
> One is that, unfortunately, Period(7, Days) is not the same as one week;
> it's 7 business days instead.  You need Period(1, Weeks).  We'll have to
> try and disambiguate it sometime, but it's everywhere in the library so
> we'll have to be careful.
>
> Another is that NonstandardSwap creates floating-rate coupons with a
> single initial fixing, regardless of the tenor of the passed index; so
> coupons will take the 1-week fixing at the beginning of their tenor and
> accrue it for the whole three months without compounding.  To get the
> behavior you want, there's no built-in instrument but you can build the two
> legs manually and pass them to the Swap class.  You'll have to use FixedLeg
> for the fixed coupons and SubPeriodsLeg for the floating leg; the latter
> builds a sequence of SubPeriodsCoupon instances, which have the compounding
> behavior you want.
>
> I'll try to publish an example when I get a chance to work on it, but in
> the meantime I hope this helps to point you in the right direction.
>
> Luigi
>
>
> On Tue, Aug 27, 2024 at 5:46 AM Arkadiy Naumov <ark...@gm...>
> wrote:
>
>> Hi Jack,
>>
>> It looks like your test is undermined by your using the flat 5% curve,
>> forcing your resets, no matter the frequency, to generate exactly the same
>> interest over the 3M period. It’s just that the fixing for the daily resets
>> will be slightly smaller than that for weekly resets, and that in turn will
>> be smaller than the fixing for the quarterly resets (to account for the
>> compounding). I would try creating curve with a few tenors, and re-running
>> the test with that new curve.
>>
>> Sent from my iPad
>>
>> On Aug 26, 2024, at 10:09 PM, Spectrum <jac...@gm...> wrote:
>>
>> 
>>
>> In the QuantLib python document, there is an example for creating a
>> custom OvernightIndex:
>>
>> name = 'CNYRepo7D'
>> fixingDays = 1
>> currency = ql.CNYCurrency()
>> calendar = ql.China()
>> dayCounter = ql.Actual365Fixed()
>> overnight_index = ql.OvernightIndex(name, fixingDays, currency, calendar, dayCounter)
>>
>>
>> In this example, a CNYRepo7D index is created as an OvernightIndex. But,
>> the CNYRepo7D has a coupon reset frequency of 7 days, not daily. So the
>> coupon should compound every week, not everyday. Is this example correct?
>>
>> I then tried to use ql.IborIndex to model CNYRepo7D, where I created an
>> IborIndex with a ql.Period(7, ql.Days). I also tried an IborIndex with a
>> Period of 3M. But the result seems to be identical. I created a swap with a
>> flat curve of 5% and printed out the floating leg cash flow. All 3 indexes
>> (Overnight, 7D Ibor, 3M Ibor) give me the same cash flow for the dummy swap.
>>
>> What is the correct way to model a swap where its reset frequency is
>> different from the payment frequency?
>>
>> import QuantLib as ql
>>
>> today = ql.Date(24,8,2024)
>>
>> # create a flat curve of 5%
>> rate = 0.05
>> dayCounter = ql.Actual365Fixed()
>> interest_rate = ql.QuoteHandle(ql.SimpleQuote(rate))
>> flat_curve = ql.FlatForward(today, ql.QuoteHandle(ql.SimpleQuote(rate)), dayCounter)
>> curve_handle = ql.YieldTermStructureHandle(flat_curve)
>>
>> currency = ql.CNYCurrency()
>> calendar = ql.China()
>>
>>
>> def print_floating_cashflow_given_index(index):
>>     # Add the fixing
>>     index.addFixing(ql.Date(23, 8, 2024), 0.05)
>>     # Create a 1Y swap with Quarterly Payment Frequency
>>     maturity_date = calendar.advance(today, 1, ql.Years, ql.Unadjusted)
>>     schedule = ql.Schedule(today, maturity_date, ql.Period(3, ql.Months), calendar, ql.ModifiedFollowing,
>>                            ql.ModifiedFollowing, ql.DateGeneration.Forward, False)
>>     schedule_len = len(schedule) - 1
>>     coupon_swap = ql.NonstandardSwap(ql.VanillaSwap.Receiver,
>>                                    [1] * schedule_len,
>>                                    [1] * schedule_len,
>>                                    schedule,
>>                                    [0.05] * schedule_len,
>>                                    dayCounter,
>>                                    schedule,
>>                                    index,
>>                                    [1.] * schedule_len,
>>                                    [0] * schedule_len,
>>                                    dayCounter,
>>                                    False,
>>                                    True)
>>     for cf in coupon_swap.floatingLeg():
>>         print(cf.date(), cf.amount())
>>
>> # create Overnight Index
>> fixingDays = 1
>> overnight_index = ql.OvernightIndex('CNYRepo7D',
>>                                     fixingDays,
>>                                     currency,
>>                                     calendar,
>>                                     dayCounter,
>>                                     curve_handle)
>> print('Overnight Index Floating CashFlow')
>> print_floating_cashflow_given_index(overnight_index)
>>
>> # create Ibor Weekly Index
>> ibor_weekly_index = ql.IborIndex(
>>     'CNY_Weekly',
>>     ql.Period(7, ql.Days),
>>     1,
>>     currency,
>>     calendar,
>>     ql.ModifiedFollowing,
>>     False,
>>     dayCounter,
>>     curve_handle
>> )
>> print('Weekly Ibor Index Floating CashFlow')
>> print_floating_cashflow_given_index(ibor_weekly_index)
>>
>> # create Ibor Quarterly Index
>> ibor_quarterly_index = ql.IborIndex(
>>     'CNY_Quarterly',
>>     ql.Period(3, ql.Months),
>>     1,
>>     currency,
>>     calendar,
>>     ql.ModifiedFollowing,
>>     False,
>>     dayCounter,
>>     curve_handle
>> )
>> print('Quarterly Ibor Index Floating CashFlow')
>> print_floating_cashflow_given_index(ibor_quarterly_index)
>>
>>
>> Output
>>
>> Overnight Index Floating CashFlow
>> November 25th, 2024 0.012465753424657534
>> February 24th, 2025 0.012543774790186646
>> May 26th, 2025 0.012543774790186868
>> August 25th, 2025 0.012543774790186868
>> August 25th, 2025 1.0
>> Weekly Ibor Index Floating CashFlow
>> November 25th, 2024 0.012465753424657534
>> February 24th, 2025 0.012543774790186646
>> May 26th, 2025 0.012543774790186868
>> August 25th, 2025 0.012543774790186868
>> August 25th, 2025 1.0
>> Quarterly Ibor Index Floating CashFlow
>> November 25th, 2024 0.012465753424657534
>> February 24th, 2025 0.012543774790186646
>> May 26th, 2025 0.012543774790186868
>> August 25th, 2025 0.012543774790186868
>> August 25th, 2025 1.0
>>
>>
>> Thanks
>>
>> Jack
>>
>>
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