Another question about InterpolatedDiscountCurve

[dhoorens]

Hi everyone

I’m working on an old release version of Quantlib (0.9.7)

I had recently a problem with the interpolatedDiscountCurve class.

I have an economic scenario generator which gives me as pricecurve for a (very) extreme scenario

1	0,995
6	0,4
12	0,04
24	0,02
36	0,001
60	0,00003
120	0,0000008

 

(Column 1 is the term (in months), column 2 is the price.

I know, it gives me (very (did-I-say-very?)) important rates …

 

When I try to associate these points with a cubicsplineDiscount Curve, it works, BUT when I try to interpolate between for example 12M and 24M, I obtain negative prices. Is it normal?

I know that this is due to the facts that

* the scenario is very extreme

* the loops created by the splines are very large => the loop passes under zero

But wouldn’t it be necessary to limit the prices to zero?

 

Tks for your answer

David

 

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[Luigi Ballabio]

On Thu, 2009-11-19 at 09:07 +0100, HOORENS David wrote:

> I had recently a problem with the interpolatedDiscountCurve class.
>
> I have an economic scenario generator which gives me as pricecurve for
> a (very) extreme scenario
> [...]
> When I try to associate these points with a cubicsplineDiscount Curve,
> it works, BUT when I try to interpolate between for example 12M and
> 24M, I obtain negative prices.
>
> wouldn’t it be necessary to limit the prices to zero?

Yes, but it's not straighforward to do so while building the splines.
You might try some other available spline interpolation, such as
monotonic splines. Let me know if that helps.

Luigi


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