Description required for a Quantlib benchmark testcase

[Sunil Narang]

Hi everyone,
I have very recently started using Quantlib. In version 0.4.0 there is a benchmark.cpp which tests something like 20-30 test-cases. Within those testcases there is a libor market model process which computes LMM caplet prices using Monte-Carlo simulation. There have been some hard coded values (EURibor6M, fixedRate=0.04, offset=8, Settlement days=2). It would greatly help me if someone could give me the exact problem that libor market model process is trying to solve ( including what inputs are being given to setup the caplets and Monte Carlo).

thanx
Sunil

computes LMM caplet prices using Monte-Carlo Simulation

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[Klaus Spanderen]

Hi Sunil,

First a remark:
If you want to get in touch with Libor Market Models and QuantLib I recommend
to focus on Joshi, Nando et.al. implementation of the LMM within the
MarketModels directory. Testcases can be found in the testcase directory
named marketmodel*.cpp. This implementation substitutes the one under
ShortRateModels/LiborMarketModels

Coming to your Question:
EURLibor6M is an index object that models  all aspects of the euribor rate
fixings. Other Indexes can be found in the Indexes directory. fixedRate sets
the level for a flat interest rate curve. Just for simplicity flat curves
used. Having settlement days = 2 is an example for a possible non zero
settlement "delay". It is not important for the testcase.

The LfmProcess models an Libor forward model using the rolling forward measure
incl. predictor-corrector step. Important input parameter is a covariance
parameterization, which encodes correlation information between the forward
rates and their volatilities. Caplet should be priced exactly within this
model. Therefore they set-up a minimal testcase that the implementation must
pass.

hope that helps
 Klaus

You wrote:
 Hi everyone,I have very recently started using Quantlib. In version 0.4.0  
there is a benchmark.cpp which tests something like 20-30 test-cases. Within  
those testcases there is a libor market model process which computes LMM  
caplet prices using Monte-Carlo simulation. There have been some hard coded
values (EURibor6M, fixedRate=0.04, offset=8, Settlement days=2). It would
greatly help me if someone could give me the exact problem that libor market
model process is trying to solve ( including what inputs are being given to
setup the caplets and Monte Carlo).



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