Dual curve stripping extrapolate?

[Stefano Portolan]

Dear all,
I posted something related to this topic on friday here:
http://quantlib.10058.n7.nabble.com/Dual-curve-stripping-maxDate-issue-td15831.html

but haven't received answers yet.

I try now to be a little bit more general and maybe I can be understood better.

In a dual curve stripping you bootstrap the first curve (Eonia).
Say we do it with quoted rates from 11/12/2012 to 11/12/2042 (30 years).

Now I bootstrapped the second curve (Euribor 1M).

MY PROBLEM

If I bootstrapped the second curve again with quotes to 11/12/2042 (as the last quote of my previous Eonia curve), everything works fine.

If I add new quotes and go toward 11/12/2072 (60 years), something goes wrong ... and I don't know what to do.


My hypothesis is that with my (default?) setting the iterative bootstrapper doesn't like quotes with different maturities and throw me an error, BUT I think at some point I can say to quantlib that I want to bootstrap my EURIBOR 1M using my first curve in EXTRAPOLATION when no pillars are available.
Can I?
Can anyone give me an hint of it?

I have a lot of lines in the code and I cannot put it here, but I tried with other numbers of pillars and the error is ready recovered.

Thank you very much in advance.
Stefano

[Peter Caspers-4]

Hi Stefano,

I think eonia->enableExtrapolation() (if eonia if a pointer to your
EONIA curve) will do the trick. The discounting curve passed to the
swap rate helper is used to discount the swap payments, so it has to
provide discount factors up to the maturity date of the swap. If this
is not the case, you have to allow for extrapolation explicitly.

If the extrapolation itself is reasonable, is of course a completely
different question, and of course dependent on the Interpolation trait
used in the PiecewiseYieldCurve arguments.

Peter

On 8 September 2014 14:27, Stefano Portolan <[hidden email]> wrote:

> Dear all,
> I posted something related to this topic on friday here:
> http://quantlib.10058.n7.nabble.com/Dual-curve-stripping-maxDate-issue-td15831.html
>
> but haven't received answers yet.
>
> I try now to be a little bit more general and maybe I can be understood
> better.
>
> In a dual curve stripping you bootstrap the first curve (Eonia).
> Say we do it with quoted rates from 11/12/2012 to 11/12/2042 (30 years).
>
> Now I bootstrapped the second curve (Euribor 1M).
>
> *MY PROBLEM*
>
> If I bootstrapped the second curve again with quotes to 11/12/2042 (as the
> last quote of my previous Eonia curve), everything works fine.
>
> If I add new quotes and go toward 11/12/2072 (60 years), something goes
> wrong ... and I don't know what to do.
>
>
> My hypothesis is that with my (default?) setting the iterative bootstrapper
> doesn't like quotes with different maturities and throw me an error, BUT I
> think at some point I can say to quantlib that I want to bootstrap my
> EURIBOR 1M using my first curve in EXTRAPOLATION when no pillars are
> available.
> Can I?
> Can anyone give me an hint of it?
>
> I have a lot of lines in the code and I cannot put it here, but I tried with
> other numbers of pillars and the error is ready recovered.
>
> Thank you very much in advance.
> Stefano
>
>
>
> --
> View this message in context: http://quantlib.10058.n7.nabble.com/Dual-curve-stripping-extrapolate-tp15841.html
> Sent from the quantlib-users mailing list archive at Nabble.com.
>
> ------------------------------------------------------------------------------
> Want excitement?
> Manually upgrade your production database.
> When you want reliability, choose Perforce
> Perforce version control. Predictably reliable.
> http://pubads.g.doubleclick.net/gampad/clk?id=157508191&iu=/4140/ostg.clktrk
> _______________________________________________
> QuantLib-users mailing list
> [hidden email]
> https://lists.sourceforge.net/lists/listinfo/quantlib-users

------------------------------------------------------------------------------
Want excitement?
Manually upgrade your production database.
When you want reliability, choose Perforce
Perforce version control. Predictably reliable.
http://pubads.g.doubleclick.net/gampad/clk?id=157508191&iu=/4140/ostg.clktrk
_______________________________________________
QuantLib-users mailing list
[hidden email]
https://lists.sourceforge.net/lists/listinfo/quantlib-users

[Stefano Portolan]

Hi Peter,

Thank you very much for spotting this feature. It was exactly what I was looking for.
I completely agree with your warnigs: sometimes extrapolate can make things easier, but more likely wrong!
In my case I was sure that an extrapolation flat after 2042 for the Eonia curve worked quite well and this trick of enableExtrapolation() let me bootstrap the Euribor 1M over the entire 60 years tenor of fig. 27 of the cited paper.
Indeed there are features for the EURIBOR 1M that I was completely missing without the right points in this curve (and a "bold" extrapolation of the EONIA).
Now with a cubic spline interpolation of the logarithm of the discount factor and an extrapolation flat (for the Eonia) over very long tenor, fig. 28 of the paper is completely recovered.

I can move forward!
Thanks again.
Cheers.
Stefano