Implementing a hybrid Black-Scholes/G2++ process
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Implementing a hybrid Black-Scholes/G2++ process
 
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Hi there
I've trawled through some older posts to the QuantLib Users mailing list and seen a couple of posts related to my question, but I'm still not entirely sure of the answer, hence I apologise if the answer has been posted previously. I'm looking to implement a hybrid Black-Scholes/G2++ process (i.e. a Black-Scholes process with a stochastic interest rate, driven by a G2++ process). I gather that JointStochasticProcess is the way to go about doing this (aside: where did the manual entry for this go?). My plan is to use this with BlackScholesProcess and G2ForwardProcess, modelling my code off of HybridHestonHullWhiteProcess. Does this seem reasonable? Has anyone else attempted this and would you be willing to share any insight you might have gained from the experience? Best regards Jonathan ------------------------------------------------------------------------------ Live Security Virtual Conference Exclusive live event will cover all the ways today's security and threat landscape has changed and how IT managers can respond. Discussions will include endpoint security, mobile security and the latest in malware threats. http://www.accelacomm.com/jaw/sfrnl04242012/114/50122263/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
Re: Implementing a hybrid Black-Scholes/G2++ process
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Hi Jonathan,
the problem with the BlackScholesProcess here is that the drift term "r-q" of the equity process depends on the G2++ process (because r is given by the G2++ process). In the BlackScholesProcess r is defined by a YieldTermStructure and I guess you'll need a sort of an hack to back the YieldTermStructure with the G2++ process.
Therefore I think you are better off to not reuse the JointStochasticProcess but to reimplement the BlackScholesG2++ process like it was done in the HybridHestonHullWhite process.
I'd start with a simple Euler discretisation instead of the more complex evolve technique used in the Heston-Hull-White process.
regards Klaus
On Wednesday, May 30, 2012 06:37:07 PM Jonathan Budd wrote: > Hi there > > I've trawled through some older posts to the QuantLib Users mailing > list and seen a couple of posts related to my question, but I'm still > not entirely sure of the answer, hence I apologise if the answer has > been posted previously. > > I'm looking to implement a hybrid Black-Scholes/G2++ process (i.e. a > Black-Scholes process with a stochastic interest rate, driven by a > G2++ process). I gather that JointStochasticProcess is the way to go > about doing this (aside: where did the manual entry for this go?). My > plan is to use this with BlackScholesProcess and G2ForwardProcess, > modelling my code off of HybridHestonHullWhiteProcess. Does this seem > reasonable? Has anyone else attempted this and would you be willing to > share any insight you might have gained from the experience? > > Best regards > > > Jonathan > > ---------------------------------------------------------------------------- > -- Live Security Virtual Conference > Exclusive live event will cover all the ways today's security and > threat landscape has changed and how IT managers can respond. Discussions > will include endpoint security, mobile security and the latest in malware > threats. http://www.accelacomm.com/jaw/sfrnl04242012/114/50122263/ > _______________________________________________ > QuantLib-users mailing list > https://lists.sourceforge.net/lists/listinfo/quantlib-users ------------------------------------------------------------------------------ Live Security Virtual Conference Exclusive live event will cover all the ways today's security and threat landscape has changed and how IT managers can respond. Discussions will include endpoint security, mobile security and the latest in malware threats. http://www.accelacomm.com/jaw/sfrnl04242012/114/50122263/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
Re: Implementing a hybrid Black-Scholes/G2++ process
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In reply to this post by Jonathan Budd
Hi Klaus
Thanks for replying. I think we're on the same train of thought here. I'm currently doing exactly as you suggested after I found the evolve technique to be a little harder to deal with than originally anticipated. I'll keep you posted on the progress and upload my code once it's working (fingers crossed). Cheers Jonathan ------------------------------------------------------------------------------ Live Security Virtual Conference Exclusive live event will cover all the ways today's security and threat landscape has changed and how IT managers can respond. Discussions will include endpoint security, mobile security and the latest in malware threats. http://www.accelacomm.com/jaw/sfrnl04242012/114/50122263/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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