Hi,
I think the advantage was that a floating leg prices at par. We
don't gain much in the library though, since we're adding all the
coupon values anyway.
In short: if you use par coupons, you might be getting the rate
slightly wrong because you're estimating it over the life of the
coupon, and not over the tenor of the libor. If you use indexed
coupons, you'll get the correct rate but in principle there might be a
slight convexity adjustment that we're neglecting (because, again,
we're forecasting and accruing over two slightly different periods).
If you search the mailing list archives, you'll probably find people
arguing for either choice. In the end, I guess it boils down to your
preference or to the convention used at your desk.
Regards,
Luigi
On Sun, Nov 11, 2012 at 9:30 PM, <
[hidden email]> wrote:
> Hi all,
>
> Could anyone give me a scenario when I should define QL_USE_INDEXED_COUPON?
>
> The difference that I see is the end date. What is the advantage to
> use par coupon approximation?
>
> Thanks,
>
> Yue
>
>
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