Re: Floating RateBond-missing caplet volatility?

[amandine vincotte]

Hi,

I am defining a vanilla floating rate bond ( so the constructor has empty caps and floors vectors as below).
When I set the  "In arrears=false", I get a price for the FRN.

But when I set " in arrears=true" ,like most of the FRNs are, I get this error " missing caplet volatility".

I dont understand this error because I have defined a plain vanilla FRN.


Thank you for your help


Regards,

Amandine

FloatingRateBond FRN(0,100,floatSchedule,euriborIndex,dayCount,conv,2,vector< Real >(1,1.0),spreads,vector< Rate >() ,vector< Rate >(),false,100,Date(),discountingTermStructure);


----- Original Message ----
From: Luigi Ballabio <[hidden email]>
To: amandine vincotte <[hidden email]>
Cc: [hidden email]
Sent: Monday, November 12, 2007 4:27:31 PM
Subject: Re: [Quantlib-users] Floating RateBond


On Wed, 2007-11-07 at 02:36 -0800, amandine vincotte wrote:
> I get two types of errors:
> - when I set the effective date and the evaluation date to be
> different :
> I get the Euribor3M fixing missing  for the 1rst of November
> ( although I can print it with the forecastFixing function)

November 1st is in the past, so you have to provide the fixing (even
though it could forecast it somehow---but I wouldn't trust
forecastFixing() in this case. It should probably be in the private
interface.) You can do it by adding

euriborIndex->addFixing(Date(1,November,2007), rate);

where rate is the fixing value.

> - when I set the effective date and the evaluation date to be the same
> I get the the missing caplet volatility error only

Hmm. I thought we didn't need a volatility in this case. Apparently, we
did a very thorough job of making simple things difficult. Let me
check... No, I see it now. When you initialize your FRN, you're passing
vector<Rate>(1,0.0) as both caps and floors---which doesn't make much
sense. If you want to say "no caps" or "no floors", pass an empty vector
instead, i.e., vector<Rate>().

If you do want to pass a cap and/or a floor (not both 0.0, though...)
you'll need a caplet volatility.

Luigi


--

The economy depends about as much on economists as the weather does on
weather forecasters.
-- Jean-Paul Kauffmann


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[Luigi Ballabio]

On Thu, 2007-11-22 at 08:11 -0800, amandine vincotte wrote:
> I am defining a vanilla floating rate bond ( so the constructor has empty caps and floors vectors as below).
> When I set the  "In arrears=false", I get a price for the FRN.
>
> But when I set " in arrears=true" ,like most of the FRNs are, I get this error " missing caplet volatility".
>
> I dont understand this error because I have defined a plain vanilla FRN.

When the coupon is fixed in arrears, there's a convexity adjustment to
be applied to the index fixing which is forecast on the risk-free curve.
The adjustment depends on the caplet volatility, so one is required. If
you're not interested in the adjustment (you probably should, though)
you can pass a constant volatility equal to 0.

Luigi


--

I'd never join any club that would have the likes of me as a member.
-- Groucho Marx



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