Step up note
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Dear Users,
I need to price a step up bond that pays an increased coupon (default coupon + 125 bps) if the issuer rating falls below investment grade (FR0011149954 ). Is there any model for step up bonds like this or which model is best adapted? Thanks in advance Simone ------------------------------------------------------------------------------ 10 Tips for Better Server Consolidation Server virtualization is being driven by many needs. But none more important than the need to reduce IT complexity while improving strategic productivity. Learn More! http://www.accelacomm.com/jaw/sdnl/114/51507609/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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There's no such functionality available at the moment. How
are you thinking of hedging it?
Simon From: simone pilozzi [mailto:[hidden email]] Sent: 15 December 2011 16:17 To: [hidden email]; [hidden email] Subject: [Quantlib-users] Step up note I need to price a step up bond that pays an increased coupon (default coupon + 125 bps) if the issuer rating falls below investment grade (FR0011149954 ). Is there any model for step up bonds like this or which model is best adapted? Thanks in advance Simone
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Could not it be done by including the coupon in the vector of cashflows and then pass to the bond constructor? From: Simon Ibbotson [mailto:[hidden email]]
There's no such functionality available at the moment. How are you thinking of hedging it? Simon From: simone pilozzi
[hidden email]
Dear Users,
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In reply to this post by simone pilozzi
The steps are not fixed, they are conditional on the rating transition. So you need a model for these (risk neutral) transitions. ....at the current rate of downgrades, wait a couple of months more and then you can use the library as it is to price them... :-) :-) :-) ----- "Guowen Han" <[hidden email]> a écrit : > >
Could not it be done by including the coupon in the vector of cashflows and then pass to the bond constructor?
>
From: Simon Ibbotson [mailto:[hidden email]]
There's no such functionality available at the moment. How are you thinking of hedging it?
Simon
>
From: simone pilozzi
[hidden email]
Dear Users,
This email is not intended to nor should it be taken to create any legal relations or contractual relationships. This email has originated from > _____________________________________________________________ > DTCC DISCLAIMER: This email and any files transmitted with it are confidential and intended solely for the use of the individual or entity to whom they are addressed. If you have received this email in error, please notify us immediately and delete the email and any attachments from your system. The recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email. > ------------------------------------------------------------------------------ 10 Tips for Better Server Consolidation Server virtualization is being driven by many needs. But none more important than the need to reduce IT complexity while improving strategic productivity. Learn More! http://www.accelacomm.com/jaw/sdnl/114/51507609/ > _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users 10 Tips for Better Server Consolidation Server virtualization is being driven by many needs. But none more important than the need to reduce IT complexity while improving strategic productivity. Learn More! http://www.accelacomm.com/jaw/sdnl/114/51507609/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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On Thu, Dec 15, 2011 at 7:49 PM, <[hidden email]> wrote:
> The steps are not fixed, they are conditional on the rating transition. So > you need a model for these (risk neutral) transitions. Maybe you can replicate it with a bond plus (or minus) the fixed leg of a CDS? Luigi ------------------------------------------------------------------------------ 10 Tips for Better Server Consolidation Server virtualization is being driven by many needs. But none more important than the need to reduce IT complexity while improving strategic productivity. Learn More! http://www.accelacomm.com/jaw/sdnl/114/51507609/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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In reply to this post by simone pilozzi
You could but only if you make big assumptions. I am not an expert on these; but a CDS only gives you information about the (forward) probability of one event (the default) but not of the rating states. You also need the volatility of the rating states (the other dimension of the transition matrix). There are mkt volatilities but only between default and non-default(aggregated ratings) states. You can always try to use what we have, like taking the default prob form the CDS and a given (real world...) transition matrix to compute a section of the matrix by interpolating on the default probabilities with the CDS one (actually, in a different context, this interpolation is mentioned in Marco's presentation in the last and first QL meeting). Not truly rigorous to price like this though....... Best Pepe ----- "Luigi Ballabio" <[hidden email]> a écrit : > On Thu, Dec 15, 2011 at 7:49 PM, <[hidden email]> wrote: > > The steps are not fixed, they are conditional on the rating > transition. So > > you need a model for these (risk neutral) transitions. > > Maybe you can replicate it with a bond plus (or minus) the fixed leg > of a CDS? > > Luigi ------------------------------------------------------------------------------ Learn Windows Azure Live! Tuesday, Dec 13, 2011 Microsoft is holding a special Learn Windows Azure training event for developers. It will provide a great way to learn Windows Azure and what it provides. You can attend the event by watching it streamed LIVE online. Learn more at http://p.sf.net/sfu/ms-windowsazure _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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