Support for negative rate IR derivatives
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Hello,
I am using QL to develop IR rate derivative pricing capabilities, in particular for swaptions and caps/floors and possibly in-arrears swaps and cross-currency swaps. I have read that more general support for negative rates is forthcoming in the 1.8 release (Bachelier swaption pricing engine for example) but I have some questions regarding the extent to which derivative pricing in negative rate environments will be implemented. For example, are you planning on extending the functionality of the optionletstripper2 object or the swaptionvolcube1 object to support neg rates? What about an interpolation scheme that has acceptable behavior when rates are close to 0 or negative (such as the free boundary SABR)? Could you provide some guidance for when the 1.8 release is planned? Are any of the above objects already implemented in the GitHub master? More generally, I would like to thank you for your ongoing development of QL. It is incredible to have a tool like this in the public domain and I admire your work greatly. Thank you in advance for your support, Best regards, TB |
Re: Support for negative rate IR derivatives
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Hi,
> For example, are you planning on extending the functionality of the > optionletstripper2 object or the swaptionvolcube1 object to support neg > rates? Yes, both caplet and swaption volatilities can be of shifted lognormal or normal type in 1.8. > What about an interpolation scheme that has acceptable behavior when > rates are close to 0 or negative (such as the free boundary SABR)? There will be a shifted SABR model (with deterministic shift), that is also used by the SABR swaption cube (SwaptionVolCube1), but as far as I know nothing of the more sophisticated stuff like free boundary and mixed SABR models. I started working on the mixed SABR model by Antonov and friends some time ago, but there is only low priority on it at least from my side at the moment. From your experience, is it important to have it on top of the simple shifted SABR? > Could you provide some guidance for when the 1.8 release is planned? Are any > of the above objects already implemented in the GitHub master? Everything mentioned above should be in Luigi’s master, and he is also the one who knows when 1.8 is going to be released. Regards Peter > More generally, I would like to thank you for your ongoing development of > QL. It is incredible to have a tool like this in the public domain and I > admire your work greatly. > > Thank you in advance for your support, > Best regards, > > TB > > > > -- > View this message in context: http://quantlib.10058.n7.nabble.com/Support-for-negative-rate-IR-derivatives-tp17369.html > Sent from the quantlib-users mailing list archive at Nabble.com. > > ------------------------------------------------------------------------------ > Transform Data into Opportunity. > Accelerate data analysis in your applications with > Intel Data Analytics Acceleration Library. > Click to learn more. > http://pubads.g.doubleclick.net/gampad/clk?id=278785471&iu=/4140 > _______________________________________________ > QuantLib-users mailing list > [hidden email] > https://lists.sourceforge.net/lists/listinfo/quantlib-users ------------------------------------------------------------------------------ Transform Data into Opportunity. Accelerate data analysis in your applications with Intel Data Analytics Acceleration Library. Click to learn more. http://pubads.g.doubleclick.net/gampad/clk?id=278785471&iu=/4140 _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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Dear Peter,
Thank you for your prompt reply. My understanding is that the disadvantages of the shifted SABR approach are similar to that of the displaced Black model. Namely, the shift is arbitrary and difficult to justify from an objective point of view. For example, should one use the same shift in the EUR and CHF economies, given that rates are currently deeper in the negative domain in the latter economy? Furthermore, lets say that a shift of 1% is chosen today but x years from now rates are approaching -1%. Readjusting the shift will cause another unpleasant discontinuity in sensis... So, in my opinion the shifted SABR is a technically simple but fundamentally poor solution that may or may not become problematic in the future. I guess it all depends on how low rates can go... Also some of the new SABR variants seem to behave quite well below 0... If Luigi could give me some guidance regarding the planned release date of 1.8 that would be highly appreciated. Best regards, TB |
Re: Support for negative rate IR derivatives
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1.8 will be out sometime in April. Almost all contributions for the release are merged. I'll need some time to test it and package it. Luigi On 18:59, Wed, Mar 30, 2016 t_blake <[hidden email]> wrote: Dear Peter, ------------------------------------------------------------------------------ Transform Data into Opportunity. Accelerate data analysis in your applications with Intel Data Analytics Acceleration Library. Click to learn more. http://pubads.g.doubleclick.net/gampad/clk?id=278785471&iu=/4140 _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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