Hi Michael,
apologies for the delay. For option pricing, you can use a flat
curve build from an annualized rate. Usually, you'll use the
continuously compounded rate, which is the one used in the
Black-Scholes formula; for instance, you might declare something like
boost::shared_ptr<YieldTermStructure> flat_curve(
new FlatForward(evaluationDate, r, dayCounter)));
(if necessary, you can pass a rate with a different compounding as
long as you specify it, as in:
boost::shared_ptr<YieldTermStructure> flat_curve(
new FlatForward(evaluationDate, r, dayCounter,
Compounded, Semiannual)));
but this is not commonly used).
One thing, though, is that the rate must be in decimal units; that is,
1% should be input as 0.01. With this convention, prices from
QuantLib are the same as those you'll get from other pricers. If you
still have differences, post the code you're using and we'll try to
figure it out.
Luigi
On Wed, Sep 24, 2014 at 3:33 AM, mkrg23 <
[hidden email]> wrote:
> Hi All,
>
> I'm having trouble understanding how to implement the YieldTermStructure
> class for the risk free rate to be passed a GeneralizedBlackScholesProcess
> object. My goal is to price an option with 30 days to expiration, I am
> unclear whether to pass YieldTermStructure the annualized interest rate
> (i.e. 1% on an annual basis) or whether I need to pass it an interest rate
> that corresponds to the lifetime of the option.
>
> When I have done tests to compare option values using this method to other
> non-quantlib pricing methods I find that I get more accurate values when I
> use an interest rate closer to zero.
>
> If anyone could provide any insight to the YeildTermStructure class and how
> to properly construct it with respect to the risk free rate for option
> pricing that would be very helpful.
>
>
> Thank You
> Michael
>
>
>
> --
> View this message in context:
http://quantlib.10058.n7.nabble.com/Using-YeildTermStructure-in-GeneralizedBlackScholesProcess-tp15911.html> Sent from the quantlib-users mailing list archive at Nabble.com.
>
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