bermudan with call-spread coupons

[P Nelnik]

Good morning all,

Has anyone got a recommendation for what to use to price a trade with semi-annual coupons which are call-spreads ( on an FX underlying )
     Coupon = max ( floor , min ( cap, factor * underlying_spot - strike ))
The issuer has the option to call the trade on all coupon dates.

Is there a bermudan monte-carlo implementation in quantlib that can handle this?

How about using an FD scheme or even a tree?

Ideally some kind person on this email list will point me in the direction of some nice example code that deals with some similar trade.


Thanks
Philip

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[Luigi Ballabio]

On Mon, 2010-07-05 at 11:54 +0800, P Nelnik wrote:

> Has anyone got a recommendation for what to use to price a trade with
> semi-annual coupons which are call-spreads ( on an FX underlying )
>      Coupon = max ( floor , min ( cap, factor * underlying_spot -
> strike ))
> The issuer has the option to call the trade on all coupon dates.
>
> Is there a bermudan monte-carlo implementation in quantlib that can
> handle this?
>
> How about using an FD scheme or even a tree?

I would start from the binomial-tree engine for the equity options.
You'll have to clone and modify
<ql/pricingengines/vanilla/binomialengine.hpp> e
<ql/pricingengines/vanilla/discretizedvanillaoption.hpp>.

You could try FD too, but trees are simpler to begin with.

Luigi



--

So little done, so much to do.
-- Cecil Rhodes



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