couponpricer.cpp bug

[Nathan Abbott]

There is a bug in couponpricer.cpp. I found the bug when I tried to evaluate a cap floor with a coupon that has a payment date on Jan 05, 2009. The evaluation date was set to Jan 02, 2009. The reference date of the curve was set to Jan 06, 2009. The method that has the error is shown below starting at line 38.

 

 

 void BlackIborCouponPricer::initialize(const FloatingRateCoupon& coupon) {

        coupon_ = dynamic_cast<const IborCoupon*>(&coupon);

        gearing_ = coupon_->gearing();

        spread_ = coupon_->spread();

        Date paymentDate = coupon_->date();

        const boost::shared_ptr<InterestRateIndex>& index = coupon_->index();

        Handle<YieldTermStructure> rateCurve = index->termStructure();

 

        Date today = Settings::instance().evaluationDate();

 

        if (paymentDate > today) // Error!!! should ask for the reference date !!!!

            discount_ = rateCurve->discount(paymentDate);

        else

            discount_ = 1.0;

 

        spreadLegValue_ = spread_ * coupon_->accrualPeriod()* discount_;

    }

 

 

The error occurred in because the payment date of the coupon was between the evaluation date and the reference date of the curve. The method checks to see if the payment date is greater than the evaluation date. If it is, then it tries to get the discount factor of the date from the curve. If the you ask a curve for the discount factor of a date before its reference date, the curve will throw you an error. This is what happen to me because Jan 05 our payment date was greater than Jan 02 our evaluation date and Jan 05 was less than our reference date of Jan 06. 

 

To fix it, I suggest the following changes to the code that is shown below.  Now the method checks to see if payment date is greater or equal to the reference date of the curve.

 

 

void BlackIborCouponPricer::initialize(const FloatingRateCoupon& coupon) {

        coupon_ = dynamic_cast<const IborCoupon*>(&coupon);

        gearing_ = coupon_->gearing();

        spread_ = coupon_->spread();

        Date paymentDate = coupon_->date();

        const boost::shared_ptr<InterestRateIndex>& index = coupon_->index();

        Handle<YieldTermStructure> rateCurve = index->termStructure();

 

        Date referenceDate = rateCurve->referenceDate();

 

        if (paymentDate >= referenceDate)

            discount_ = rateCurve->discount(paymentDate);

        else

            discount_ = 1.0;

 

        spreadLegValue_ = spread_ * coupon_->accrualPeriod()* discount_;

    }

 

 

 

 

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[Luigi Ballabio]

On Tue, 2009-01-06 at 10:32 -0800, Nathan Abbott wrote:
> There is a bug in couponpricer.cpp.

You're right. I applied your fix in the Subversion repository.

Thanks,
        Luigi


--

Do the right thing. It will gratify some people and astonish the rest.
-- Mark Twain



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