how is QL tested

[Vadim Ogranovich-3]

Hi,

I am wondering what serves as a benchmark for testing algorithms for option
pricing, implied vols., etc (e.g. Bloomberg?). Specifically I am interested
in American options with continuous / descrete dividends.

To make sure, I am not reporting a problem. I am just trying to get
confidence in QL.

Thanks, Vadim

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[Ferdinando M. Ametrano-2]

Hi Vadim

sorry for the late reply, but I got stretched pretty thin in the last weeks

>I am wondering what serves as a benchmark for testing algorithms for option
>pricing, implied vols., etc
Usually numerical examples provided by books ("Implementing Derivatives
Models", Haug, etc) and articles. Greeks are recalculated outside QuantLib
with a finite difference approach and checked with the results provided by
QuantLib. Parities and general relationship (as in Straddle = Call+Put) are
also checked.
These tests are implemented in QuantLib-Python test suite.
There is still much work that need to be done anyway

>Specifically I am interested in American options with continuous /
>descrete dividends.
Ouch! I checked what kind of test we have for american options, and I found
only something about greeks. We badly need something here. I wrote to Marco
(the original author of american options) and we will try to work on that.
I looked around for numerical examples but I couldn't find none. There must
be some numerical results for american option with discrete dividends
somewhere; suggestions anyone?

>To make sure, I am not reporting a problem. I am just trying to get
>confidence in QL.
I completely understand your concern. Of course anyone who wants to use
QuantLib for a serious task should test the library before, and I would
suggest to produce a test that could be run frequently to check that
further development doesn't broke the features you're interested in. Such a
test could be added to the Python test suite, or to the C++ examples

>I have been searching for ways of representing and fitting volatility smiles
>of options in QL. The closest things that I found are all sorts of
>*VolatilityStructure classes. They seem to be coming from the area of fixed
>income
>[...]
>  Interestingly the *VolatilityStructure classes
>appear in .hpp but not in any of .cpp files.
you're right. Luigi is working on that.

>Is there any support for volatility smiles of options?
Not yet

>  This by itself is a two-level question: a) whether there is a class that
> represents a smile
>and b) whether there are methods that fit the smile to the current set of
>option prices.
The first level shouldn't be that hard ... is there anyone who wants to
propose an interface for equity's vol, taking into account time and stike
dependencies?

>2. Are there means to incorporate time-dependent (but not stochastic)
>volatility in pricing of FdDividendAmericanOption. Here the answer is
>probably "yes, in principal you can" given what I have read in "The finite
>difference framework" of the user manual, but I am wondering is there an
>already canned solution.
Not yet, and while in principal you can, my opinion is that we need to
define the volatility interface before

ciao -- Nando

[Kris .]

Hi


> Hi Vadim
> I looked around for numerical examples but I couldn't find none. There must
> be some numerical results for american option with discrete dividends
> somewhere; suggestions anyone?
>

Are you meaning a comparable algorithm or analyticalish-formula?,
when you say numerical result??.




> >To make sure, I am not reporting a problem. I am just trying to get
> >confidence in QL.
> I completely understand your concern. Of course anyone who wants to use
> QuantLib for a serious task should test the library before, and I would
> suggest to produce a test that could be run frequently to check that

it would be a good idea to use cppunit or other testing framework
http://cppunit.sourceforge.net/

and have regression testing built-in..this way the interface and
design by contract can be enforced?

nando  could you point me to the latest updated todo list?.

thanks
Kris

> further development doesn't broke the features you're interested in. Such a
> test could be added to the Python test suite, or to the C++ examples
>

[Vadim Ogranovich-3]

What about Bloomberg? I bet they have option analytics somewhere in the maze
of their windows.

Also in "Option Pricing" by Wilmott, et. al there is an example in C.2.3
"Options paying dividends".

-----Original Message-----
From: Ferdinando Ametrano [mailto:[hidden email]]
Sent: Tuesday, April 23, 2002 1:44 PM
To: Vadim Ogranovich
Cc: [hidden email]
Subject: Re: [Quantlib-users] how is QL tested


Hi Vadim

sorry for the late reply, but I got stretched pretty thin in the last weeks

>I am wondering what serves as a benchmark for testing algorithms for option
>pricing, implied vols., etc
Usually numerical examples provided by books ("Implementing Derivatives
Models", Haug, etc) and articles. Greeks are recalculated outside QuantLib
with a finite difference approach and checked with the results provided by
QuantLib. Parities and general relationship (as in Straddle = Call+Put) are
also checked.
These tests are implemented in QuantLib-Python test suite.
There is still much work that need to be done anyway

>Specifically I am interested in American options with continuous /
>descrete dividends.
Ouch! I checked what kind of test we have for american options, and I found
only something about greeks. We badly need something here. I wrote to Marco
(the original author of american options) and we will try to work on that.
I looked around for numerical examples but I couldn't find none. There must
be some numerical results for american option with discrete dividends
somewhere; suggestions anyone?

>To make sure, I am not reporting a problem. I am just trying to get
>confidence in QL.
I completely understand your concern. Of course anyone who wants to use
QuantLib for a serious task should test the library before, and I would
suggest to produce a test that could be run frequently to check that
further development doesn't broke the features you're interested in. Such a
test could be added to the Python test suite, or to the C++ examples

>I have been searching for ways of representing and fitting volatility
smiles
>of options in QL. The closest things that I found are all sorts of
>*VolatilityStructure classes. They seem to be coming from the area of fixed
>income
>[...]
>  Interestingly the *VolatilityStructure classes
>appear in .hpp but not in any of .cpp files.
you're right. Luigi is working on that.

>Is there any support for volatility smiles of options?
Not yet

>  This by itself is a two-level question: a) whether there is a class that
> represents a smile
>and b) whether there are methods that fit the smile to the current set of
>option prices.
The first level shouldn't be that hard ... is there anyone who wants to
propose an interface for equity's vol, taking into account time and stike
dependencies?

>2. Are there means to incorporate time-dependent (but not stochastic)
>volatility in pricing of FdDividendAmericanOption. Here the answer is
>probably "yes, in principal you can" given what I have read in "The finite
>difference framework" of the user manual, but I am wondering is there an
>already canned solution.
Not yet, and while in principal you can, my opinion is that we need to
define the volatility interface before

ciao -- Nando


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DISCLAIMER
This e-mail, and any attachments thereto, is intended only for use by the
addressee(s) named herein and may contain legally privileged and/or
confidential information.  If you are not the intended recipient of this
e-mail, you are hereby notified that any dissemination, distribution or
copying of this e-mail, and any attachments thereto, is strictly prohibited.
If you have received this e-mail in error, please immediately notify me and
permanently delete the original and any copy of any e-mail and any printout
thereof.

E-mail transmission cannot be guaranteed to be secure or error-free.  The
sender therefore does not accept liability for any errors or omissions in
the contents of this message which arise as a result of e-mail transmission.

NOTICE REGARDING PRIVACY AND CONFIDENTIALITY

Knight Trading Group may, at its discretion, monitor and review the content
of all e-mail communications.

[Ferdinando M. Ametrano-2]

Hi all

[about american option with discrete dividends] Vadim Ogranovich wrote:
>What about Bloomberg? I bet they have option analytics somewhere in the maze
>of their windows.
I will take a look at that. If someone knows the american option Bloomberg
window and wants to drop me a line with the command sequence to get there,
I would appreciate.

>Also in "Option Pricing" by Wilmott, et. al there is an example in C.2.3
>"Options paying dividends".
thank you for the suggestion, I forgot about that example. Anyway it uses
discrete dividend yields, i.e. a dividend that is a percentage of the spot
value. As of now the QuantLib pricer cannot handle such dividends (even if
it would easy to implement it in the current framework), it handles lumpy
dividends.

At 12:15 AM 4/24/2002 -0700, Kris wrote:
> > I looked around for numerical examples but I couldn't find none. There
> must
> > be some numerical results for american option with discrete dividends
> > somewhere; suggestions anyone?
>Are you meaning a comparable algorithm or analyticalish-formula?,
>when you say numerical result??.
I mean a table of option values that I could re-calculate with QuantLib
pricers, in order to get a verification of the results provided by our pricers

>it would be a good idea to use cppunit or other testing framework
>http://cppunit.sourceforge.net/
>and have regression testing built-in..this way the interface and
>design by contract can be enforced?
Yes it would a good idea. Actually we have a unit test framework in Python
(and Ruby, MzScheme, Guile, etc. thanks to Luigi) but a C++ testing
framework is needed.

Has anyone compared cppunit with the boost test suite?
Even better: anyone willing to set up the QuantLib C++ test suite?

>could you point me to the latest updated todo list?.
We have a TODO.txt file in our source distribution: the latest version is
always available at:
http://cvs.sourceforge.net/cgi-bin/viewcvs.cgi/quantlib/QuantLib/TODO.txt?rev=HEAD&content-type=text/vnd.viewcvs-markup

This list should be integrated with the todo list generated by DoxyGen
using QuantLib source code. If you don't want to generate the documentation
from the sources you can check   http://quantlib.org/snapshot.html. There
you'll find the latest build and you can browse the DoxyGen html
documentation. The page of interest for you is
http://quantlib.org/AutomatedBuilds/html/todo.html

ciao -- Nando