negative interest rates

[Graaf, A.C.J.M. de (Arie)]

Hello,

 

I’m using QuantlibXL for pricing some instruments (mainly caps) but getting errors because of negative interest rates.

Specifically, I get the error “qlInterpolatedYieldCurve - invalid value (-5.31648e-005) at index 4” when using qlInterpolatedYieldCurve on the actual rates in the market.

 

And even if I put a floor of 0.001% on the interest rates I get the error “qlInstrumentNPV - forward + displacement (-0.000105577 + 0) must be positive” when using the funtion qlInstrumentNPV to price a cap.

 

Does this mean QL cannot be used in the current market environment?

 

 

Arie de Graaf

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[Peter Caspers-4]

Hi Arie,

it can be used. Some more work is needed here and there to have the
shifted lognormal and normal quotation standards available throughout
all classes, but the core is there.

Your specific points:

There is a macro QL_NEGATIVE_RATES in userconfig.hpp (for a windows
build, you are working with qlxl, so under windows I guess), that
should be defined. But I think this is the case by default ...

Do you maybe use loglinear interpolation on rates ? This of course
wouldn't work.

The BlackCapFloorEngine accepts a parameter "Displacement" which you
can use to price your cap in a shifted lognormal Black model. The
unshifted Black will not work when a forward rate of a caplet is
negative. I think currently there is no engine for the normal Black
model. You can use the bachelierBlackFormula directly however to price
single caplets in a normal Black model.

Best regards
Peter




On 10 March 2015 at 13:59, Graaf, A.C.J.M. de (Arie)
<[hidden email]> wrote:

> Hello,
>
>
>
> I’m using QuantlibXL for pricing some instruments (mainly caps) but getting
> errors because of negative interest rates.
>
> Specifically, I get the error “qlInterpolatedYieldCurve - invalid value
> (-5.31648e-005) at index 4” when using qlInterpolatedYieldCurve on the
> actual rates in the market.
>
>
>
> And even if I put a floor of 0.001% on the interest rates I get the error
> “qlInstrumentNPV - forward + displacement (-0.000105577 + 0) must be
> positive” when using the funtion qlInstrumentNPV to price a cap.
>
>
>
> Does this mean QL cannot be used in the current market environment?
>
>
>
>
>
> Arie de Graaf
>
>
> ________________________________
>
> Dit e-mailbericht is alleen bestemd voor de geadresseerden. Indien dit
> bericht niet voor u is bedoeld, wordt u verzocht de afzender hiervan op de
> hoogte te stellen door het bericht te retourneren en de inhoud niet te
> gebruiken.
> This e-mail message is intended to be exclusively for the addressee. If you
> are not the intended recipient you are kindly requested not to make any use
> whatsoever of the contents and to notify the sender immediately by returning
> this e-mail message.
>
> ------------------------------------------------------------------------------
> Dive into the World of Parallel Programming The Go Parallel Website,
> sponsored
> by Intel and developed in partnership with Slashdot Media, is your hub for
> all
> things parallel software development, from weekly thought leadership blogs
> to
> news, videos, case studies, tutorials and more. Take a look and join the
> conversation now. http://goparallel.sourceforge.net/
> _______________________________________________
> QuantLib-users mailing list
> [hidden email]
> https://lists.sourceforge.net/lists/listinfo/quantlib-users
>

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things parallel software development, from weekly thought leadership blogs to
news, videos, case studies, tutorials and more. Take a look and join the
conversation now. http://goparallel.sourceforge.net/
_______________________________________________
QuantLib-users mailing list
[hidden email]
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