Re: Some questions

Posted by Luigi Ballabio-4 on Jun 14, 2002; 5:34am
URL: http://quantlib.414.s1.nabble.com/Some-questions-tp10105p10108.html

At 12:43 PM 6/14/02 +0200, Ferdinando Ametrano wrote:
>We currently have FiniteDifferenceModel and MonteCarloModel, but I would
>say their names can be misleading, since a model is not strictly related
>to the numerical approach used to implement it.

We're modeling apples and oranges here :)
Finite differences methods model _an equation_ by discretizing it.
Monte Carlo is more a technique than a model though.
Any ideas for a better name?


>Is a PricingEngine (analityc, FD, MC) a model or an object used to perform
>calculation for different models?

It is an engine, i.e., a calculation. The details of the latter most likely
depend on a model _and_ a numerical technique used for solving the
equations describing the model.


>I see 3 components here: a description of the market (the yield curve, the
>Black surface, etc.), a model (eg. constant volatility Black model, time
>dependant volatility, time/strike dependent volatility), and a numerical
>approach (analytic, FD, MC).
>Should the market description be an input of the Instrument/model/both?

I'd say that what changes on a per-model basis belongs to specific models.


>What about the dividend yield term structure? It probably belongs to the
>"underlying" of the option, but ... what if I want to model a stochastic
>process for dividends?

Beats me. We can leave where it is now and think about it when you'll model
a stochastic process for dividends.


>Many questions and few answers, I know.
>I would suggest that we try to have a realistic general design, carefully
>avoiding design paralysis. I would define a good design the one that
>solves our _current_ problems. The price to pay is to have to refactor the
>code later.

_Emphasis_ and acting bold won't make your definition any better, you know.
Even though it's a standard meeting technique :)

I agree though. I think in this case we can make single incremental changes
(e.g., moving the volatility to the model and leave the yield curve alone
while we think about it) when single problems arise.

Bye,
         Luigi