Posted by
Luigi Ballabio on
URL: http://quantlib.414.s1.nabble.com/New-termstructure-for-bootstrap-algorithm-tp11137p11138.html
On 05/30/2006 11:43:14 AM, jamal abid wrote:
> I am currently using Quantlib and would like to implement some new
> options with the "Term structure based on piecewise-constant flat
> forwards with libor-futures-swap bootstrapping algorithm". I would
> like to implement the same algorithm but with the so-called linear
> forward and quadratic forward algorithms. There is something that I
> still don't understand, the current implementation is called
> piecewise constant flat forward algorithm but where are these
> constant flat forward rates ? as far as I know in QL, a term strucure
> with loglinear interpolation is run along optimizing the reevaluation
> of each instrument till an accuracy is reached.
Jamal,
loglinear discounts are equivalent to flat (instantaneous)
forward rates; you can verify it by manipulating the conversion
formula, i.e., (LaTeX ahead)
D(t) = exp(-int_0^t f(\tau) d\tau)
Using the discounts was simply more convenient for the implementation.
Also, the piecewise-flat forward is not really "the current
implementation"; it was the only one available up to a few releases
ago, but now it's just a special case of a more generic piecewise yield
curve. You can find more such curves used in the test suite, including
curves which actually interpolate forwards.
Later,
Luigi
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For every problem there is one solution which is simple, neat, and
wrong.
-- H. L. Mencken