Fwd: Re garding ql/experimental/credit/lossdistribution.hpp

Posted by Roland Lichters-2 on Aug 14, 2008; 9:31pm
URL: http://quantlib.414.s1.nabble.com/Regarding-ql-experimental-credit-lossdistribution-hpp-tp12184p12186.html

Hi Luigi, Nicolai,

I am enclosing a replacement for lossdistribution.xpp in the experimental/credit folder. Finally I had a look at the thesis that Nicolai has pointed to and changed the method probabilityOfNEvents accordingly. I hope I have cited the thesis properly in the comment, please let me know.

Regards,

Roland

---------- Forwarded message ----------
From: Roland Lichters <[hidden email]>
Date: Tue, Jul 8, 2008 at 10:48 PM
Subject: Re: [Quantlib-dev] Re garding ql/experimental/credit/lossdistribution.hpp
To: N_Lassesen <[hidden email]>
Cc: [hidden email]


Hi Nicolai,

many thanks for the hint. I will have a look at the procedure as soon as I find some spare time. 
Did you also reproduce the CDO examples in Hull and White's paper? Luigi will soon commit the CDO code that uses the loss distribution bucketing algorithm, also to appear in experimental, I assume. We agreed that it will be released latest with version 1.0. The associated test cases compare against the paper's result. I would be very interested in discussing these and any improvements you have in mind.

Best,
Roland

On Mon, Jul 7, 2008 at 9:52 PM, N_Lassesen <[hidden email]> wrote:

The function Real probabilityOfNEvents(Size n, const std::vector<Real>& prob)
is numerically unstable. This document:
http://www.cs.toronto.edu/pub/reports/na/ma-07-phd.pdf
describes a recursive procedure (formula 2.1) which is numerically stable,
and which gives rise to an identical loss distribution. I have been able to
replicate the results in Hull and White (2004) using this procedure with an
error of only a few basis points.

Rgds
Nicolai Lassesen

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