Posted by
Luigi Ballabio on
Aug 31, 2012; 2:45pm
URL: http://quantlib.414.s1.nabble.com/CAT-Bond-valuation-tp13511p13514.html
Hi Grześ,
I'd start by doing the least possible coding :) Let me elaborate.
In the architecture of QuantLib, you'll need an instrument class
(describing the contract) and an engine class (doing the actual
pricing). You can ask your resident expert (hi, Lorenzo) or read
chapter 2 of <
https://sites.google.com/site/luigiballabio/>.
As for the instrument, it is very tempting to inherit it from the
existing Bond class (it's a bond, after all). In the short term,
that's what I advice.
In the long term, I'm a bit worried that functions taking a Bond
instance (such as, for instance, BondFunctions::yield, which
calculates the bond yield) would take a CAT bond and do their job like
they do for each other bond; that is, extract its coupons and perform
the yield calculations disregarding the catastrophe feature. This
might or might not be what you want.
In the _very_ short term, though, I'd just use the existing fixed-rate
and floating-rate bond classes and use those until you see that the
thing works. It will save you some development time which I'd rather
use for getting to a first working version.
Which brings me to the second part, i.e., the engine class. It will
probably need to contain a discount curve and your loss distribution.
Any idea about how you'll use them?
Later,
Luigi
On Fri, Aug 24, 2012 at 5:08 PM, Grześ Andruszkiewicz
<
[hidden email]> wrote:
> Hi Luigi,
>
> Thanks for your reply! I personally can't claim to be proficient with
> Quantlib, but my colleague Lorenzo (CC'd) did the 3-day course in
> London with yourself, so he must be an expert ;)
>
> I don't think there are any established models for CAT bonds. We are
> actually part of one of these academic-industry projects and one of
> the goals is to come up with a model and implementation for these
> instruments. We thought it might be a good idea to make this
> implementation part of quantlib, to make it potentially useful for
> someone.
>
> To start with, I would be grateful for any hints on where to start,
> e.g. what would be your first guess on the place in the class
> hierarchy where this instrument would fit?
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