Is there a way I can incorporate accrued interest and yield calculations for incorporate Mortgaged Backed Securities in QuantLib ?
From: Ferdinando Ametrano [mailto:[hidden email]]
Sent: 15 May 2013 09:19
To: Peter Caspers
Cc: [hidden email]
Subject: Re: [Quantlib-dev] Jamshidian engine with start delay
I'm ok with your extension provided that the new values collapse back to the old ones (with a reasonable tolerance) in the case of expiry date being equal the value date.
Is the data you've posted related to this case?
It's a while now I do not work for a vol desk, but I would never underestimate the huge difference of analytic vs numerical methods when it comes to calibration.
This said I would also add that I'm always amazed how poor the production setup is, even in very sophisticated banks. Old models stick around for very long time, just because of the huge effort required to update them in production systems. The multi-curve framework updates I've seen so far rival with Mary Shelley's Frankenstein approach
On Sat, May 11, 2013 at 1:37 PM, Peter Caspers <[hidden email]> wrote:
Hello,
in the JamshidianSwaptionEngine the option expiry date and the value date of the underlying swap are handled a bit simplified assuming both dates equal (see the warning in the code). Though the impact is usually not very big we might want to improve this detail
in the library ? See below for a possible approach. Thank you Sebastian for our discussions on the topic.
Aside I would be interested whether the Jamshidian method is still in use for model calibration in the world of multi curve enhanced models (where by enhanced I mean something simple like a static spread correction) because I believe the generalization of the
method to this setting is not straightforward. Also I feel that numerical integration does nearly a just as efficient and accurate job and it directly allows for multiple curve computations. Or do you ignore multi curve in the calibration phase and only adjust
the curves for the actual pricing ?
Back to Jamshidian and the start delay. Some theoretical background and numerical examples can be found here
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2246054
A possible implementation goes as follows. First we need to provide an extended zerobond option method, which we can add to AffineModel in model.hpp
https://github.com/pcaspers/quantlib/commit/e16b4ea5ffbfe33bd6acd0ee6cb3ecd8a43f72a4
The default implementation uses the same simplification as mentioned above ignoring the bond start delay. To improve the pricing in the JamshidianEngine we have to overwrite this method in the model implementations for which we want it. For the Hull White model
I did it here
https://github.com/pcaspers/quantlib/commit/e8b5912cac2e236fe59a885e8cd1e2ed9243cc47
Finally we have to modify the Jamshidian engine a bit
https://github.com/pcaspers/quantlib/commit/019f37a498846d9a6e89a897300f126c01d6ef86
(maybe we should keep some warning in the code because you are not forced to support the start delay in your model implementations)
Not suprisingly the test suite breaks when comparing computation results to cached values computed with the simplified engine, so the cached values should be updated (given that we believe in the new engine)
1> Testing Hull-White calibration against cached values...
1> shortratemodels.cpp(126): error in "QuantLib::detail::quantlib_test_case(&ShortRateModelTest::testCachedHullWhite)": Failed to reproduce cached calibration results:
1> calculated: a = 0.0464041, sigma = 0.00579912, f(a) = 0.1158,
1> expected: a = 0.0488565, sigma = 0.00593662, f(a) = 0.121599,
1> difference: a = -0.00245242, sigma = -0.000137495, f(a) = -0.00579896,
1> end criteria = StationaryFunctionValue
regards
Peter
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