http://quantlib.414.s1.nabble.com/Cash-flow-treatment-of-range-accrual-notes-tp14812p14834.html
relevant for this. Even if an engine moves a cashflow around in time
criterion to include the cashflow into the npv. (on top of that it may
> Dear Peter,
>
> Thanks for your reply.
>
> This question arise when I am looking into the finite difference engine, I
> wonder how QuantLib handles accumulated cash flows as in the case of
> equity-linked range accrual notes, where both optionality and cash flow
> exist.
>
> I could not find a clue in the code, or maybe I just missed it. So you can
> take it as a general question.
>
> Yes, as you said, we can do it in either way, the final result (NPV) is the
> same.
>
> But there is one concern for me when pricing the mark to market value of an
> existing trade. If we consider real cash flows at fixing dates only, it may
> have a jump around the fixing dates, which means unusual theta. Otherwise,
> if we consider the cash flow accumulated everyday, the price will be smooth
> accrossing the fixing dates.
>
> Please correct me if i am wrong.
>
> Best regards,
> Henry
>
>
>
>
> 2014/1/10 Peter Caspers <
[hidden email]>
>>
>> Hi Henry,
>>
>> is this question related directly to quantlib (if yes, to which part
>> of the code) ?
>>
>> In general (and with the disclaimer that I am not an equity man), I
>> would say the price of one rangelet is uniquely identified as P(0,t_p)
>> \tau E^{t_p} ( S(t_f) ) with t_p the payment time, t_f the fixing
>> time, S the equity spot, \tau the day count fraction for the
>> contribution to the coupon of this fixing and P(0,t_p) today's zero
>> coupon price with maturity t_p and the expectation is taken in the t_p
>> - forward measure. Of course you can work in a different measure, but
>> results will of course stay identical. Not much room for
>> interpretation, I guess.
>>
>> To take the example of a monte carlo simulation it wouldn't matter if
>> you account for each contribution on its respective fixing date t_f
>> separately as \tau N(0) S(t_f) P(t_f,t_p) / N(t_f) (with arbitrary
>> numeraire N now) or collect the contributions \tau S(t_f) on your way
>> to the payment date and consider N(0) [ \sum \tau_i S(t_{f,i}) ] /
>> N(t_p) there. The final result (in terms of the NPV of the range
>> coupon) would be the same.
>>
>> Peter
>>
>> On 3 January 2014 11:21, Haoyun XU <
[hidden email]> wrote:
>> > Hi All,
>> >
>> > I have a question on pricing equity-linked range accrual notes. For each
>> > period, the coupon is accrued daily and the accumulated payment is
>> > delivered
>> > at the end of each period. That means the real cash flow only happens on
>> > period ends. Either we can price the cash flow on a accrual basis -
>> > assume
>> > coupon is payed on a daily basis with proper discounting, or we can
>> > price it
>> > on the real cash flow - one lump sum coupon payment at period end.
>> >
>> > I wonder which one is the common practice.
>> >
>> > Regards & Thanks!
>> > Henry
>> >
>> >
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