Posted by
Andres Hernandez on
Apr 28, 2014; 3:34pm
URL: http://quantlib.414.s1.nabble.com/Is-there-any-example-using-Quantlib-for-mutli-curve-bootstrapping-tp15189p15216.html
figoliuxi,
Luigi already clarified how QuantLib works, but just to attempt to make
things clearer (or more confusing depending on my ability to explain), that
is also what I would expect it to do. Calibrating the forward curve
according to the discount curve is actually what you would be doing by
treating the cash-flow independently from its discount. That is, that the
cash flows value is not changed directly by the discount curve, "but is
discounted with the discount curve". However, this actually means that when
you bootstrap the forward curve using the already given discount curve, the
resulting forward curve is affected by the discount curve. The size of each
cash-flows will have to be adjusted by the bootstrapping procedure in order
to make the implied quote match the market quote. Since the consideration
of the cash-flow in the net present value is by discount, the adjustment
takes the discount curve into account. This is not meant to suggest that
everytime you calculate a cash-flow, the cash-flow's absolute value is
adjusted according to the discount curve. Indeed, if I then take a
bootstrapped forward and discount curve, and I use them to price a new
swap, the calculation of the cash-flow value and its discount factor will
be completely independent. Which, I repeat, is exactly what I would expect.
I hope this helps to make things clearer for you. In my head, the way
QuantLib treats this topic is very intuitive and clear, but when I try to
put it in writing, I seem to be making a disservice to the developers.
Mit freundlichen Grüßen / Kind regards
Dr. Andres Hernandez
Senior Financial Engineer
Business Analytics
Risk Analytics
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From: Luigi Ballabio <
[hidden email]>
To: figoliuxi <
[hidden email]>,
Cc: QuantLib users <
[hidden email]>
Date: 04/28/2014 05:10 PM
Subject: Re: [Quantlib-users] Is there any example using Quantlib for
mutli-curve bootstrapping?
If you don't provide a discount curve, the curve being bootstrapped
will be used for both forecast (that is, determining the cash flow)
and discount.
If you provide a discount curve, the curve being bootstrapped will be
used for forecast and the one you provided will be used for discount.
Luigi
On Mon, Apr 28, 2014 at 4:57 PM, figoliuxi <
[hidden email]> wrote:
> Dr. Andres Hernandez,
>
> Thanks for the reply.
> I am quite new to QuantLib and the multi-curve topic. When I am looking
at
> your comments, you mentioned that "if the discount curve is not provided
it
> is linked to the underlying curve, but if it is provided, then the
provided
> curve is used to produce discounts independently from the underlying
curve".
> Do you mean that if we specify the discount curve, the cash flow will not
> change but discount by the specified discount curve? Or the cash flow
will
> change according to the discount curve, which means the forward curve
will
> be recalibrated to the discount curve. I guess the latter one is how I
> understand about multi-curve. But I am not so sure how the ratehelper
> function is doing.
>
>
>
> --
> View this message in context:
http://quantlib.10058.n7.nabble.com/Is-there-any-example-using-Quantlib-for-mutli-curve-bootstrapping-tp15189p15213.html> Sent from the quantlib-users mailing list archive at Nabble.com.
>
>
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