Re: convergence error for flat yield curve using cubic spline

Posted by jlee on
URL: http://quantlib.414.s1.nabble.com/convergence-error-for-flat-yield-curve-using-cubic-spline-tp15858p15868.html

Hi,

Thanks for the reply and highlighting about the compounding issue. Yes I agree the 6 month depo is not 6% if the the 3m and 3x3 FRA are 6% because of the compounding. In the code I might have created the quote but in the curve construction I only pass in 3 instruments (1w, 1m and 2y). This was just a test scenario so not real data but was getting errors. I think Peter's suggestion about the tolerance levels helps so will try that out. Thanks for looking at it.

Jon
On 13 Sep 2014, at 19:49, BL BL <[hidden email]> wrote:

Hi,

i just had a quick look at your swap.cpp. Seems the deposit and the fras have some redundant quotes. Did you consider the compounding? I mean doing a 3M deposit and then a 3x3 FRA gives you a payment after 3 month. The 6 M deposit  does "compound" those two 3M Periods and pays only once at the end.

So flat 6% is not ok for the par quotes. Not all of them can have 6%. This holds only for the 6% cc yield cuve for example. But be aware of the discrete rates because of compounding.

2014-09-12 20:22 GMT+02:00 Jon Lee <[hidden email]>:

Hi all,

Can someone help point out what I am doing wrong? I am getting convergence errors when trying to bootstrap a yield curve using cubic spline. I have narrowed it down to a test case which is just a flat yield curve with 3 instruments (1w and 1m cash and 2y swap) all at 6%. 

The main code is:

depoFRASwapInstruments.push_back(d1w);

depoFRASwapInstruments.push_back(d1m);

depoFRASwapInstruments.push_back(s2y);

boost::shared_ptr<YieldTermStructure> depoFRASwapTermStructure(new PiecewiseYieldCurve<ZeroYield, Cubic>(settlementDate, depoFRASwapInstruments, termStructureDayCounter, tolerance, Cubic(CubicInterpolation::Spline, false, CubicInterpolation::SecondDerivative, 0.0, CubicInterpolation::SecondDerivative, 0.0)));

// get 1 month discfact

std::cout << "1-month discount factor: " << std::setprecision(8) << depoFRASwapTermStructure->discount(1 / 12.0, false);

the error it returns is "convergence not reached after 99 iterations".

I think the code is fine as sometimes it does work (ie. if I use flat 5% it works). But I often get convergence errors making things unstable. Am i missing something? Does it just not converge?

Have attached the entire code.

Thanks,

Jon

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