Re: yield calculation failing when resulting yield should be less than -54.4%

Posted by Peter Caspers-4 on Oct 10, 2014; 7:31pm
URL: http://quantlib.414.s1.nabble.com/yield-calculation-failing-when-resulting-yield-should-be-less-than-54-4-tp15932p15955.html

Hi,
this was only for diagnostic purposes, not a final solution we should
put in the code. I'd have to check your specific case, but in general
I would think that a yield could be in the range from -inf to +inf: If
you have -1 today (pay 1 unit) and receive a > 0 at t=1, the
continuous yield would be -ln(1/a) which goes to -inf if a goes to
zero and to +inf if a goes to +inf. No ?
best regards
Peter


On 8 October 2014 17:41, ltorjul <[hidden email]> wrote:

> Hi,
>
> Thanks for your answer!
>
> I tested your suggestion and changed line 968 in the cashflows.cpp file to:
> return solver.solve(objFunction, accuracy, guess, -10.0 , 10.0);
>
> This causes the error:
> root not bracketed: f[-10,10] -> [-1.#IND00e+000,5.999990e+004]
>
> I guess the reason is that a root of -10 cannot exist. If you look at the
> question from a financial perspective, you can off course loose you entire
> investment (Which would give a yield of -100%), but you could never get in
> the situation where you owe money (i.e. yield cannot be < -100%). Not sure
> if this makes any sense to you.
>
> Anyway I tested with:
> return solver.solve(objFunction, accuracy, guess, -1.0 , 10.0);
> and this seems to work. I'm able to calculate yield in those extreme cases
> where yield is less than -54.4%.
>
> I have also tested the unmodified yield function with a difference initial
> guess, e.g.
> yield(frb, cleanPrice, dayCounter, QuantLib::Compounded, coupCompfrequency,
> settlementDate, 1e-8, 100, *-0.80*)
>
> and it seems that using an initial guess of -.8 (-80%) "moves" the limit
> where the problem occures to about -91%. This however this causes the solver
> to work about 15% slower :-(
>
> Anyway I like the solution where you sets the upper and lower limits better.
>
> I'm good with this solution. But if you have other ideas or remarks I would
> be very grateful.
>
> Regards Laurtiz
>
>
>
>
> --
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>
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