Forwards

Posted by Luigi Ballabio-4 on Apr 24, 2002; 6:43am
URL: http://quantlib.414.s1.nabble.com/Forwards-tp2011.html

At 01:35 PM 4/24/02 +0200, Andre Louw wrote:
(while discussing TermStructure implementations)
>Why exactly would you calculate an instantaneous forward instead of
>calculating out of spot? When would you use it?

Well, the curve of the instantaneous forwards at time t and the curve of
the forwards between 0 and t can be deduced from each other, so there's no
phylosophical reason to favor one or the other. We wrote termstructure.hpp
almost a couple of years ago, and my memory is a bit foggy on this
particular choice. I guess that we didn't put both in the interface because
we wanted to keep it lean, and that we were already thinking of
implementing a piecewise flat forward curve so that we chose instantaneous
forwards because the curve would have modeled the latter. It was a kind of
a ius primae noctis on our part :)

This said, I see that implementing a CompoundForward curve would lead you
more naturally to model forwards from now to t. We could save both
approaches by adding the latter forwards to the TermStructure interface and
adding default implementations which calculate one given the other, as it
is done for instance in DiscountStructure where you model the discounts and
get forwards and zero yields for free. The hardest part will be to find
suitable names to distinguish the two methods---I don't think that
instantaneousForward(t) would be that appealing :)

Thoughts?

Bye,
         Luigi