Problems in Bermudan Swaption

Posted by andrea.odetti-2 on Nov 20, 2002; 3:02am
URL: http://quantlib.414.s1.nabble.com/Problems-in-Bermudan-Swaption-tp2297.html

I have a problem using BermudanSwaption pricer:

I have a Receiver Bermudan Swaption with a very big strike (15% for
instance)
The swap starts today.
And I can exercise the swaption in all the reset dates of the floating leg
(including the first one, ie today)

I think that the swap and the swaption should have the same value, but when
I price them, the swaption has a bigger value than he swap (this is not a
numerical difference).

You can test it in the example of 0.3.0 and 0.3.1 versions.

Open the file BermudanSwaption.cpp

1) on line 163 change
        bool payFixedRate = false;
2) on line 182 change the strike of the otmSwap to a big value: 0.15 (so I
will exercise always in the tree)
3) on line 306 insert a line to look at the swap value
        std::cout << "HW swap:  " << otmSwap->NPV() << std::endl;
4) run it

HW price (and BK too) of the bermudan is 453.648
Swap value is 411.316

and I think they should be the same

... may be I do something wrong...

bye

andrea


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