Posted by
Luigi Ballabio-2 on
URL: http://quantlib.414.s1.nabble.com/IndexedCoupon-and-possible-convexity-adjustment-tp3279p3282.html
On 2004.08.31 10:52,
[hidden email] wrote:
> Hi all,
> I think that a convexity adjustment should be introduced.
> In my opinion- but it is just my opinion-
> it would be better to be inserted in the fixing,
> since it is a proper correction to the rate's value.
Ok, one vote for adding it to fixing().
> My question is: should it be the case to insert it directly into the
> Xibor?
No, I think it should be inserted (as a virtual method) into
IndexedCoupon. After all, the convexity is due to the fixing being
accrued over a period which is not its natural one--i.e., is due to the
fixing being used in a coupon. The fixing() method of IndexedCoupon
would adjust the value returned from Xibor::fixing() instead of just
proxying it. Also, the calculation of the adjustment might require
other dates besides the fixing date which are available to the coupon
but not to the Xibor.
> This could be usefull when constructing other classes
> (suppose a floating rate note) which require Xibor and convexity
> adjustment.
The floating rate note would delegate the calculation to the coupon,
instead of using the Xibor directly.
> Another idea since we are talking about convexity adjustment:
> It would be great to insert a CMS index as well. It is widely used
> and in this case the adjustment is really significant.
Yes, it could be done--the CMS index would return the forward swap
rate, and the CMS coupon (deriving from IndexedCoupon) would adjust it.
Later,
Luigi