Posted by
Luca Berardi on
Mar 02, 2005; 6:27am
URL: http://quantlib.414.s1.nabble.com/Possible-problem-on-bermuda-swaptions-2-tp3621p3629.html
Luigi,
> it's not a bug, it's unstated requirements :)
I'm not sure I understand...what is the purpose of updating the fixed
leg on payment dates and the floating leg on fixing dates? Am I missin
something?
>When the exercise
>date coincides with the coupon dates, the pricing is correct either way.
Yes, provided you apply the patch to synchronize the dates. But even
in this case we are introducing a (very) small error due to dates
shifting, aren't we?
>However: yes, adding fixed coupons at their reset dates could make it
>easier to implement the exercise lag. But it would not solve the general
>problem.
I do agree, but for practical purposes it doesn't matter. In fact
usually exercise dates are few days (e.g. ten) before the dates where
both the fixed and floating leg of the underlying swap pay (so I'm
told). I know it was me to raise the general issue, but these are
quants' fluffs traders do not care about :)
> Getting the correct start date for
>the underlying swap does require explicit coding.
However I've written a pricer to address the general issue (i.e. no
particular constraints on exercise dates) but here again it relies on
a modified version of DiscretizedSwap being updated on PAYMENT dates
(both fixed and floating leg). I might contribute this piece of code,
if you are interested, once the already mentioned legal issues are
solved.
Ciao,
Luca
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