Re: piecewise flat forward algorithm

Posted by Luigi Ballabio on
URL: http://quantlib.414.s1.nabble.com/piecewise-flat-forward-algorithm-tp3876p3877.html

On 06/28/2005 10:07:10 AM, Adjriou Belak wrote:

>
> In the algorithm fo find the zero coupon (with the brent solver 1D) ,
> there is a problem when the curve is downward !! There is an option
> QL_NEGATIVE_RATES that  prevents the negative rates but it prevents
> also the downward curve.  In the code :
>
>              #if defined(QL_NEGATIVE_RATES)
>             // discount are not required to be decreasing--all bets
> are off.
>             // We choose as max a value very unlikely to be exceeded.
>             DiscountFactor max = 3.0;
>             #else
>             DiscountFactor max = discounts_[i-1];
>             #endif
>             solver.solve(FFObjFunction(this,instrument,i),
>                          accuracy_,guess,min,max);
>
> The discount factor is set to the last one  so the curve can't be
> downward. So a downaward curve doesn't mean negative rates !

I beg to differ. A downward curve might mot mean negative spot rates,  
but it does mean negative forward rates.

Later,
        Luigi

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