RE: R: Credit default pricing / G2++ model

Posted by Toyin Akin on
URL: http://quantlib.414.s1.nabble.com/RE-R-Credit-default-pricing-G2-model-tp4102.html

Hi Marco,

I too deduced that the main implementation was on page 149, but the formula
for M(0,T) is on pg 144. Thus I was refering just to this piece of code.

Thankyou for the explanation. I just wanted to know where the simplification
came from and now I know.

As for the pricing of Bermudan swaptions on FLT/FLT swaps, surely some
modifications will need to be done within the G2++ class?

In fact you would have 2 sets of logic, one for FLT/FLT (same currencies)
and one for FLT/FLT (different currencies). Or am I missing something...?

A G2++ model is perfect for pricing bermudan options on swaps, where the
swaps have differing currency legs.

Thankyou again,
Best Regards,
Toyin Akin.

>From: "Tarenghi Marco" <[hidden email]>
>To: "Toyin Akin" <[hidden email]>
>Subject: R: [Quantlib-users] Credit default pricing / G2++ model
>Date: Fri, 7 Oct 2005 09:01:17 +0200
>
>
>Hi Toyin,
>for what concerning the implementation of the G2++ model, I have tested the
>QuantLib functions and I think they work quite well. The formulas in
>G2::SwaptionPricingFunction class you are referring to are those on page
>149 of the Brigo-Mercurio book and not those on page 144.
>Anyway they use the formulas on page 144, since mux_ = -M(0,T): the fact is
>that the expression of mux_ is obtained using the formulas on page 144 but
>simply setting s=0 and t=T, so that the expression simplifies a lot.
>
>I hope I have been clear enough.
>
>Also, you are right: this class can price only vanilla options.
>Bermudan and/or amortizing swaptions can be priced using trees, and these
>are available in the G2 class: what you have to do is to implement a new
>Swaption class which has to derive from the DiscretizedOption class.
>
>Sorry for answering directly to you and not to the mailing list but I
>cannot do it with my office pc...
>I should do it from home
>
>Best regards,
>Marco
>
>-----Messaggio originale-----
>Da: [hidden email]
>[mailto:[hidden email]]Per conto di Toyin
>Akin
>Inviato: giovedì 6 ottobre 2005 17:26
>A: [hidden email]; [hidden email]
>Oggetto: [Quantlib-users] Credit default pricing / G2++ model
>
>
>
>Hi folks,
>
>Are there any plans to implement credit default swaps/options within
>QuantLib?
>
>I read somewhere, within one of the wilmott forums, that someone did
>actually have some working code. However I'm not too sure whether they are
>going to dedicate this code to the QuantLib project.
>
>I certainly would like to get a good handle on a C++ implementation of
>Credit derivatives as I'm pretty new to it, however I don't want to start a
>new credit project which could take months if someone else already has some
>working code.
>
>Also, I am stepping through the code of the G2++ model, comparing the math
>there to that of the Brigo-Mercurio book and all seems well apart from one
>expression that I can't get my head around.
>
>This concerns the code within the constructor of the
>G2::SwaptionPricingFunction class.
>
>There are expressions for mux_ and muy_ which I believe corresponds to the
>same expressions at the bottom of page 144.
>
>Taking just the mux_ expression, for example, I cannot match up the
>expressions within the book to that of the code. It's the 2nd and 3rd
>expressions of the formula (according to the book) that I am having some
>trouble matching up.
>
>Can someone confirm that the code here is correct and it's just a case of
>some smart mathematical  manipulation (My brain has already died after
>validating all the other parts of the G2 model!!).
>
>Also from my analysis, it looks like we can only price options on vanilla
>swaptions under this G2++ implementation, no variation of notionals
>(amortisation), coupons, or margins (spreads). This should be possible but
>I
>believe that the limiting factor is because it is based on a SimpleSwap
>object which does not allow for such rich definitions of a swap.
>
>Also, does anyone know what code changes would be needed to implement a
>bermudan swaption on a FLT/FLT swap? I don't think that the
>SwaptionPricingFunction class is valid for this type of structure.
>
>Very good clean code by the way...
>
>Best Regards,
>Toyin Akin.
>
>
>
>
>
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