Re: possible swaption mispricing...

Posted by Luigi Ballabio on Dec 16, 2005; 5:43am
URL: http://quantlib.414.s1.nabble.com/bug-report-negative-price-for-an-American-put-option-using-Bjerksund-and-Stensland-approximation-tp4195p4198.html

On 11/13/2005 05:40:05 PM, Toyin Akin wrote:

> A 10 year swap starting from spot (ValueDate+SettleDays).
>
> Let's also have a swaption structure where we want to have the option  
> (European let's say) of cancelling this swap at year 5.
>
> It looks like if you were simply to pass in the 10 year swap object  
> created above to the swaption() class, the swaption class (along with  
> all it's various pricing engines) assumes that the swap starts after  
> the exercise date and simply uses all the cashflows within the swap,  
> even those before the first exercise date. Thus mispricing the option.

Right (except for TreeSwaptionEngine, which prices the swaption  
correctly.)

I'll see what I can do.

Luigi

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Every solution breeds new problems.
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