Re: termstructure daycounter and put/call parity

Posted by Luigi Ballabio on
URL: http://quantlib.414.s1.nabble.com/termstructure-daycounter-and-put-call-parity-tp4936p4939.html


On 07/18/2006 01:55:44 PM, Roland Lichters wrote:
> the QuantLib test-suite (capfloor.cpp) checks that the put/call  
> parity (capNPV - floorNPV = swapNPV) holds. It seems to me that this  
> test is passed successfully only as long as one chooses term  
> structure daycount Actual360(), see function setup() in capfloor.cpp.
>
> I assume that the term structure daycounter should not have this
> effect on pricing results. Shouldn't it be arbitrary?

Yes and no. For instance, the swap price changes---the coupons will  
have the same fixings, but the discount factors will change due to the  
different day-count convention. The change has a smaller effect on the  
cap and floor (where fixing and discounting are not so neatly  
separated) hence the failure. I've put a warning in the documentation  
for the Black engine until we figure out what to fix.

Later,
        Luigi

P.S. Yes, the caplet-bootstrapping tool would be interesting.


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