Posted by
Marcin Pawlik on
URL: http://quantlib.414.s1.nabble.com/Specifics-of-Himalayan-Option-tp5293p5298.html
2009/12/18 Luigi Ballabio <
[hidden email]>:
> Looking at the code, the engine is using performances (relative to the
> starting value) to choose the best assets, but then it adds the absolute
> price to the running average, so you'd need an absolute strike. If I'm
> not mistaken, though, you can use a relative strike if you setup the
> underlying processes so that the starting value is 1.0 for each of them
> (since in that case, the price equals the performance.)
Yes. I was mistaken. I misread lines 48-50 in the mchimalayaengine.cpp.
I think that in the solution you propose one has to normalize not only
the starting value but the strikes in the volatility surface as well.
Of course if the underlying process is built with a surface and not
some other vol structure (atm or constant).
Otherwise one can get rid of lines 40 and 49 and replace "bestPrice"
in line 55 with "bestYield".
I'm not sure if I'm a proper person to suggest it but maybe we (me?
someone else?) could adjust the himalaya engine and the himalaya
option so that both types of payout determination (relative and
absolute strike) are covered? What do you think?
Marcin
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