Posted by
Luigi Ballabio on
Apr 08, 2011; 3:29pm
URL: http://quantlib.414.s1.nabble.com/Perpetual-Bond-tp8497p8498.html
On Tue, 2011-04-05 at 11:00 -0500, Leon Sit wrote:
> I need to price some perpetual bonds (fixed, floating and step-up)
> with the assumption that the discount curve will be constant after
> certain time. I notice that the yieldtermstructure support
> extrapolation.
As for extrapolation, the term structure just keeps going after the
maximum date with the same formula it was using before it. If, say, the
forward rate was piecewise constant, it will be constant afterwards. If
you were using a linear interpolation or a spline, it will keep doing
that (which will eventually lead you to have rates too high, or in the
negative.)
> What is the best way to go about doing it in QuantLib? Can I just
> move the maturity of the bond long enough to get a good approximation
> or I should reimplement instruments for perpetuities?
I would try instantiating the bond with three or four different long
maturities and see if the price converges.
Luigi
--
Lubarsky's Law of Cybernetic Entomology:
There is _always_ one more bug.
------------------------------------------------------------------------------
Xperia(TM) PLAY
It's a major breakthrough. An authentic gaming
smartphone on the nation's most reliable network.
And it wants your games.
http://p.sf.net/sfu/verizon-sfdev_______________________________________________
QuantLib-users mailing list
[hidden email]
https://lists.sourceforge.net/lists/listinfo/quantlib-users