Posted by
Bianchetti Marco on
Jun 01, 2007; 9:55am
URL: http://quantlib.414.s1.nabble.com/boostraping-a-YC-in-the-past-tp9540p9541.html
Concerning the following version for the calcualtion of historical
correlations on forward rates to be used in the Market Model:
> loop currentDate backward from the latest date to the earliest one
> get fixings from Indexes and set them to your relevant Quotes
> set the EvaluationDate equal to currentDate
> (re-)build RateHelpers and YieldCurve
> calculate forward rates at constant interval (e.g. 6M), not constant
dates
This last point is controversial.
For LMM we need a correlation matrix among forward rates of kind
L(t,S,T), observed at t<S, between dates S<T.
1) So for each past date t'<t-D one would calculate the forward rate
between the *same* dates L(t',S,T), the only difference being the
observation time.
Instead:
2) Calculating the forward rates in the past at constant interval
L(t',S',T') with S'=S-D and T'=T-D amounts to calculate *different*
forward rates, so the financial meaning is poorer in my opinion.
This is also consistent with the discussion given in Brigo & Mercurio,
2nd edition, par. 6.19.1.
Any other opinion ?
Well, probably the best thing to do at the end is to implement both
methods (not much extra work) and go for testing on the market...
Ciao
Marco
> calculate fwd rate differences, and add them to a SequenceStatistics
class
> get correlation from SequenceStatistics
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