Implementing QuantLib

Table of Contents 5 Introduction 9 Financial instruments and pricing engines 12 The Instrument class 12 Interface and requirements 12 Implementation 13 Example: interest-rate swap 17 Further developments 21 Pricing engines 21 Example: plain-vanilla option 28 Term structures 34 The TermStructure class 34 Interface and requirements 34 Implementation 35 Interest-rate term structures 39 Interface and implementation 39 Discount, forward-rate, and zero-rate curves 41 Example: bootstrapping an interpolated curve 45 Example: adding z-spread to an interest-rate curve 55 Other term structures 57 Default-probability term structures 57 Inflation term structures 60 Volatility term structures 62 Equity volatility structures 63 Interest-rate volatility structures 66 Cash flows and coupons 71 The CashFlow class 71 Interest-rate coupons 72 Fixed-rate coupons 74 Floating-rate coupons 76 Example: LIBOR coupons 81 Example: capped/floored coupons 86 Generating cash-flow sequences 92 Other coupons and further developments 95 Cash-flow analysis 96 Example: fixed-rate bonds 99 Parameterized models and calibration 106 The CalibrationHelper class 106 Example: the Heston model 111 Parameters 113 The CalibratedModel class 116 Example: the Heston model, continued 122 The Monte Carlo framework 125 Path generation 125 Random-number generation 125 Stochastic processes 129 Random path generators 140 Pricing on a path 146 Putting it all together 147 Monte Carlo traits 147 The Monte Carlo model 150 Monte Carlo simulations 153 Example: basket option 157 The tree framework 163 The Lattice and DiscretizedAsset classes 163 Example: discretized bonds 169 Example: discretized option 173 Trees and tree-based lattices 176 The Tree class template 176 Binomial and trinomial trees 180 The TreeLattice class template 190 Tree-based engines 197 Example: callable fixed-rate bonds 197 The finite-difference framework 203 The old framework 203 Differential operators 203 Evolution schemes 206 Boundary conditions 209 Step conditions 213 The FiniteDifferenceModel class 215 Example: American option 220 Time-dependent operators 228 The new framework 232 Meshers 234 Operators 237 Examples: Black-Scholes operators 246 Initial, boundary, and step conditions 250 Schemes and solvers 255 Conclusion 262 A. Odds and ends 263 Basic types 263 Date calculations 264 Dates and periods 264 Calendars 265 Day-count conventions 267 Schedules 268 Finance-related classes 269 Market quotes 270 Interest rates 272 Indexes 274 Exercises and payoffs 279 Math-related classes 283 Interpolations 283 One-dimensional solvers 287 Optimizers 289 Statistics 293 Linear algebra 296 Global settings 299 Utilities 302 Smart pointers and handles 303 Error reporting 306 Disposable objects 308 Design patterns 311 The Observer pattern 311 The Singleton pattern 314 The Visitor pattern 315 B. Code conventions 318 QuantLib license 320 Bibliography 324