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  • #6271

    Dear All!

    I found that the calculation of the collateral floor value only takes into account the situation where the spread is 0.
    We’d rather need a calculation where the spread is not 0, the userguide (p. 162, eq. 15) gives a hint towards that.

    Now following that hint, I’d put the following

    Real floorDelta = -balance * std::max(-indexValue, 0.0) * dcf / samples;
    nettingSetCollateralFloor_[nettingSetId] += floorDelta;

    to be

    Real floorDelta = -balance * (std::max(indexValue - collateralSpread, 0.0) - indexValue) * dcf / samples;


    I’m also convinced that following the userguide, the current implementation (without regarding the spread) should rather be

    Real floorDelta = -balance * (std::max(indexValue, 0.0) - indexValue) * dcf / samples;

    I also don’t see where the stochastic discount factor comes into action here, but maybe I’m missing something in the balance computation.


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