Collateral Floor

[rkapl]

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;

instead.

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.

-regards,
Roland

[Author]

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