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AnalyticEuropeanEngine and Multi-Curve Discounting

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AnalyticEuropeanEngine and Multi-Curve Discounting

Paul Giltinan-2

Hi,

 

I am using AnalyticEuropeanEngine to price vanilla equity options, but wish to use separate curves for discounting and estimation of the equity forward price. The existing AnalyticEuropeanEngine only takes a GeneralisedBlackScholesProcess as input, and hence only has access to a “risk free rate curve” and a “dividend yield curve”. This is sufficient to match quoted forward prices, but is not flexible enough to enable pricing with reference to a separate discount curve.

 

I therefore propose extending AnalyticEuropeanEngine to take an optional second input argument for a discount curve (Handle<YieldTermStructure>). If this is not provided the engine defaults to the existing behaviour, but if it is provided the engine will use this curve when discounting cash flows.

 

Please take a look at the attached for a proposed implementation. It’s quite straightforward. If people are happy with this change then maybe I can submit a pull request?

 

Kind regards,

Paul


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analyticeuropeanengine_multi.cpp (4K) Download Attachment
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