CapFloor Volatilities Simulation

[UnknownUserGit]

Good morning,

I am trying to obtain XVA values for a CapFloor trade. If I set CapFloor volatilities simulation to False there is no problem and I can get the values.

However if I want to do it by simulating the CapFloor volatilities and I set it to True I am getting the following errors:

ore.xml:

<Parameter name="asofDate">2022-12-30</Parameter>
<Parameter name="inputPath">Input</Parameter>
<Parameter name="outputPath">Output</Parameter>
<Parameter name="logFile">log.txt</Parameter>
<Parameter name="logMask">255</Parameter>
<Parameter name="marketDataFile">market_20221230_EUR_USD.txt</Parameter>
<Parameter name="fixingDataFile">fixings.txt</Parameter>
<Parameter name="implyTodaysFixings">Y</Parameter>
<Parameter name="curveConfigFile">curveconfig_directEUR.xml</Parameter>
<Parameter name="conventionsFile">conventions.xml</Parameter>
<Parameter name="marketConfigFile">todaysmarket.xml</Parameter>
<Parameter name="pricingEnginesFile">pricingengine.xml</Parameter>
<Parameter name="portfolioFile">portfolio_swap.xml</Parameter>
<Parameter name="observationModel">None</Parameter>

simulation.xml:

  <AsOf>2022-12-30</AsOf>
  <Parameters>
    <Discretization>Exact</Discretization>
    <Grid>500,1D</Grid>
    <Calendar>EUR,USD</Calendar>
    <Sequence>SobolBrownianBridge</Sequence>
    <Scenario>Simple</Scenario>
    <Seed>42</Seed>
    <!--<Samples>5000</Samples>-->
    <Samples>2</Samples>
    <CloseOutLag>2W</CloseOutLag>
    <MporMode>StickyDate</MporMode>
    <DayCounter>A365F</DayCounter>	
  </Parameters>
<CapFloorVolatilities>
  <Simulate>True</Simulate>
  <ReactionToTimeDecay>ConstantVariance</ReactionToTimeDecay>
  <Currencies>
    <Currency>EUR</Currency>
  </Currencies>
  <Strikes>ATM</Strikes>
  <Expiries>1Y,3Y</Expiries>
</CapFloorVolatilities>

log_structured.json: { "category": "Error", "group": "Curve", "message": "first option date (January 2nd, 2024) is in the past", "sub_fields": [ { "name": "curveId", "value": "OptionletVolatility/EUR" }, { "name": "exceptionType", "value": "skipping this object in scenario sim market (scenario data was written for this object.)" } ] } { "category": "Error", "group": "Trade", "message": "did not find capfloor curve for key 'EUR-EURIBOR-6M'", "sub_fields": [ { "name": "exceptionType", "value": "Error building trade for context 'analytic/XVA'" }, { "name": "tradeId", "value": "Cap_Euribor" }, { "name": "tradeType", "value": "CapFloor" } ] } { "category": "Error", "group": "Analytics", "message": "mismatch between scenario and sim data size, exit.", "sub_fields": [ { "name": "analyticType", "value": "XVA" }, { "name": "exceptionType", "value": "Failed Analytic" } ] } { "category": "Warning", "group": "Analytics", "message": "Error in ORE analytics: Failed to run analytics XVA", "sub_fields": [ { "name": "analyticType", "value": "OREApp::run()" }, { "name": "warningType", "value": "Error" } ] }

And if I change the expiries in order to avoid that error to: 3Y,5Y, I get the following error.

log_structured.json:
{ "category": "Error", "group": "Analytics", "message": "mismatch between scenario and sim data size, exit.", "sub_fields": [ { "name": "analyticType", "value": "XVA" }, { "name": "exceptionType", "value": "Failed Analytic" } ] }
{ "category": "Warning", "group": "Analytics", "message": "Error in ORE analytics: Failed to run analytics XVA", "sub_fields": [ { "name": "analyticType", "value": "OREApp::run()" }, { "name": "warningType", "value": "Error" } ] }

Why is ORE understanding that the as of date is not 2022-12-30? The ScenarioMarketData.txt also has a dates for the market data 2022-12-30.
In addition, how could I match the scenario and sim data size?

Thank you in advance!.

[noonediesalone]

I see in latest version was added flag allowPartialScenarios.
Maybe just try adding <Parameter name="allowPartialScenarios">Y</Parameter> to your <Analytic type="simulation"> section of ore.xml.

[UnknownUserGit]

Thank you! that has solved the 2nd problem (when changing the expiries to longer term).

However it would be ideal also understanding why is my ORE understanding that my as of date is not 2022-12-30 if I am setting that as the date.

[rkapl123]

The only place to set the asof date is ore.xml and it has to match the market data dates in the market data file. Your first error may indicate that somehow you set an asof date beyond 2.1.2024:

"first option date (January 2nd, 2024) is in the past"

But it could also be from the simulation of the capfloor rates that didn't work well.

There is no documentation hinting that you can set the asof date in the simulation.xml as you showed.

[UnknownUserGit]

Hello, and thank you very much for your feedback.

I have checked the ore.xml, and it is correctly set up as 2022-12-30. The 2022-12-30 tag in simulation.xml does not affect the output at all. I only added it for testing purposes, but removing it makes no difference.

Additionally, I have been investigating which date ORE takes as the "past" or "as of" date, and it always seems to use the current system date, which changes daily. This means that ORE is using the current date as the as-of date for the CapFloor volatility simulation, regardless of what is specified in the XML files.

Do you know why this might be happening?

[rkapl123]

I am sure that there is nothing in ORE that takes the current date from the system (which would also require some platform-independent library/code to get this). And furthermore, your marketdata always has to match the as-of date, otherwise ORE can't build the marketdata objects and the trades.

But when simulating trades, the valuation date (not being the as-of date) might well be in the future, so your error message makes sense in that there are no appropriate (simulated) option dates/values in the scenario to really value the trades. So, let me apologize for my premature conclusion above.