Author : Aloke Tukul Mukherjee

Calculates prices of the floating leg, fixed leg, total price and break-even spread for the tranches of a standard 5-year synthetic CDO swap. The information is sent to stdout.

Check the Homepage for further details and notes

Calculates spread of nth to default swap by calculating the probability distribution of the number of defaults by a certain time using recurrence relationship as mentioned in Appendix A of paper Valuation of a CDO and an nth to Default CDS Without Monte Carlo Simulation

Results are compared to data in tables 1 & 2

Formula for calculating present value of default/accrued / premium leg payments are noted from eqn 39-41 ofCopula Functions and their Application in Pricing and Risk Managing Multiname Credit Derivative Products

Note : I have not been able to match values exactly with results in paper. Don't know if it is due to precision error or bug. If you happen to note bug, pl. discuss in comments.
Following is result on running this program:

441.935 814.668 1163.41
139.959 322.801 514.006
53.5581 150.434 265.609

Following are actual values in table:
440 814 1165
139 321 513
53 149 263

Quoted :
What is Terreneuve? Simply:

This file contains C++ code/GNU Scientific Library to perform Monte Carlo simulation for calculating price of an European swaption under the Libor Market Model (LMM) framework.
It is based on Milstein scheme discretization as described in page 82 of Lecture Notes

Results are tested with LFM approximation formula , which is further compared to Table2 data in Linking Caplet and Swaption Volatilities in a BGM/J Framework: Approximate Solutions
(Fine tuning is required on dt parameter. Decreasing it below 0.05 seems to bring in precision errors, while making it higher seems to give lower swaption values.Brigo's book recommends to use refined variance scheme to improve convergence, but is not implemented in this file)

eg., following result were obtained with parameters in this file:


Swap start = 2.5 year
Swap end = 7 year
SR=0.0651932
swaption price = 2.22793
Press any key to continue . . .


following results are obtained with setting these parameters in file LFM approximation formula:
alpha=6; %start peg of swap
beta=15; %end peg of swap


octave:137> lmm_rebonato
SR = 0.065193
var_sum = 0.069366
swap start=2.500000
swap end=7.000000
swaption price=2.238223


Note: The file has been updated to fix issue of compiling problem with new version of Dev C++ 4.9.9.2
To set up GNU scientific library , refer How do I start using GSL on Windows XP?

Hodrick Prescott Filter with fast algorithm in ANSI C