QuantLib Ibor Forecasts: Compounding and Fixing Conventions

# Ibor Index with Flat Curve 5% not retrieving exact 5% fixings


# Ibor Index with Flat Curve 5% not retrieving exact 5% fixings












I have defined an Ibor Index with the python version of Quantlib using a Flat Forward Curve of 5%.

When I get an estimate for a date in 3 months from now, I would expect to get `0.0500000`, as I defined in the flat curve. However I get `0.050320809398634044` instead. I am perplexed to why this is...

```
import QuantLib as ql
calendar = ql.UnitedStates(ql.UnitedStates.FederalReserve)
usd_curve = ql.FlatForward(2, calendar,
               0.05, ql.Actual360())

effectiveDate = ql.Settings.instance().evaluationDate
index = ql.IborIndex("LiborUSD", ql.Period("3m"),
             2, ql.USDCurrency(), calendar,
             ql.ModifiedFollowing, False,
             ql.Actual360(),
             ql.YieldTermStructureHandle(usd_curve))

for i in [3,6,9,12,15]:
    print(index.fixing(
        calendar.advance(effectiveDate, i, ql.Months, ql.ModifiedFollowing)
    ))
```

```
0.050320809398634044
0.050320809398634044
0.05031030503130324
0.05032080939863317
0.050320809398634044
```

## Answer by Luigi Ballabio (score 4, accepted)

https://quant.stackexchange.com/a/79261

You're creating a flat curve with a rate of 5% continously compounded, whereas the LIBOR fixing is a simply-compounded rate. You're getting the simple rate equivalent to a 5% continuously compounded rate over the relevant period; that is, the LIBOR rate $L$ so that $(1+Lt) = e^{rt}$, with $r$ being your 5% input and $t$ the 3-months period underlying the fixing.

I'm afraid there's no direct way to set the LIBOR fixing; the `addFixing` method suggested in the other answer works for past fixings, not for forecasting. You can get a result close to what you want by creating a flat, quarterly compounding curve:

```
usd_curve = ql.FlatForward(2, calendar, 0.05, ql.Actual360(), ql.Compounded, ql.Quarterly)
```

because the formulas happen to work out (if you want a 6-months fixing, you'll need `ql.Semiannual` and so on). It's not exact, but you'll be just a small fraction of basis point away from the 5% you want:

```
0.05000691632583292
0.050006916325834656
0.04999654231487185
0.05000691632583379
0.05000691632583292
```

## Answer by Xiarpedia (score 2)

https://quant.stackexchange.com/a/79259

When calling `index.fixing` you are actually calling the c++ method `IborIndex::forecastFixing` and given the date is in the future QuantLib will do the following calculation: $$(\frac{e^{-r_1 * t_1}}{e^{-r_2*t_2}} - 1)/(\frac{t_2 - t_1}{360}),$$

based on your inputs, where continuous compounding is set by default. Here $t_1$ will be given by

```
Date fixingDate = fixingCalendar().advance(valueDate,
    -static_cast<Integer>(fixingDays_), Days);
```

and $t_2$ by

```
fixingCalendar().advance(fixingDate, fixingDays_, Days);
```

Thus the curve itself will be constant, i.e., $r_1 = r_2$ but the dates are different causing the effect you see in your calculations. If you'd like to set a fixing I'd suggest having a look at the method `setFixing`.

- FlatForward

- IborIndex

- InterestRateIndex