As shown in the figure below, this engine uses the framework of Tree Lattice in L1. It has a Rate Model and 1 or 2 Stochastic Process as input.
- From the input parameters, the time grid and the corresponding counter of exercise times and payment times of fixed or floating interest rate are obtained (All time points are relative values based on the reference date in year, and the engine only supports the case where the time point is not less than 0).
- By calling the function setup of the framework, the floating interest rates and tree related parameters are calculated from 0 to N timepoint-by-timepoint to prepare the interest rates and the tree related parameters for the following calculations.
- Take treeSwaptionEngine, for example, by calling the function rollback of the framework using the same structure of the tree, the net present value (NPV) is calculated from N to 0 timepoint-by-timepoint. The implementation is shown in the figure below, where the data flow along with the arrows.
