1 files changed, 24 insertions, 0 deletions
diff --git a/R/calibration.R b/R/calibration.R
index 762c3a53..ca9f9b9e 100644
--- a/R/calibration.R
+++ b/R/calibration.R
@@ -86,3 +86,27 @@ set.tranchedata <- function(index, tradedate){
     }
     return( index )
 }
+
+build.skew <- function(index){
+    require(lossdistrib)
+    aux <- function(rho, index, K, quote, spread){
+        temp <- BCtranche.legs(index, K, rho)
+        return(abs(temp$pl+temp$cl*spread + quote))
+    }
+    rhovec <- c(0)
+    for(j in 1:(length(index$K)-2)){
+        ##use the current tranche coupon
+        ## we compute the 0-index$K[j+1] equivalent quote using the coupon of the jth quote
+        if(j==1){
+            q <- index$tranche.quotes[j]*index$K[j+1]
+        }else{
+            temp <- BCtranche.legs(index, index$K[j], rhovec[j])
+            q <- index$tranche.quotes[j] * (index$K[j+1]-index$K[j])-
+                temp$pl - temp$cl*index$tranche.running[j]
+        }
+        rho <- optimize(aux, interval=c(0,1), index=index, K=index$K[j+1], quote=q,
+                        spread=index$tranche.running[j])$minimum
+        rhovec <- c(rhovec, rho)
+    }
+    return( c(rhovec, NA) )
+}