From 2e214d0b95271772f084e5b6dd7044f02deb1a8a Mon Sep 17 00:00:00 2001
From: Guillaume Horel <guillaume.horel@serenitascapital.com>
Date: Mon, 18 Aug 2014 15:41:17 -0400
Subject: cap the correlation to 0.99

---
 R/tranche_functions.R | 6 +++++-
 1 file changed, 5 insertions(+), 1 deletion(-)

(limited to 'R/tranche_functions.R')

diff --git a/R/tranche_functions.R b/R/tranche_functions.R
index ce39b16..387a899 100644
--- a/R/tranche_functions.R
+++ b/R/tranche_functions.R
@@ -712,7 +712,11 @@ adjust.skew <- function(index1, index2, method="ATM"){
         el1 <- EL(index1)
         el2 <- EL(index2)
     }
-    skew <- splinefun(K1, index1$rho[-c(1, length(index1$rho))], "natural")
+    skew <- function(x){
+        #we cap the correlation at 0.99
+        f <- splinefun(K1, index1$rho[-c(1, length(index1$rho))], "natural")
+        return(min(f(x), 0.99))
+    }
     if(method=="ATM"){
         K1eq <- el1/el2 * K2
     }else if(method == "TLP"){
-- 
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