[leafyoung]

Summary

CapFloor::setupArguments() pre-adjusts capRates/floorRates to (strike-spread)/gearing before any pricing engine sees them — the analytic, Black and Bachelier cap/floor engines all rely on this pre-adjustment and place no restriction on the spread. Gaussian1dCapFloorEngine alone rejected every non-zero spread outright:

for (Real spread : arguments_.spreads)
    QL_REQUIRE(spread == 0.0, "Non zero spreads (" << spread << ") are not allowed.");

even though its own calculation (max(forward - capRate, 0) * gearing * nominal * accrual, in both the deterministic and stochastic branches) uses the exact same pre-adjusted-strike pattern as the other engines and is already algebraically correct for any spread: substituting the pre-adjusted strike gives max(gearing*forward + spread - K, 0) * nominal * accrual, the correct capped-coupon payoff. The check was simply unnecessary and blocked valid inputs that every sibling engine already supports.

Fix

Removed the restriction; left a comment explaining why it's safe to remove (the pre-adjustment already generalizes the payoff).

Test

Added testCapFloorNonZeroSpreadConsistency to test-suite/gsr.cpp: prices a capped floating leg with a non-zero spread via Gaussian1dCapFloorEngine and checks it agrees with the mathematically equivalent zero-spread cap at a shifted strike. Confirmed it fails with the old check (throws Non zero spreads (0.001) are not allowed.) and passes with the fix. Full GsrTests and MarkovFunctionalTests suites (the latter being the only other test consumer of this engine) pass with no regressions.

🤖 Co-worked with Claude Code

[Copilot]

🟡 Changes recommended

The cap-pricing test uses mean reversion of 50.0, making both NPVs zero so equality cannot detect an ignored spread adjustment; it needs lower mean reversion and a positive reference NPV.

1 open issue

• Cap comparison passes with zero NPVs, masking ignored spread adjustment · New

What changed in this PR

This PR enables non-zero floating-leg spreads in Gaussian1dCapFloorEngine, relying on the strike adjustment already performed by CapFloor::setupArguments().

Changes:

• Removes the zero-spread restriction and documents why existing payoff calculations support spreads.
• Adds a regression test comparing a spread-bearing cap with an equivalent zero-spread cap at a shifted strike.

File	Description
test-suite/​gsr.cpp	Adds the spread-consistency regression test.
ql/​pricingengines/​capfloor/​gaussian1dcapfloorengine.cpp	Removes spread rejection and explains the existing strike adjustment.

_{Review effort: Balanced}