Java tutorial
/** * Copyright (C) 2011 - present by OpenGamma Inc. and the OpenGamma group of companies * * Please see distribution for license. */ package com.opengamma.analytics.financial.interestrate.swaption.method; import org.apache.commons.lang.Validate; import com.opengamma.analytics.financial.interestrate.CashFlowEquivalentCalculator; import com.opengamma.analytics.financial.interestrate.InstrumentDerivative; import com.opengamma.analytics.financial.interestrate.YieldCurveBundle; import com.opengamma.analytics.financial.interestrate.annuity.derivative.AnnuityPaymentFixed; import com.opengamma.analytics.financial.interestrate.method.PricingMethod; import com.opengamma.analytics.financial.interestrate.swaption.derivative.SwaptionPhysicalFixedIbor; import com.opengamma.analytics.financial.model.interestrate.G2ppPiecewiseConstantModel; import com.opengamma.analytics.financial.model.interestrate.curve.YieldAndDiscountCurve; import com.opengamma.analytics.financial.model.interestrate.definition.G2ppPiecewiseConstantDataBundle; import com.opengamma.analytics.financial.model.option.pricing.analytic.formula.BlackFunctionData; import com.opengamma.analytics.financial.model.option.pricing.analytic.formula.BlackPriceFunction; import com.opengamma.analytics.financial.model.option.pricing.analytic.formula.EuropeanVanillaOption; import com.opengamma.analytics.math.function.Function1D; import com.opengamma.util.ArgumentChecker; import com.opengamma.util.money.CurrencyAmount; /** * Method to computes the present value of physical delivery European swaptions with the G2++ model through efficient approximation. * Reference: Henrard, M. Swaptions in Libor Market Model with local volatility. Wilmott Journal, 2010, 2, 135-154. Preprint available at http://ssrn.com/abstract=1098420 * @deprecated Use {@link com.opengamma.analytics.financial.interestrate.swaption.provider.SwaptionPhysicalFixedIborG2ppApproximationMethod} */ @Deprecated public class SwaptionPhysicalFixedIborG2ppApproximationMethod implements PricingMethod { /** * The model used in computations. */ private static final G2ppPiecewiseConstantModel MODEL_G2PP = new G2ppPiecewiseConstantModel(); /** * The cash flow equivalent calculator used in computations. */ private static final CashFlowEquivalentCalculator CFEC = CashFlowEquivalentCalculator.getInstance(); /** * Computes the present value of the Physical delivery swaption through approximation.. * @param swaption The swaption. * @param g2Data The G2++ parameters and the curves. * @return The present value. */ public CurrencyAmount presentValue(final SwaptionPhysicalFixedIbor swaption, final G2ppPiecewiseConstantDataBundle g2Data) { ArgumentChecker.notNull(swaption, "Swaption"); ArgumentChecker.notNull(g2Data, "G2++ data"); final AnnuityPaymentFixed cfe = swaption.getUnderlyingSwap().accept(CFEC, g2Data); return presentValue(swaption, cfe, g2Data); } /** * Computes the present value of the Physical delivery swaption through approximation.. * @param swaption The swaption. * @param cfe The swaption cash flow equivalent. * @param g2Data The G2++ parameters and the curves. * @return The present value. */ public CurrencyAmount presentValue(final SwaptionPhysicalFixedIbor swaption, final AnnuityPaymentFixed cfe, final G2ppPiecewiseConstantDataBundle g2Data) { ArgumentChecker.notNull(swaption, "Swaption"); ArgumentChecker.notNull(cfe, "cash-flow equivalent"); ArgumentChecker.notNull(g2Data, "G2++ data"); final YieldAndDiscountCurve dsc = g2Data .getCurve(swaption.getUnderlyingSwap().getFixedLeg().getDiscountCurve()); final int nbCf = cfe.getNumberOfPayments(); final double[] cfa = new double[nbCf]; final double[] t = new double[nbCf]; for (int loopcf = 0; loopcf < nbCf; loopcf++) { cfa[loopcf] = -Math.signum(cfe.getNthPayment(0).getAmount()) * cfe.getNthPayment(loopcf).getAmount(); t[loopcf] = cfe.getNthPayment(loopcf).getPaymentTime(); } final double rhog2pp = g2Data.getG2ppParameter().getCorrelation(); final double[][] ht0 = MODEL_G2PP.volatilityMaturityPart(g2Data.getG2ppParameter(), t[0], t); final double[] dfswap = new double[nbCf]; final double[] p0 = new double[nbCf]; final double[] cP = new double[nbCf]; for (int loopcf = 0; loopcf < nbCf; loopcf++) { dfswap[loopcf] = dsc.getDiscountFactor(t[loopcf]); p0[loopcf] = dfswap[loopcf] / dfswap[0]; cP[loopcf] = cfa[loopcf] * p0[loopcf]; } final double k = -cfa[0]; double b0 = 0.0; for (int loopcf = 1; loopcf < nbCf; loopcf++) { b0 += cP[loopcf]; } final double[] alpha0 = new double[nbCf - 1]; final double[] beta0 = new double[2]; for (int loopcf = 0; loopcf < nbCf - 1; loopcf++) { alpha0[loopcf] = cfa[loopcf + 1] * p0[loopcf + 1] / b0; beta0[0] += alpha0[loopcf] * ht0[0][loopcf + 1]; beta0[1] += alpha0[loopcf] * ht0[1][loopcf + 1]; } final double[][] gamma = MODEL_G2PP.gamma(g2Data.getG2ppParameter(), 0, swaption.getTimeToExpiry()); final double[] tau = new double[nbCf]; for (int loopcf = 0; loopcf < nbCf; loopcf++) { tau[loopcf] = gamma[0][0] * ht0[0][loopcf] * ht0[0][loopcf] + gamma[1][1] * ht0[1][loopcf] * ht0[1][loopcf] + 2 * rhog2pp * gamma[0][1] * ht0[0][loopcf] * ht0[1][loopcf]; } double xbarnum = 0.0; double xbarde = 0.0; for (int loopcf = 0; loopcf < nbCf; loopcf++) { xbarnum += cP[loopcf] - cP[loopcf] * tau[loopcf] * tau[loopcf] / 2.0; xbarde += cP[loopcf] * tau[loopcf]; } final double xbar = xbarnum / xbarde; final double[] pK = new double[nbCf]; for (int loopcf = 0; loopcf < nbCf; loopcf++) { pK[loopcf] = p0[loopcf] * (1.0 - tau[loopcf] * xbar - tau[loopcf] * tau[loopcf] / 2.0); } final double[] alphaK = new double[nbCf - 1]; final double[] betaK = new double[2]; for (int loopcf = 0; loopcf < nbCf - 1; loopcf++) { alphaK[loopcf] = cfa[loopcf + 1] * pK[loopcf + 1] / k; betaK[0] += alphaK[loopcf] * ht0[0][loopcf + 1]; betaK[1] += alphaK[loopcf] * ht0[1][loopcf + 1]; } final double[] betaBar = new double[] { (beta0[0] + betaK[0]) / 2.0, (beta0[1] + betaK[1]) / 2.0 }; final double sigmaBar2 = gamma[0][0] * betaBar[0] * betaBar[0] + gamma[1][1] * betaBar[1] * betaBar[1] + 2 * rhog2pp * gamma[0][1] * betaBar[0] * betaBar[1]; final double sigmaBar = Math.sqrt(sigmaBar2); final EuropeanVanillaOption option = new EuropeanVanillaOption(k, 1, !swaption.isCall()); final BlackPriceFunction blackFunction = new BlackPriceFunction(); final BlackFunctionData dataBlack = new BlackFunctionData(b0, dfswap[0], sigmaBar); final Function1D<BlackFunctionData, Double> func = blackFunction.getPriceFunction(option); final double price = func.evaluate(dataBlack) * (swaption.isLong() ? 1.0 : -1.0); return CurrencyAmount.of(swaption.getCurrency(), price); } @Override public CurrencyAmount presentValue(final InstrumentDerivative instrument, final YieldCurveBundle curves) { Validate.isTrue(instrument instanceof SwaptionPhysicalFixedIbor, "Physical delivery swaption"); Validate.isTrue(curves instanceof G2ppPiecewiseConstantDataBundle, "Bundle should contain G2++ data"); return presentValue((SwaptionPhysicalFixedIbor) instrument, (G2ppPiecewiseConstantDataBundle) curves); } }