com.opengamma.analytics.financial.model.interestrate.HullWhiteTwoFactorInterestRateModel.java Source code

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Here is the source code for com.opengamma.analytics.financial.model.interestrate.HullWhiteTwoFactorInterestRateModel.java

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/**
 * Copyright (C) 2009 - present by OpenGamma Inc. and the OpenGamma group of companies
 *
 * Please see distribution for license.
 */
package com.opengamma.analytics.financial.model.interestrate;

import org.apache.commons.lang.Validate;
import org.threeten.bp.ZonedDateTime;

import com.opengamma.analytics.financial.model.interestrate.definition.HullWhiteTwoFactorDataBundle;
import com.opengamma.analytics.math.function.Function1D;
import com.opengamma.util.time.DateUtils;

/**
 * 
 */
public class HullWhiteTwoFactorInterestRateModel implements DiscountBondModel<HullWhiteTwoFactorDataBundle> {

    @Override
    public Function1D<HullWhiteTwoFactorDataBundle, Double> getDiscountBondFunction(final ZonedDateTime time,
            final ZonedDateTime maturity) {
        Validate.notNull(time, "time");
        Validate.notNull(maturity, "maturity");
        return new Function1D<HullWhiteTwoFactorDataBundle, Double>() {

            @Override
            public Double evaluate(final HullWhiteTwoFactorDataBundle data) {
                Validate.notNull(data, "data");
                final double t1 = 0;
                final double t2 = DateUtils.getDifferenceInYears(data.getDate(), time);
                final double t3 = DateUtils.getDifferenceInYears(data.getDate(), maturity);
                final double r2 = data.getShortRate(t2);
                final double r3 = data.getShortRate(t3);
                final double p2 = Math.exp(-r2 * t2);
                final double p3 = Math.exp(-r3 * t3);
                final double alpha = data.getFirstSpeed();
                final double beta = data.getSecondSpeed();
                final double sigma1 = data.getShortRateVolatility(t1);
                final double sigma2 = data.getSecondVolatility(t1);
                final double rho = data.getCorrelation();
                final double eta = getEta(t1, t2, t3, alpha, beta, sigma1, sigma2, rho);
                final double b = getB(t3 - t2, alpha);
                final double c = getC(t3 - t2, alpha, beta);
                final double u = data.getMeanReversionLevel();
                final double f = data.getForwardRate(t1);
                final double lnA = Math.log(p3 / p2) + b * f - eta;
                return Math.exp(lnA - r2 * b - u * c);
            }

        };
    }

    protected Double getB(final Double dt, final Double a) {
        return (1 - Math.exp(-a * dt)) / a;
    }

    protected Double getC(final Double dt, final Double a, final Double b) {
        return Math.exp(-a * dt) / (a * (a - b)) - Math.exp(-b * dt) / (b * (a - b)) + 1. / (a * b);
    }

    protected Double getEta(final double t1, final double t2, final double t3, final double a, final double b,
            final double sigma1, final double sigma2, final double rho) {
        final double dt12 = t2 - t1;
        final double dt13 = t3 - t1;
        final double dt23 = t3 - t2;
        final double b12 = getB(dt12, a);
        final double b12Sq = b12 * b12;
        final double b13 = getB(dt13, a);
        final double b13Sq = b13 * b13;
        final double b23 = getB(dt23, a);
        final double b23Sq = b23 * b23;
        final double c12 = getC(dt12, a, b);
        final double c12Sq = c12 * c12;
        final double c13 = getC(dt13, a, b);
        final double c13Sq = c13 * c13;
        final double c23 = getC(dt23, a, b);
        final double c23Sq = c23 * c23;
        final double abP = a + b;
        final double abM = a - b;
        final double gamma1 = Math.exp(-abP * dt13) * (Math.exp(abP * dt12) - 1) / (abP * abM)
                - Math.exp(-2 * a * dt13) * (Math.exp(2 * a * dt12) - 1) / (2 * a * abM);
        final double gamma2 = (gamma1 + c23 - c13 + 0.5 * b23Sq - 0.5 * b13Sq + dt12 / a
                - (Math.exp(-a * dt23) - Math.exp(-a * dt13)) / (a * a)) / (a * b);
        final double gamma3 = -(Math.exp(-abP * dt12) - 1) / (abP * abM)
                + (Math.exp(-2 * a * dt12) - 1) / (2 * a * abM);
        final double gamma4 = (gamma3 - c12 - 0.5 * b12Sq + dt12 / a + (Math.exp(-a * dt12) - 1) / (a * a))
                / (a * b);
        final double gamma5 = (0.5 * (c23Sq - c13Sq) + gamma2) / b;
        final double gamma6 = (gamma4 - 0.5 * c12Sq) / b;
        return sigma1 * sigma1 * (1 - Math.exp(-2 * a * dt12)) * b23Sq / (4 * a)
                - rho * sigma1 * sigma2 * (b12 * c12 * b23 + gamma4 - gamma2)
                - 0.5 * sigma2 * sigma2 * (c12Sq * b23 + gamma6 - gamma5);
    }
}