/* Copyright (C) 2008 Allen Kuo Copyright (C) 2014 Wondersys Srl Copyright (C) 2017 BN Algorithms Ltd This file is part of QuantLib, a free-software/open-source library for financial quantitative analysts and developers - http://quantlib.org/ QuantLib is free software: you can redistribute it and/or modify it under the terms of the QuantLib license. You should have received a copy of the license along with this program; if not, please email . The license is also available online at . This program is distributed in the hope that it will be useful, but WITHOUT ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the license for more details. */ package examples; import org.quantlib.CallableFixedRateBond; import org.quantlib.Date; import org.quantlib.Period; import org.quantlib.Settings; import org.quantlib.DayCounter; import org.quantlib.ActualActual; import org.quantlib.Compounding; import org.quantlib.Frequency; import org.quantlib.FlatForward; import org.quantlib.QuoteHandle; import org.quantlib.Quote; import org.quantlib.SimpleQuote; import org.quantlib.YieldTermStructure; import org.quantlib.YieldTermStructureHandle; import org.quantlib.InterestRate; import org.quantlib.Month; import org.quantlib.Date; import org.quantlib.CallabilitySchedule; import org.quantlib.Schedule; import org.quantlib.NullCalendar; import org.quantlib.UnitedStates; import org.quantlib.Calendar; import org.quantlib.Callability; import org.quantlib.CallabilityPrice; import org.quantlib.TimeUnit; import org.quantlib.BusinessDayConvention; import org.quantlib.DateGeneration; import org.quantlib.ShortRateModel; import org.quantlib.HullWhite; import org.quantlib.PricingEngine; import org.quantlib.TreeCallableFixedRateBondEngine; import org.quantlib.DoubleVector; public class CallableBonds { public static YieldTermStructure flatRate(Date today, Quote forward, DayCounter dc, Compounding compounding, Frequency frequency) { return new FlatForward(today, new QuoteHandle(forward), dc, compounding, frequency); } public static void priceCallable(double sigma, YieldTermStructureHandle termStructure, CallableFixedRateBond callableBond, Frequency frequency, DayCounter bondDayCounter) { long maxIterations = 1000; double accuracy = 1e-8; long gridIntervals = 40; double reversionParameter = .03; ShortRateModel hw0 = new HullWhite(termStructure, reversionParameter, sigma); PricingEngine engine0 = new TreeCallableFixedRateBondEngine(hw0, gridIntervals); callableBond.setPricingEngine(engine0); System.out.printf("sigma/vol (%%) = %6.2f \n", 100.*sigma); System.out.printf("QuantLib price/yld (%%) %10.2f / %10.2f \n", callableBond.cleanPrice(), 100.0 * callableBond.yield(bondDayCounter, Compounding.Compounded, frequency, accuracy, maxIterations)); System.out.printf("QuantLib OAS from model clean price (bp) %10.2f \n", 10000.0 * callableBond.OAS(callableBond.cleanPrice(), termStructure, bondDayCounter, Compounding.Compounded, frequency)); double cp=callableBond.cleanPriceOAS(10*1e-4, termStructure, bondDayCounter, Compounding.Compounded, frequency); System.out.printf("QuantLib spreaded clean price with 10bp OAS %f \n", cp); System.out.printf("QuantLib OAS from spreaded clean price (bp) %10.2f \n", 10000.0 * callableBond.OAS(cp, termStructure, bondDayCounter, Compounding.Compounded, frequency)); System.out.printf("QuantLib effectiveDuration / convexity for 10bp OAS %f / %f \n", callableBond.effectiveDuration(10*1e-4, termStructure, bondDayCounter, Compounding.Compounded, frequency), callableBond.effectiveConvexity(10*1e-4, termStructure, bondDayCounter, Compounding.Compounded, frequency)); } public static void main(String[] args) throws Exception { System.out.println("Callable Bonds example:"); Date today = new Date(16, Month.October, 2007); Settings.instance().setEvaluationDate(today); double bbCurveRate = 0.055; DayCounter bbDayCounter = new ActualActual(ActualActual.Convention.Bond); InterestRate bbIR = new InterestRate(bbCurveRate, bbDayCounter, Compounding.Compounded, Frequency.Semiannual); YieldTermStructureHandle termStructure = new YieldTermStructureHandle(flatRate(today, new SimpleQuote(bbIR.rate()), bbIR.dayCounter(), bbIR.compounding(), bbIR.frequency())); // set up the call schedule CallabilitySchedule callSchedule = new CallabilitySchedule(); double callPrice = 100.; long numberOfCallDates = 24; Date callDate = new Date(15, Month.September, 2006); Calendar nullCalendar = new NullCalendar(); for (long i=0; i< numberOfCallDates; ++i) { CallabilityPrice myPrice= new CallabilityPrice(callPrice, CallabilityPrice.Type.Clean); callSchedule.add(new Callability(myPrice, Callability.Call, callDate)); callDate = nullCalendar.advance(callDate, 3, TimeUnit.Months); } // set up the callable bond Date dated = new Date(16, Month.September, 2004); Date issue = dated; Date maturity = new Date(15, Month.September, 2012); int settlementDays = 3; // Bloomberg OAS1 settle is Oct 19, 2007 Calendar bondCalendar = new UnitedStates(UnitedStates.Market.GovernmentBond); double coupon = .0465; Frequency frequency = Frequency.Quarterly; double redemption = 100.0; double faceAmount = 100.0; /* The 30/360 day counter Bloomberg uses for this bond cannot reproduce the US Bond/ISMA (constant) cashflows used in PFC1. Therefore use ActAct(Bond) */ DayCounter bondDayCounter = new ActualActual(ActualActual.Convention.Bond); // PFC1 shows no indication dates are being adjusted // for weekends/holidays for vanilla bonds BusinessDayConvention accrualConvention = BusinessDayConvention.Unadjusted; BusinessDayConvention paymentConvention = BusinessDayConvention.Unadjusted; Schedule sch = new Schedule(dated, maturity, new Period(frequency), bondCalendar, accrualConvention, accrualConvention, DateGeneration.Rule.Backward, false); DoubleVector couponsVector = new DoubleVector(); couponsVector.add(coupon); CallableFixedRateBond callableBond = new CallableFixedRateBond(settlementDays, faceAmount, sch, couponsVector, bondDayCounter, paymentConvention, redemption, issue, callSchedule); priceCallable(1e-20, termStructure, callableBond, frequency, bondDayCounter); System.out.printf("Bloomberg price/yld (%%) 96.50 / 5.47 \n"); priceCallable(0.01, termStructure, callableBond, frequency, bondDayCounter); System.out.printf("Bloomberg price/yld (%%) 95.68 / 5.66 \n"); priceCallable(0.03, termStructure, callableBond, frequency, bondDayCounter); System.out.printf("Bloomberg price/yld (%%) 92.34 / 6.49 \n"); priceCallable(0.06, termStructure, callableBond, frequency, bondDayCounter); System.out.printf("Bloomberg price/yld (%%) 87.16 / 7.83 \n"); priceCallable(0.12, termStructure, callableBond, frequency, bondDayCounter); System.out.printf("Bloomberg price/yld (%%) 77.31 / 10.65 \n"); System.out.println("Done"); } }