/* Copyright (C) 2007 Richard Gomes Copyright (C) 2007 Tito Ingargiola 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.QuantLib; import org.quantlib.Actual365Fixed; import org.quantlib.AmericanExercise; import org.quantlib.AnalyticEuropeanEngine; import org.quantlib.AnalyticHestonEngine; import org.quantlib.AnalyticHestonEngine_Integration; import org.quantlib.AnalyticPTDHestonEngine; import org.quantlib.BaroneAdesiWhaleyApproximationEngine; import org.quantlib.BatesEngine; import org.quantlib.BatesModel; import org.quantlib.BatesProcess; import org.quantlib.BermudanExercise; import org.quantlib.BinomialCRRVanillaEngine; import org.quantlib.BinomialEQPVanillaEngine; import org.quantlib.BinomialJ4VanillaEngine; import org.quantlib.BinomialJRVanillaEngine; import org.quantlib.BinomialLRVanillaEngine; import org.quantlib.BinomialTianVanillaEngine; import org.quantlib.BinomialTrigeorgisVanillaEngine; import org.quantlib.BjerksundStenslandApproximationEngine; import org.quantlib.BlackConstantVol; import org.quantlib.BlackScholesMertonProcess; import org.quantlib.BlackVolTermStructureHandle; import org.quantlib.BoundaryConstraint; import org.quantlib.Calendar; import org.quantlib.ConstantParameter; import org.quantlib.COSHestonEngine; import org.quantlib.Date; import org.quantlib.DateVector; import org.quantlib.DayCounter; import org.quantlib.EuropeanExercise; import org.quantlib.Exercise; import org.quantlib.FdBlackScholesVanillaEngine; import org.quantlib.HestonModel; import org.quantlib.HestonProcess; import org.quantlib.FlatForward; import org.quantlib.IntegralEngine; import org.quantlib.MCLDEuropeanEngine; import org.quantlib.MCPREuropeanEngine; import org.quantlib.MCPREuropeanHestonEngine; import org.quantlib.Month; import org.quantlib.Option; import org.quantlib.Payoff; import org.quantlib.Period; import org.quantlib.PiecewiseTimeDependentHestonModel; import org.quantlib.PlainVanillaPayoff; import org.quantlib.PositiveConstraint; import org.quantlib.QuoteHandle; import org.quantlib.Settings; import org.quantlib.SimpleQuote; import org.quantlib.TARGET; import org.quantlib.TimeGrid; import org.quantlib.TimeUnit; import org.quantlib.VanillaOption; import org.quantlib.YieldTermStructureHandle; /** * EquityOption Test app - java version of QuantLib/Examples/EquityOption * to illustrate use of Quantlib through supplied SWIG interfaces. * * You need to run this with a correctly set library path and something like: * * -Djava.library.path=/usr/local/lib * * @author Richard Gomes * @author Tito Ingargiola */ public class EquityOptions { public static void main(String[] args) throws Exception { long beginTime = System.currentTimeMillis(); // our option Option.Type type = Option.Type.Put; double strike = 40.0; double underlying = 36.0; double riskFreeRate = 0.06; double dividendYield = 0.00; double volatility = 0.2; Date todaysDate = new Date(15, Month.May, 1998); Date settlementDate = new Date(17, Month.May, 1998); Settings.instance().setEvaluationDate(todaysDate); Date maturity = new Date(17, Month.May, 1999); DayCounter dayCounter = new Actual365Fixed(); Calendar calendar = new TARGET(); // write column headings String fmt = "\n%-35s %-14s %-14s %-14s\n"; System.out.printf(fmt, "Method", "European", "Bermudan", "American"); System.out.println("============================================================================"); // define European, Bermudan, and American exercises DateVector exerciseDates = new DateVector(); for (int i = 1; i <= 4; i++) { Date forward = settlementDate.add(new Period(3*i, TimeUnit.Months)); exerciseDates.add(forward); } Exercise europeanExercise = new EuropeanExercise(maturity); Exercise bermudanExercise = new BermudanExercise(exerciseDates); Exercise americanExercise = new AmericanExercise(settlementDate, maturity); // define the underlying asset and the yield/dividend/volatility curves QuoteHandle underlyingH = new QuoteHandle(new SimpleQuote(underlying)); YieldTermStructureHandle flatTermStructure = new YieldTermStructureHandle(new FlatForward( settlementDate, riskFreeRate, dayCounter)); YieldTermStructureHandle flatDividendYield = new YieldTermStructureHandle(new FlatForward( settlementDate, dividendYield, dayCounter)); BlackVolTermStructureHandle flatVolatility = new BlackVolTermStructureHandle(new BlackConstantVol( settlementDate, calendar, volatility, dayCounter)); BlackScholesMertonProcess stochasticProcess = new BlackScholesMertonProcess(underlyingH, flatDividendYield, flatTermStructure, flatVolatility); // options PlainVanillaPayoff payoff = new PlainVanillaPayoff(type, strike); VanillaOption europeanOption = new VanillaOption(payoff, europeanExercise); VanillaOption bermudanOption = new VanillaOption(payoff, bermudanExercise); VanillaOption americanOption = new VanillaOption(payoff, americanExercise); fmt = "%34s %13.9f %13.9f %13.9f\n"; // Analytic formulas: // Black-Scholes for European String method = "Black-Scholes"; europeanOption.setPricingEngine( new AnalyticEuropeanEngine(stochasticProcess)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), Double.NaN, Double.NaN } ); // Heston method = "Heston Semi-Analytic"; HestonProcess hestonProcess = new HestonProcess(flatTermStructure, flatDividendYield, underlyingH, volatility*volatility, 1.0, volatility*volatility, 0.0001, 0.0); HestonModel hestonModel = new HestonModel(hestonProcess); europeanOption.setPricingEngine(new AnalyticHestonEngine(hestonModel)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), Double.NaN, Double.NaN } ); method = "Heston COS Method"; europeanOption.setPricingEngine(new COSHestonEngine(hestonModel)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), Double.NaN, Double.NaN } ); method = "Heston time dependent parameter"; europeanOption.setPricingEngine( new AnalyticPTDHestonEngine( new PiecewiseTimeDependentHestonModel( flatTermStructure, flatDividendYield, underlyingH, volatility*volatility, new ConstantParameter(volatility*volatility, new PositiveConstraint()), new ConstantParameter(1.0, new PositiveConstraint()), new ConstantParameter(1e-4, new PositiveConstraint()), new ConstantParameter(0.0, new BoundaryConstraint(-1.0, 1.0)), new TimeGrid(dayCounter.yearFraction(todaysDate, maturity), 10) ), AnalyticPTDHestonEngine.ComplexLogFormula.AndersenPiterbarg, AnalyticHestonEngine_Integration.gaussLaguerre(32)) ); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), Double.NaN, Double.NaN } ); // Bates method = "Bates Semi-Analytic"; BatesProcess batesProcess = new BatesProcess(flatTermStructure, flatDividendYield, underlyingH, volatility*volatility, 1.0, volatility*volatility, 0.0001, 0.0, 1e-14, 1e-14, 1e-14); BatesModel batesModel = new BatesModel(batesProcess); europeanOption.setPricingEngine(new BatesEngine(batesModel)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), Double.NaN, Double.NaN } ); // Barone-Adesi and Whaley approximation for American method = "Barone-Adesi/Whaley"; americanOption.setPricingEngine( new BaroneAdesiWhaleyApproximationEngine(stochasticProcess)); System.out.printf(fmt, new Object[] { method, Double.NaN, Double.NaN, americanOption.NPV() } ); // Bjerksund and Stensland approximation for American method = "Bjerksund/Stensland"; americanOption.setPricingEngine( new BjerksundStenslandApproximationEngine(stochasticProcess)); System.out.printf(fmt, new Object[] { method, Double.NaN, Double.NaN, americanOption.NPV() } ); // Integral method = "Integral"; europeanOption.setPricingEngine(new IntegralEngine(stochasticProcess)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), Double.NaN, Double.NaN } ); // Finite differences int timeSteps = 801; method = "Finite differences"; europeanOption.setPricingEngine( new FdBlackScholesVanillaEngine(stochasticProcess, timeSteps, timeSteps-1)); bermudanOption.setPricingEngine( new FdBlackScholesVanillaEngine(stochasticProcess, timeSteps, timeSteps-1)); americanOption.setPricingEngine( new FdBlackScholesVanillaEngine(stochasticProcess, timeSteps, timeSteps-1)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), bermudanOption.NPV(), americanOption.NPV() }); // Binomial method method = "Binomial Jarrow-Rudd"; europeanOption.setPricingEngine(new BinomialJRVanillaEngine( stochasticProcess, timeSteps)); bermudanOption.setPricingEngine(new BinomialJRVanillaEngine( stochasticProcess, timeSteps)); americanOption.setPricingEngine(new BinomialJRVanillaEngine( stochasticProcess, timeSteps)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), bermudanOption.NPV(), americanOption.NPV() } ); method = "Binomial Cox-Ross-Rubinstein"; europeanOption.setPricingEngine( new BinomialCRRVanillaEngine(stochasticProcess, timeSteps)); bermudanOption.setPricingEngine( new BinomialCRRVanillaEngine(stochasticProcess, timeSteps)); americanOption.setPricingEngine( new BinomialCRRVanillaEngine(stochasticProcess, timeSteps)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), bermudanOption.NPV(), americanOption.NPV() } ); method = "Additive equiprobabilities"; europeanOption.setPricingEngine( new BinomialEQPVanillaEngine(stochasticProcess, timeSteps)); bermudanOption.setPricingEngine( new BinomialEQPVanillaEngine(stochasticProcess, timeSteps)); americanOption.setPricingEngine( new BinomialEQPVanillaEngine(stochasticProcess, timeSteps)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), bermudanOption.NPV(), americanOption.NPV() } ); method = "Binomial Trigeorgis"; europeanOption.setPricingEngine( new BinomialTrigeorgisVanillaEngine(stochasticProcess, timeSteps)); bermudanOption.setPricingEngine( new BinomialTrigeorgisVanillaEngine(stochasticProcess, timeSteps)); americanOption.setPricingEngine( new BinomialTrigeorgisVanillaEngine(stochasticProcess, timeSteps)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), bermudanOption.NPV(), americanOption.NPV() } ); method = "Binomial Tian"; europeanOption.setPricingEngine( new BinomialTianVanillaEngine(stochasticProcess, timeSteps)); bermudanOption.setPricingEngine( new BinomialTianVanillaEngine(stochasticProcess, timeSteps)); americanOption.setPricingEngine( new BinomialTianVanillaEngine(stochasticProcess, timeSteps)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), bermudanOption.NPV(), americanOption.NPV() } ); method = "Binomial Leisen-Reimer"; europeanOption.setPricingEngine( new BinomialLRVanillaEngine(stochasticProcess, timeSteps)); bermudanOption.setPricingEngine( new BinomialLRVanillaEngine(stochasticProcess, timeSteps)); americanOption.setPricingEngine( new BinomialLRVanillaEngine(stochasticProcess, timeSteps)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), bermudanOption.NPV(), americanOption.NPV() } ); method = "Binomial Joshi"; europeanOption.setPricingEngine( new BinomialJ4VanillaEngine(stochasticProcess, timeSteps)); bermudanOption.setPricingEngine( new BinomialJ4VanillaEngine(stochasticProcess, timeSteps)); americanOption.setPricingEngine( new BinomialJ4VanillaEngine(stochasticProcess, timeSteps)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), bermudanOption.NPV(), americanOption.NPV() } ); // Monte Carlo Method timeSteps = 1; int mcSeed = 42; int nSamples = 32768; // 2^15 int maxSamples = 1048576; // 2^20 method = "MC (crude)"; europeanOption.setPricingEngine( new MCPREuropeanEngine(stochasticProcess, timeSteps, QuantLib.nullInt(), false, false, nSamples, 0.02, maxSamples, mcSeed)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), Double.NaN, Double.NaN } ); method = "MC (Sobol)"; europeanOption.setPricingEngine( new MCLDEuropeanEngine(stochasticProcess, timeSteps, QuantLib.nullInt(), false, false, nSamples, 0.02, maxSamples, mcSeed)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), Double.NaN, Double.NaN } ); method = "Heston Monte-Carlo"; europeanOption.setPricingEngine( new MCPREuropeanHestonEngine(hestonProcess, 25, QuantLib.nullInt(), true, nSamples)); System.out.printf(fmt, new Object[] { method, europeanOption.NPV(), Double.NaN, Double.NaN } ); /* method = "MC (Longstaff Schwartz)"; // This is the original C++ code: // MakeMCAmericanEngine().withSteps(100) // .withAntitheticVariate() // .withCalibrationSamples(4096) // .withTolerance(0.02) // .withSeed(mcSeed); System.out.printf(fmt, new Object[] { method, Double.NaN, Double.NaN, americanOption.NPV() }); */ long msecs = (System.currentTimeMillis()-beginTime); System.out.println("Run completed in "+msecs+" ms."); } }