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<h1>Replication.cpp</h1>This example uses the CompositeInstrument class to perform static replication of a down-and-out barrier option.<p>
<div class="fragment"><pre class="fragment"><a name="l00001"></a>00001 <span class="comment">/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */</span>
<a name="l00002"></a>00002
<a name="l00020"></a>00020 <span class="comment">/* This example showcases the CompositeInstrument class. Such class</span>
<a name="l00021"></a>00021 <span class="comment"> is used to build a static replication of a down-and-out barrier</span>
<a name="l00022"></a>00022 <span class="comment"> option, as outlined in Section 10.2 of Mark Joshi's "The Concepts</span>
<a name="l00023"></a>00023 <span class="comment"> and Practice of Mathematical Finance" to which we refer the</span>
<a name="l00024"></a>00024 <span class="comment"> reader.</span>
<a name="l00025"></a>00025 <span class="comment">*/</span>
<a name="l00026"></a>00026
<a name="l00027"></a>00027 <span class="comment">// the only header you need to use QuantLib</span>
<a name="l00028"></a>00028 <span class="preprocessor">#define BOOST_LIB_DIAGNOSTIC</span>
<a name="l00029"></a>00029 <span class="preprocessor"></span><span class="preprocessor"># include <ql/quantlib.hpp></span>
<a name="l00030"></a>00030 <span class="preprocessor">#undef BOOST_LIB_DIAGNOSTIC</span>
<a name="l00031"></a>00031 <span class="preprocessor"></span>
<a name="l00032"></a>00032 <span class="preprocessor">#ifdef BOOST_MSVC</span>
<a name="l00033"></a>00033 <span class="preprocessor"></span><span class="comment">/* Uncomment the following lines to unmask floating-point</span>
<a name="l00034"></a>00034 <span class="comment"> exceptions. Warning: unpredictable results can arise...</span>
<a name="l00035"></a>00035 <span class="comment"></span>
<a name="l00036"></a>00036 <span class="comment"> See http://www.wilmott.com/messageview.cfm?catid=10&threadid=9481</span>
<a name="l00037"></a>00037 <span class="comment"> Is there anyone with a definitive word about this?</span>
<a name="l00038"></a>00038 <span class="comment">*/</span>
<a name="l00039"></a>00039 <span class="comment">// #include <float.h></span>
<a name="l00040"></a>00040 <span class="comment">// namespace { unsigned int u = _controlfp(_EM_INEXACT, _MCW_EM); }</span>
<a name="l00041"></a>00041 <span class="preprocessor">#endif</span>
<a name="l00042"></a>00042 <span class="preprocessor"></span>
<a name="l00043"></a>00043 <span class="preprocessor">#include <boost/timer.hpp></span>
<a name="l00044"></a>00044 <span class="preprocessor">#include <iostream></span>
<a name="l00045"></a>00045 <span class="preprocessor">#include <iomanip></span>
<a name="l00046"></a>00046
<a name="l00047"></a>00047 <span class="keyword">using namespace </span>QuantLib;
<a name="l00048"></a>00048
<a name="l00049"></a>00049 <span class="preprocessor">#if defined(QL_ENABLE_SESSIONS)</span>
<a name="l00050"></a>00050 <span class="preprocessor"></span><span class="keyword">namespace </span>QuantLib {
<a name="l00051"></a>00051
<a name="l00052"></a>00052 <a name="a0"></a><a class="code" href="group__types.html#gb9c87440c314438e51a899a03d2442d0">Integer</a> sessionId() { <span class="keywordflow">return</span> 0; }
<a name="l00053"></a>00053
<a name="l00054"></a>00054 }
<a name="l00055"></a>00055 <span class="preprocessor">#endif</span>
<a name="l00056"></a>00056 <span class="preprocessor"></span>
<a name="l00057"></a>00057 <span class="keywordtype">int</span> main(<span class="keywordtype">int</span>, <span class="keywordtype">char</span>* [])
<a name="l00058"></a>00058 {
<a name="l00059"></a>00059 <span class="keywordflow">try</span> {
<a name="l00060"></a>00060 <a name="a1"></a><a class="code" href="group__misc_macros.html#g11d8e34f54505b0bf6f550508278673d">QL_IO_INIT</a>
<a name="l00061"></a>00061
<a name="l00062"></a>00062 boost::timer timer;
<a name="l00063"></a>00063 std::cout << std::endl;
<a name="l00064"></a>00064
<a name="l00065"></a>00065 <a name="_a2"></a><a class="code" href="class_quant_lib_1_1_date.html">Date</a> today(29, May, 2006);
<a name="l00066"></a>00066 Settings::instance().evaluationDate() = today;
<a name="l00067"></a>00067
<a name="l00068"></a>00068 <span class="comment">// the option to replicate</span>
<a name="l00069"></a>00069 Barrier::Type barrierType = Barrier::DownOut;
<a name="l00070"></a>00070 <a name="a3"></a><a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> barrier = 70.0;
<a name="l00071"></a>00071 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> rebate = 0.0;
<a name="l00072"></a>00072 Option::Type type = Option::Put;
<a name="l00073"></a>00073 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> underlyingValue = 100.0;
<a name="l00074"></a>00074 boost::shared_ptr<SimpleQuote> underlying(
<a name="l00075"></a>00075 <span class="keyword">new</span> <a name="_a4"></a><a class="code" href="class_quant_lib_1_1_simple_quote.html">SimpleQuote</a>(underlyingValue));
<a name="l00076"></a>00076 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> strike = 100.0;
<a name="l00077"></a>00077 boost::shared_ptr<SimpleQuote> riskFreeRate(<span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_simple_quote.html">SimpleQuote</a>(0.04));
<a name="l00078"></a>00078 boost::shared_ptr<SimpleQuote> <a name="a5"></a><a class="code" href="group__manips.html#gc402ef7c87f63f7c603ee87210b5750c">volatility</a>(<span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_simple_quote.html">SimpleQuote</a>(0.20));
<a name="l00079"></a>00079 <a class="code" href="class_quant_lib_1_1_date.html">Date</a> maturity = today + 1*Years;
<a name="l00080"></a>00080
<a name="l00081"></a>00081 std::cout << std::endl ;
<a name="l00082"></a>00082
<a name="l00083"></a>00083 <span class="comment">// write column headings</span>
<a name="l00084"></a>00084 <a name="a6"></a><a class="code" href="group__types.html#gf38bdb4c54463b1f456655efa95b5c77">Size</a> widths[] = { 45, 15, 15 };
<a name="l00085"></a>00085 <a class="code" href="group__types.html#gf38bdb4c54463b1f456655efa95b5c77">Size</a> totalWidth = widths[0]+widths[1]+widths[2];
<a name="l00086"></a>00086 std::string rule(totalWidth, <span class="charliteral">'-'</span>), dblrule(totalWidth, <span class="charliteral">'='</span>);
<a name="l00087"></a>00087
<a name="l00088"></a>00088 std::cout << dblrule << std::endl;
<a name="l00089"></a>00089 std::cout << <span class="stringliteral">"Initial market conditions"</span> << std::endl;
<a name="l00090"></a>00090 std::cout << dblrule << std::endl;
<a name="l00091"></a>00091 std::cout << std::setw(widths[0]) << std::left << <span class="stringliteral">"Option"</span>
<a name="l00092"></a>00092 << std::setw(widths[1]) << std::left << <span class="stringliteral">"NPV"</span>
<a name="l00093"></a>00093 << std::setw(widths[2]) << std::left << <span class="stringliteral">"Error"</span>
<a name="l00094"></a>00094 << std::endl;
<a name="l00095"></a>00095 std::cout << rule << std::endl;
<a name="l00096"></a>00096
<a name="l00097"></a>00097 <span class="comment">// bootstrap the yield/vol curves</span>
<a name="l00098"></a>00098 <a name="_a7"></a><a class="code" href="class_quant_lib_1_1_day_counter.html">DayCounter</a> dayCounter = <a name="_a8"></a><a class="code" href="class_quant_lib_1_1_actual365_fixed.html">Actual365Fixed</a>();
<a name="l00099"></a>00099 <a name="_a9"></a><a class="code" href="class_quant_lib_1_1_handle.html">Handle<Quote></a> h1(riskFreeRate);
<a name="l00100"></a>00100 <a class="code" href="class_quant_lib_1_1_handle.html">Handle<Quote></a> h2(<a class="code" href="group__manips.html#gc402ef7c87f63f7c603ee87210b5750c">volatility</a>);
<a name="l00101"></a>00101 <a class="code" href="class_quant_lib_1_1_handle.html">Handle<YieldTermStructure></a> flatRate(
<a name="l00102"></a>00102 boost::shared_ptr<YieldTermStructure>(
<a name="l00103"></a>00103 <span class="keyword">new</span> <a name="_a10"></a><a class="code" href="class_quant_lib_1_1_flat_forward.html">FlatForward</a>(0, <a name="_a11"></a><a class="code" href="class_quant_lib_1_1_null_calendar.html">NullCalendar</a>(),
<a name="l00104"></a>00104 h1, dayCounter)));
<a name="l00105"></a>00105 <a class="code" href="class_quant_lib_1_1_handle.html">Handle<BlackVolTermStructure></a> flatVol(
<a name="l00106"></a>00106 boost::shared_ptr<BlackVolTermStructure>(
<a name="l00107"></a>00107 <span class="keyword">new</span> <a name="_a12"></a><a class="code" href="class_quant_lib_1_1_black_constant_vol.html">BlackConstantVol</a>(0, <a class="code" href="class_quant_lib_1_1_null_calendar.html">NullCalendar</a>(),
<a name="l00108"></a>00108 h2, dayCounter)));
<a name="l00109"></a>00109
<a name="l00110"></a>00110 <span class="comment">// instantiate the option</span>
<a name="l00111"></a>00111 boost::shared_ptr<Exercise> exercise(
<a name="l00112"></a>00112 <span class="keyword">new</span> <a name="_a13"></a><a class="code" href="class_quant_lib_1_1_european_exercise.html">EuropeanExercise</a>(maturity));
<a name="l00113"></a>00113 boost::shared_ptr<StrikedTypePayoff> payoff(
<a name="l00114"></a>00114 <span class="keyword">new</span> <a name="_a14"></a><a class="code" href="class_quant_lib_1_1_plain_vanilla_payoff.html">PlainVanillaPayoff</a>(type, strike));
<a name="l00115"></a>00115
<a name="l00116"></a>00116 boost::shared_ptr<StochasticProcess> stochasticProcess(
<a name="l00117"></a>00117 <span class="keyword">new</span> <a name="_a15"></a><a class="code" href="class_quant_lib_1_1_black_scholes_process.html">BlackScholesProcess</a>(<a class="code" href="class_quant_lib_1_1_handle.html">Handle<Quote></a>(underlying),
<a name="l00118"></a>00118 flatRate, flatVol));
<a name="l00119"></a>00119
<a name="l00120"></a>00120 <a name="_a16"></a><a class="code" href="class_quant_lib_1_1_barrier_option.html">BarrierOption</a> referenceOption(barrierType, barrier, rebate,
<a name="l00121"></a>00121 stochasticProcess, payoff, exercise);
<a name="l00122"></a>00122
<a name="l00123"></a>00123 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> referenceValue = referenceOption.NPV();
<a name="l00124"></a>00124
<a name="l00125"></a>00125 std::cout << std::setw(widths[0]) << std::left
<a name="l00126"></a>00126 << <span class="stringliteral">"Original barrier option"</span>
<a name="l00127"></a>00127 << std::fixed
<a name="l00128"></a>00128 << std::setw(widths[1]) << std::left << referenceValue
<a name="l00129"></a>00129 << std::setw(widths[2]) << std::left << <span class="stringliteral">"N/A"</span>
<a name="l00130"></a>00130 << std::endl;
<a name="l00131"></a>00131
<a name="l00132"></a>00132 <span class="comment">// Replicating portfolios</span>
<a name="l00133"></a>00133 <a name="_a17"></a><a class="code" href="class_quant_lib_1_1_composite_instrument.html">CompositeInstrument</a> portfolio1, portfolio2, portfolio3;
<a name="l00134"></a>00134
<a name="l00135"></a>00135 <span class="comment">// Final payoff first (the same for all portfolios):</span>
<a name="l00136"></a>00136 <span class="comment">// as shown in Joshi, a put struck at K...</span>
<a name="l00137"></a>00137 boost::shared_ptr<Instrument> put1(
<a name="l00138"></a>00138 <span class="keyword">new</span> <a name="_a18"></a><a class="code" href="class_quant_lib_1_1_european_option.html">EuropeanOption</a>(stochasticProcess, payoff, exercise));
<a name="l00139"></a>00139 portfolio1.<a name="a19"></a><a class="code" href="class_quant_lib_1_1_composite_instrument.html#6c2e5140cb8d3d49eb526feba0d0fda0">add</a>(put1);
<a name="l00140"></a>00140 portfolio2.<a class="code" href="class_quant_lib_1_1_composite_instrument.html#6c2e5140cb8d3d49eb526feba0d0fda0">add</a>(put1);
<a name="l00141"></a>00141 portfolio3.<a class="code" href="class_quant_lib_1_1_composite_instrument.html#6c2e5140cb8d3d49eb526feba0d0fda0">add</a>(put1);
<a name="l00142"></a>00142 <span class="comment">// ...minus a digital put struck at B of notional K-B...</span>
<a name="l00143"></a>00143 boost::shared_ptr<StrikedTypePayoff> digitalPayoff(
<a name="l00144"></a>00144 <span class="keyword">new</span> <a name="_a20"></a><a class="code" href="class_quant_lib_1_1_cash_or_nothing_payoff.html">CashOrNothingPayoff</a>(Option::Put, barrier, 1.0));
<a name="l00145"></a>00145 boost::shared_ptr<Instrument> digitalPut(
<a name="l00146"></a>00146 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_european_option.html">EuropeanOption</a>(stochasticProcess, digitalPayoff, exercise));
<a name="l00147"></a>00147 portfolio1.<a name="a21"></a><a class="code" href="class_quant_lib_1_1_composite_instrument.html#f781618b4ac4bee06da95a7c8b2ee662">subtract</a>(digitalPut, strike-barrier);
<a name="l00148"></a>00148 portfolio2.<a class="code" href="class_quant_lib_1_1_composite_instrument.html#f781618b4ac4bee06da95a7c8b2ee662">subtract</a>(digitalPut, strike-barrier);
<a name="l00149"></a>00149 portfolio3.<a class="code" href="class_quant_lib_1_1_composite_instrument.html#f781618b4ac4bee06da95a7c8b2ee662">subtract</a>(digitalPut, strike-barrier);
<a name="l00150"></a>00150 <span class="comment">// ...minus a put option struck at B.</span>
<a name="l00151"></a>00151 boost::shared_ptr<StrikedTypePayoff> lowerPayoff(
<a name="l00152"></a>00152 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_plain_vanilla_payoff.html">PlainVanillaPayoff</a>(Option::Put, barrier));
<a name="l00153"></a>00153 boost::shared_ptr<Instrument> put2(
<a name="l00154"></a>00154 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_european_option.html">EuropeanOption</a>(stochasticProcess, lowerPayoff, exercise));
<a name="l00155"></a>00155 portfolio1.<a class="code" href="class_quant_lib_1_1_composite_instrument.html#f781618b4ac4bee06da95a7c8b2ee662">subtract</a>(put2);
<a name="l00156"></a>00156 portfolio2.<a class="code" href="class_quant_lib_1_1_composite_instrument.html#f781618b4ac4bee06da95a7c8b2ee662">subtract</a>(put2);
<a name="l00157"></a>00157 portfolio3.<a class="code" href="class_quant_lib_1_1_composite_instrument.html#f781618b4ac4bee06da95a7c8b2ee662">subtract</a>(put2);
<a name="l00158"></a>00158
<a name="l00159"></a>00159 <span class="comment">// Now we use puts struck at B to kill the value of the</span>
<a name="l00160"></a>00160 <span class="comment">// portfolio on a number of points (B,t). For the first</span>
<a name="l00161"></a>00161 <span class="comment">// portfolio, we'll use 12 dates at one-month's distance.</span>
<a name="l00162"></a>00162 <a class="code" href="group__types.html#gb9c87440c314438e51a899a03d2442d0">Integer</a> i;
<a name="l00163"></a>00163 <span class="keywordflow">for</span> (i=12; i>=1; i--) {
<a name="l00164"></a>00164 <span class="comment">// First, we instantiate the option...</span>
<a name="l00165"></a>00165 <a class="code" href="class_quant_lib_1_1_date.html">Date</a> innerMaturity = today + i*Months;
<a name="l00166"></a>00166 boost::shared_ptr<Exercise> innerExercise(
<a name="l00167"></a>00167 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_european_exercise.html">EuropeanExercise</a>(innerMaturity));
<a name="l00168"></a>00168 boost::shared_ptr<StrikedTypePayoff> innerPayoff(
<a name="l00169"></a>00169 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_plain_vanilla_payoff.html">PlainVanillaPayoff</a>(Option::Put, barrier));
<a name="l00170"></a>00170 boost::shared_ptr<Instrument> putn(
<a name="l00171"></a>00171 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_european_option.html">EuropeanOption</a>(stochasticProcess,
<a name="l00172"></a>00172 innerPayoff, innerExercise));
<a name="l00173"></a>00173 <span class="comment">// ...second, we evaluate the current portfolio and the</span>
<a name="l00174"></a>00174 <span class="comment">// latest put at (B,t)...</span>
<a name="l00175"></a>00175 <a class="code" href="class_quant_lib_1_1_date.html">Date</a> killDate = today + (i-1)*Months;
<a name="l00176"></a>00176 Settings::instance().evaluationDate() = killDate;
<a name="l00177"></a>00177 underlying->setValue(barrier);
<a name="l00178"></a>00178 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> portfolioValue = portfolio1.<a name="a22"></a><a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00179"></a>00179 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> putValue = putn->NPV();
<a name="l00180"></a>00180 <span class="comment">// ...finally, we estimate the notional that kills the</span>
<a name="l00181"></a>00181 <span class="comment">// portfolio value at that point...</span>
<a name="l00182"></a>00182 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> notional = portfolioValue/putValue;
<a name="l00183"></a>00183 <span class="comment">// ...and we subtract from the portfolio a put with such</span>
<a name="l00184"></a>00184 <span class="comment">// notional.</span>
<a name="l00185"></a>00185 portfolio1.<a class="code" href="class_quant_lib_1_1_composite_instrument.html#f781618b4ac4bee06da95a7c8b2ee662">subtract</a>(putn, notional);
<a name="l00186"></a>00186 }
<a name="l00187"></a>00187 <span class="comment">// The portfolio being complete, we return to today's market...</span>
<a name="l00188"></a>00188 Settings::instance().evaluationDate() = today;
<a name="l00189"></a>00189 underlying->setValue(underlyingValue);
<a name="l00190"></a>00190 <span class="comment">// ...and output the value.</span>
<a name="l00191"></a>00191 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> portfolioValue = portfolio1.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00192"></a>00192 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> error = portfolioValue - referenceValue;
<a name="l00193"></a>00193 std::cout << std::setw(widths[0]) << std::left
<a name="l00194"></a>00194 << <span class="stringliteral">"Replicating portfolio (12 dates)"</span>
<a name="l00195"></a>00195 << std::fixed
<a name="l00196"></a>00196 << std::setw(widths[1]) << std::left << portfolioValue
<a name="l00197"></a>00197 << std::setw(widths[2]) << std::left << error
<a name="l00198"></a>00198 << std::endl;
<a name="l00199"></a>00199
<a name="l00200"></a>00200 <span class="comment">// For the second portfolio, we'll use 26 dates at two-weeks'</span>
<a name="l00201"></a>00201 <span class="comment">// distance.</span>
<a name="l00202"></a>00202 <span class="keywordflow">for</span> (i=52; i>=2; i-=2) {
<a name="l00203"></a>00203 <span class="comment">// Same as above.</span>
<a name="l00204"></a>00204 <a class="code" href="class_quant_lib_1_1_date.html">Date</a> innerMaturity = today + i*Weeks;
<a name="l00205"></a>00205 boost::shared_ptr<Exercise> innerExercise(
<a name="l00206"></a>00206 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_european_exercise.html">EuropeanExercise</a>(innerMaturity));
<a name="l00207"></a>00207 boost::shared_ptr<StrikedTypePayoff> innerPayoff(
<a name="l00208"></a>00208 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_plain_vanilla_payoff.html">PlainVanillaPayoff</a>(Option::Put, barrier));
<a name="l00209"></a>00209 boost::shared_ptr<Instrument> putn(
<a name="l00210"></a>00210 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_european_option.html">EuropeanOption</a>(stochasticProcess,
<a name="l00211"></a>00211 innerPayoff, innerExercise));
<a name="l00212"></a>00212 <a class="code" href="class_quant_lib_1_1_date.html">Date</a> killDate = today + (i-2)*Weeks;
<a name="l00213"></a>00213 Settings::instance().evaluationDate() = killDate;
<a name="l00214"></a>00214 underlying->setValue(barrier);
<a name="l00215"></a>00215 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> portfolioValue = portfolio2.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00216"></a>00216 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> putValue = putn->NPV();
<a name="l00217"></a>00217 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> notional = portfolioValue/putValue;
<a name="l00218"></a>00218 portfolio2.<a class="code" href="class_quant_lib_1_1_composite_instrument.html#f781618b4ac4bee06da95a7c8b2ee662">subtract</a>(putn, notional);
<a name="l00219"></a>00219 }
<a name="l00220"></a>00220 Settings::instance().evaluationDate() = today;
<a name="l00221"></a>00221 underlying->setValue(underlyingValue);
<a name="l00222"></a>00222 portfolioValue = portfolio2.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00223"></a>00223 error = portfolioValue - referenceValue;
<a name="l00224"></a>00224 std::cout << std::setw(widths[0]) << std::left
<a name="l00225"></a>00225 << <span class="stringliteral">"Replicating portfolio (26 dates)"</span>
<a name="l00226"></a>00226 << std::fixed
<a name="l00227"></a>00227 << std::setw(widths[1]) << std::left << portfolioValue
<a name="l00228"></a>00228 << std::setw(widths[2]) << std::left << error
<a name="l00229"></a>00229 << std::endl;
<a name="l00230"></a>00230
<a name="l00231"></a>00231 <span class="comment">// For the third portfolio, we'll use 52 dates at one-week's</span>
<a name="l00232"></a>00232 <span class="comment">// distance.</span>
<a name="l00233"></a>00233 <span class="keywordflow">for</span> (i=52; i>=1; i--) {
<a name="l00234"></a>00234 <span class="comment">// Same as above.</span>
<a name="l00235"></a>00235 <a class="code" href="class_quant_lib_1_1_date.html">Date</a> innerMaturity = today + i*Weeks;
<a name="l00236"></a>00236 boost::shared_ptr<Exercise> innerExercise(
<a name="l00237"></a>00237 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_european_exercise.html">EuropeanExercise</a>(innerMaturity));
<a name="l00238"></a>00238 boost::shared_ptr<StrikedTypePayoff> innerPayoff(
<a name="l00239"></a>00239 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_plain_vanilla_payoff.html">PlainVanillaPayoff</a>(Option::Put, barrier));
<a name="l00240"></a>00240 boost::shared_ptr<Instrument> putn(
<a name="l00241"></a>00241 <span class="keyword">new</span> <a class="code" href="class_quant_lib_1_1_european_option.html">EuropeanOption</a>(stochasticProcess,
<a name="l00242"></a>00242 innerPayoff, innerExercise));
<a name="l00243"></a>00243 <a class="code" href="class_quant_lib_1_1_date.html">Date</a> killDate = today + (i-1)*Weeks;
<a name="l00244"></a>00244 Settings::instance().evaluationDate() = killDate;
<a name="l00245"></a>00245 underlying->setValue(barrier);
<a name="l00246"></a>00246 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> portfolioValue = portfolio3.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00247"></a>00247 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> putValue = putn->NPV();
<a name="l00248"></a>00248 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> notional = portfolioValue/putValue;
<a name="l00249"></a>00249 portfolio3.<a class="code" href="class_quant_lib_1_1_composite_instrument.html#f781618b4ac4bee06da95a7c8b2ee662">subtract</a>(putn, notional);
<a name="l00250"></a>00250 }
<a name="l00251"></a>00251 Settings::instance().evaluationDate() = today;
<a name="l00252"></a>00252 underlying->setValue(underlyingValue);
<a name="l00253"></a>00253 portfolioValue = portfolio3.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00254"></a>00254 error = portfolioValue - referenceValue;
<a name="l00255"></a>00255 std::cout << std::setw(widths[0]) << std::left
<a name="l00256"></a>00256 << <span class="stringliteral">"Replicating portfolio (52 dates)"</span>
<a name="l00257"></a>00257 << std::fixed
<a name="l00258"></a>00258 << std::setw(widths[1]) << std::left << portfolioValue
<a name="l00259"></a>00259 << std::setw(widths[2]) << std::left << error
<a name="l00260"></a>00260 << std::endl;
<a name="l00261"></a>00261
<a name="l00262"></a>00262 <span class="comment">// Now we modify the market condition to see whether the</span>
<a name="l00263"></a>00263 <span class="comment">// replication holds. First, we change the underlying value so</span>
<a name="l00264"></a>00264 <span class="comment">// that the option is out of the money.</span>
<a name="l00265"></a>00265 std::cout << dblrule << std::endl;
<a name="l00266"></a>00266 std::cout << <span class="stringliteral">"Modified market conditions: out of the money"</span>
<a name="l00267"></a>00267 << std::endl;
<a name="l00268"></a>00268 std::cout << dblrule << std::endl;
<a name="l00269"></a>00269 std::cout << std::setw(widths[0]) << std::left << <span class="stringliteral">"Option"</span>
<a name="l00270"></a>00270 << std::setw(widths[1]) << std::left << <span class="stringliteral">"NPV"</span>
<a name="l00271"></a>00271 << std::setw(widths[2]) << std::left << <span class="stringliteral">"Error"</span>
<a name="l00272"></a>00272 << std::endl;
<a name="l00273"></a>00273 std::cout << rule << std::endl;
<a name="l00274"></a>00274
<a name="l00275"></a>00275 underlying->setValue(110.0);
<a name="l00276"></a>00276
<a name="l00277"></a>00277 referenceValue = referenceOption.NPV();
<a name="l00278"></a>00278 std::cout << std::setw(widths[0]) << std::left
<a name="l00279"></a>00279 << <span class="stringliteral">"Original barrier option"</span>
<a name="l00280"></a>00280 << std::fixed
<a name="l00281"></a>00281 << std::setw(widths[1]) << std::left << referenceValue
<a name="l00282"></a>00282 << std::setw(widths[2]) << std::left << <span class="stringliteral">"N/A"</span>
<a name="l00283"></a>00283 << std::endl;
<a name="l00284"></a>00284 portfolioValue = portfolio1.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00285"></a>00285 error = portfolioValue - referenceValue;
<a name="l00286"></a>00286 std::cout << std::setw(widths[0]) << std::left
<a name="l00287"></a>00287 << <span class="stringliteral">"Replicating portfolio (12 dates)"</span>
<a name="l00288"></a>00288 << std::fixed
<a name="l00289"></a>00289 << std::setw(widths[1]) << std::left << portfolioValue
<a name="l00290"></a>00290 << std::setw(widths[2]) << std::left << error
<a name="l00291"></a>00291 << std::endl;
<a name="l00292"></a>00292 portfolioValue = portfolio2.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00293"></a>00293 error = portfolioValue - referenceValue;
<a name="l00294"></a>00294 std::cout << std::setw(widths[0]) << std::left
<a name="l00295"></a>00295 << <span class="stringliteral">"Replicating portfolio (26 dates)"</span>
<a name="l00296"></a>00296 << std::fixed
<a name="l00297"></a>00297 << std::setw(widths[1]) << std::left << portfolioValue
<a name="l00298"></a>00298 << std::setw(widths[2]) << std::left << error
<a name="l00299"></a>00299 << std::endl;
<a name="l00300"></a>00300 portfolioValue = portfolio3.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00301"></a>00301 error = portfolioValue - referenceValue;
<a name="l00302"></a>00302 std::cout << std::setw(widths[0]) << std::left
<a name="l00303"></a>00303 << <span class="stringliteral">"Replicating portfolio (52 dates)"</span>
<a name="l00304"></a>00304 << std::fixed
<a name="l00305"></a>00305 << std::setw(widths[1]) << std::left << portfolioValue
<a name="l00306"></a>00306 << std::setw(widths[2]) << std::left << error
<a name="l00307"></a>00307 << std::endl;
<a name="l00308"></a>00308
<a name="l00309"></a>00309 <span class="comment">// Next, we change the underlying value so that the option is</span>
<a name="l00310"></a>00310 <span class="comment">// in the money.</span>
<a name="l00311"></a>00311 std::cout << dblrule << std::endl;
<a name="l00312"></a>00312 std::cout << <span class="stringliteral">"Modified market conditions: in the money"</span> << std::endl;
<a name="l00313"></a>00313 std::cout << dblrule << std::endl;
<a name="l00314"></a>00314 std::cout << std::setw(widths[0]) << std::left << <span class="stringliteral">"Option"</span>
<a name="l00315"></a>00315 << std::setw(widths[1]) << std::left << <span class="stringliteral">"NPV"</span>
<a name="l00316"></a>00316 << std::setw(widths[2]) << std::left << <span class="stringliteral">"Error"</span>
<a name="l00317"></a>00317 << std::endl;
<a name="l00318"></a>00318 std::cout << rule << std::endl;
<a name="l00319"></a>00319
<a name="l00320"></a>00320 underlying->setValue(90.0);
<a name="l00321"></a>00321
<a name="l00322"></a>00322 referenceValue = referenceOption.NPV();
<a name="l00323"></a>00323 std::cout << std::setw(widths[0]) << std::left
<a name="l00324"></a>00324 << <span class="stringliteral">"Original barrier option"</span>
<a name="l00325"></a>00325 << std::fixed
<a name="l00326"></a>00326 << std::setw(widths[1]) << std::left << referenceValue
<a name="l00327"></a>00327 << std::setw(widths[2]) << std::left << <span class="stringliteral">"N/A"</span>
<a name="l00328"></a>00328 << std::endl;
<a name="l00329"></a>00329 portfolioValue = portfolio1.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00330"></a>00330 error = portfolioValue - referenceValue;
<a name="l00331"></a>00331 std::cout << std::setw(widths[0]) << std::left
<a name="l00332"></a>00332 << <span class="stringliteral">"Replicating portfolio (12 dates)"</span>
<a name="l00333"></a>00333 << std::fixed
<a name="l00334"></a>00334 << std::setw(widths[1]) << std::left << portfolioValue
<a name="l00335"></a>00335 << std::setw(widths[2]) << std::left << error
<a name="l00336"></a>00336 << std::endl;
<a name="l00337"></a>00337 portfolioValue = portfolio2.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00338"></a>00338 error = portfolioValue - referenceValue;
<a name="l00339"></a>00339 std::cout << std::setw(widths[0]) << std::left
<a name="l00340"></a>00340 << <span class="stringliteral">"Replicating portfolio (26 dates)"</span>
<a name="l00341"></a>00341 << std::fixed
<a name="l00342"></a>00342 << std::setw(widths[1]) << std::left << portfolioValue
<a name="l00343"></a>00343 << std::setw(widths[2]) << std::left << error
<a name="l00344"></a>00344 << std::endl;
<a name="l00345"></a>00345 portfolioValue = portfolio3.<a class="code" href="class_quant_lib_1_1_instrument.html#4f791921f063f3ea19bd6efa9ceb4892">NPV</a>();
<a name="l00346"></a>00346 error = portfolioValue - referenceValue;
<a name="l00347"></a>00347 std::cout << std::setw(widths[0]) << std::left
<a name="l00348"></a>00348 << <span class="stringliteral">"Replicating portfolio (52 dates)"</span>
<a name="l00349"></a>00349 << std::fixed
<a name="l00350"></a>00350 << std::setw(widths[1]) << std::left << portfolioValue
<a name="l00351"></a>00351 << std::setw(widths[2]) << std::left << error
<a name="l00352"></a>00352 << std::endl;
<a name="l00353"></a>00353
<a name="l00354"></a>00354 <span class="comment">// Finally, a word of warning for those (shame on them) who</span>
<a name="l00355"></a>00355 <span class="comment">// run the example but do not read the code.</span>
<a name="l00356"></a>00356 std::cout << dblrule << std::endl;
<a name="l00357"></a>00357 std::cout
<a name="l00358"></a>00358 << std::endl
<a name="l00359"></a>00359 << <span class="stringliteral">"The replication seems to be less robust when volatility and \n"</span>
<a name="l00360"></a>00360 << <span class="stringliteral">"risk-free rate are changed. Feel free to experiment with \n"</span>
<a name="l00361"></a>00361 << <span class="stringliteral">"the example and contribute a patch if you spot any errors."</span>
<a name="l00362"></a>00362 << std::endl;
<a name="l00363"></a>00363
<a name="l00364"></a>00364 <a class="code" href="group__types.html#g4bdf4bfe76b9ffa6fa64c47d8bfa0c78">Real</a> seconds = timer.elapsed();
<a name="l00365"></a>00365 <a class="code" href="group__types.html#gb9c87440c314438e51a899a03d2442d0">Integer</a> hours = int(seconds/3600);
<a name="l00366"></a>00366 seconds -= hours * 3600;
<a name="l00367"></a>00367 <a class="code" href="group__types.html#gb9c87440c314438e51a899a03d2442d0">Integer</a> minutes = int(seconds/60);
<a name="l00368"></a>00368 seconds -= minutes * 60;
<a name="l00369"></a>00369 std::cout << <span class="stringliteral">" \nRun completed in "</span>;
<a name="l00370"></a>00370 <span class="keywordflow">if</span> (hours > 0)
<a name="l00371"></a>00371 std::cout << hours << <span class="stringliteral">" h "</span>;
<a name="l00372"></a>00372 <span class="keywordflow">if</span> (hours > 0 || minutes > 0)
<a name="l00373"></a>00373 std::cout << minutes << <span class="stringliteral">" m "</span>;
<a name="l00374"></a>00374 std::cout << std::fixed << std::setprecision(0)
<a name="l00375"></a>00375 << seconds << <span class="stringliteral">" s\n"</span> << std::endl;
<a name="l00376"></a>00376
<a name="l00377"></a>00377 <span class="keywordflow">return</span> 0;
<a name="l00378"></a>00378 } <span class="keywordflow">catch</span> (std::exception& e) {
<a name="l00379"></a>00379 std::cout << e.what() << std::endl;
<a name="l00380"></a>00380 <span class="keywordflow">return</span> 1;
<a name="l00381"></a>00381 } <span class="keywordflow">catch</span> (...) {
<a name="l00382"></a>00382 std::cout << <span class="stringliteral">"unknown error"</span> << std::endl;
<a name="l00383"></a>00383 <span class="keywordflow">return</span> 1;
<a name="l00384"></a>00384 }
<a name="l00385"></a>00385 }
</pre></div>
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