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/*
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
<quantlib-dev@lists.sf.net>. The license is also available online at
<http://quantlib.org/license.shtml>.
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.BaroneAdesiWhaleyEngine;
import org.quantlib.BatesEngine;
import org.quantlib.BatesModel;
import org.quantlib.BatesProcess;
import org.quantlib.BermudanExercise;
import org.quantlib.BinomialVanillaEngine;
import org.quantlib.BjerksundStenslandEngine;
import org.quantlib.BlackConstantVol;
import org.quantlib.BlackScholesMertonProcess;
import org.quantlib.BlackVolTermStructureHandle;
import org.quantlib.Calendar;
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.FDAmericanEngine;
import org.quantlib.FDBermudanEngine;
import org.quantlib.FDEuropeanEngine;
import org.quantlib.HestonModel;
import org.quantlib.HestonProcess;
import org.quantlib.FlatForward;
import org.quantlib.IntegralEngine;
import org.quantlib.MCEuropeanEngine;
import org.quantlib.Month;
import org.quantlib.Option;
import org.quantlib.Payoff;
import org.quantlib.Period;
import org.quantlib.PlainVanillaPayoff;
import org.quantlib.QuoteHandle;
import org.quantlib.Settings;
import org.quantlib.SimpleQuote;
import org.quantlib.TARGET;
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
Payoff 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 } );
// 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 BaroneAdesiWhaleyEngine(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 BjerksundStenslandEngine(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 FDEuropeanEngine(stochasticProcess,
timeSteps,
timeSteps-1));
bermudanOption.setPricingEngine(new FDBermudanEngine(stochasticProcess,
timeSteps,
timeSteps-1));
americanOption.setPricingEngine(new FDAmericanEngine(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 BinomialVanillaEngine(stochasticProcess,
"JarrowRudd", timeSteps));
bermudanOption.setPricingEngine(new BinomialVanillaEngine(
stochasticProcess,
"JarrowRudd", timeSteps));
americanOption.setPricingEngine(new BinomialVanillaEngine(
stochasticProcess,
"JarrowRudd", timeSteps));
System.out.printf(fmt, new Object[] { method,
europeanOption.NPV(),
bermudanOption.NPV(),
americanOption.NPV() } );
method = "Binomial Cox-Ross-Rubinstein";
europeanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"CoxRossRubinstein", timeSteps));
bermudanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"CoxRossRubinstein", timeSteps));
americanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"CoxRossRubinstein", timeSteps));
System.out.printf(fmt, new Object[] { method,
europeanOption.NPV(),
bermudanOption.NPV(),
americanOption.NPV() } );
method = "Additive equiprobabilities";
europeanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"AdditiveEQPBinomialTree", timeSteps));
bermudanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"AdditiveEQPBinomialTree", timeSteps));
americanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"AdditiveEQPBinomialTree", timeSteps));
System.out.printf(fmt, new Object[] { method,
europeanOption.NPV(),
bermudanOption.NPV(),
americanOption.NPV() } );
method = "Binomial Trigeorgis";
europeanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"Trigeorgis", timeSteps));
bermudanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"Trigeorgis", timeSteps));
americanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"Trigeorgis", timeSteps));
System.out.printf(fmt, new Object[] { method,
europeanOption.NPV(),
bermudanOption.NPV(),
americanOption.NPV() } );
method = "Binomial Tian";
europeanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"Tian", timeSteps));
bermudanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"Tian", timeSteps));
americanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"Tian", timeSteps));
System.out.printf(fmt, new Object[] { method,
europeanOption.NPV(),
bermudanOption.NPV(),
americanOption.NPV() } );
method = "Binomial Leisen-Reimer";
europeanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"LeisenReimer", timeSteps));
bermudanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"LeisenReimer", timeSteps));
americanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"LeisenReimer", timeSteps));
System.out.printf(fmt, new Object[] { method,
europeanOption.NPV(),
bermudanOption.NPV(),
americanOption.NPV() } );
method = "Binomial Joshi";
europeanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"Joshi4", timeSteps));
bermudanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"Joshi4", timeSteps));
americanOption.setPricingEngine(
new BinomialVanillaEngine(stochasticProcess,
"Joshi4", 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 MCEuropeanEngine(stochasticProcess,
"PseudoRandom", 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 MCEuropeanEngine(stochasticProcess,
"LowDiscrepancy", 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 (Longstaff Schwartz)";
// This is the original C++ code:
// MakeMCAmericanEngine<PseudoRandom>().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.");
}
}
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