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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2007 Giorgio Facchinetti
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.
*/
#include <ql/termstructures/volatility/optionlet/optionletstripper2.hpp>
#include <ql/termstructures/volatility/optionlet/optionletstripper1.hpp>
#include <ql/termstructures/volatility/optionlet/strippedoptionletadapter.hpp>
#include <ql/termstructures/volatility/optionlet/spreadedoptionletvol.hpp>
#include <ql/termstructures/volatility/capfloor/capfloortermvolcurve.hpp>
#include <ql/quotes/simplequote.hpp>
#include <ql/math/solvers1d/brent.hpp>
#include <ql/instruments/makecapfloor.hpp>
#include <ql/pricingengines/capfloor/blackcapfloorengine.hpp>
#include <ql/indexes/iborindex.hpp>
namespace QuantLib {
//===========================================================================//
// OptionletStripper2 //
//===========================================================================//
OptionletStripper2::OptionletStripper2(
const boost::shared_ptr<OptionletStripper1>& optionletStripper1,
const Handle<CapFloorTermVolCurve>& atmCapFloorTermVolCurve)
: OptionletStripper(optionletStripper1->termVolSurface(),
optionletStripper1->index()),
optionletStripper1_(optionletStripper1),
atmCapFloorTermVolCurve_(atmCapFloorTermVolCurve),
dc_(optionletStripper1_->termVolSurface()->dayCounter()),
nOptionExpiries_(atmCapFloorTermVolCurve->optionTenors().size()),
atmCapFloorStrikes_(nOptionExpiries_),
atmCapFloorPrices_(nOptionExpiries_),
spreadsVolImplied_(nOptionExpiries_),
caps_(nOptionExpiries_),
maxEvaluations_(10000),
accuracy_(1.e-6) {
registerWith(optionletStripper1_);
registerWith(atmCapFloorTermVolCurve_);
QL_REQUIRE(dc_ == atmCapFloorTermVolCurve->dayCounter(), "different day counters provided");
}
void OptionletStripper2::performCalculations() const {
//// optionletStripper data
optionletDates_ = optionletStripper1_->optionletDates();
optionletPaymentDates_ = optionletStripper1_->optionletPaymentDates();
optionletAccrualPeriods_ = optionletStripper1_->optionletAccrualPeriods();
optionletTimes_ = optionletStripper1_->optionletTimes();
atmOptionletRate_ = optionletStripper1_->atmOptionletRates();
for (Size i=0; i<optionletTimes_.size(); ++i) {
optionletStrikes_[i] = optionletStripper1_->optionletStrikes(i);
optionletVolatilities_[i] = optionletStripper1_->optionletVolatilities(i);
}
// atmCapFloorTermVolCurve data
const std::vector<Period>& optionExpiriesTenors = atmCapFloorTermVolCurve_->optionTenors();
const std::vector<Time>& optionExpiriesTimes = atmCapFloorTermVolCurve_->optionTimes();
for (Size optionIndex=0; optionIndex<nOptionExpiries_; ++optionIndex) {
// atm option price
Rate dummyStrike = 0.;
Volatility atmOptionVol = atmCapFloorTermVolCurve_->volatility(optionExpiriesTimes[optionIndex],dummyStrike);
boost::shared_ptr<BlackCapFloorEngine> engine(new
BlackCapFloorEngine(index_->termStructure(),
atmOptionVol, dc_));
caps_[optionIndex] =
MakeCapFloor(CapFloor::Cap,
optionExpiriesTenors[optionIndex], index_,
dummyStrike, 0*Days)
.withPricingEngine(engine);
atmCapFloorStrikes_[optionIndex] =
caps_[optionIndex]->atmRate(**index_->termStructure());
caps_[optionIndex] =
MakeCapFloor(CapFloor::Cap,
optionExpiriesTenors[optionIndex], index_,
atmCapFloorStrikes_[optionIndex], 0*Days)
.withPricingEngine(engine);
atmCapFloorPrices_[optionIndex] = caps_[optionIndex]->NPV();
}
spreadsVolImplied_ = spreadsVolImplied();
StrippedOptionletAdapter adapter(optionletStripper1_);
for (Size optionIndex=0; optionIndex<nOptionExpiries_; ++optionIndex) {
for (Size i=0; i<optionletVolatilities_.size(); ++i) {
if (i<=caps_[optionIndex]->leg().size()) {
Volatility unadjustedVol = adapter.volatility(optionletTimes_[i], atmCapFloorStrikes_[optionIndex]);
Volatility adjustedVol = unadjustedVol + spreadsVolImplied_[optionIndex];
// insert adjusted volatility
std::vector<Rate>::const_iterator previousNode =
std::lower_bound(optionletStrikes_[i].begin(), optionletStrikes_[i].end(),
atmCapFloorStrikes_[optionIndex]);
Size insertIndex = previousNode - optionletStrikes_[i].begin();
optionletStrikes_[i].insert(optionletStrikes_[i].begin() + insertIndex, atmCapFloorStrikes_[optionIndex]);
optionletVolatilities_[i].insert(optionletVolatilities_[i].begin() + insertIndex, adjustedVol);
}
}
}
}
std::vector<Volatility> OptionletStripper2::spreadsVolImplied() const {
std::vector<Volatility> result;
Volatility guess = 0.0001, minVol = -0.1, maxVol = 0.1;
for (Size optionIndex=0; optionIndex<nOptionExpiries_; ++optionIndex) {
ObjectiveFunction f(optionletStripper1_, caps_[optionIndex],
atmCapFloorPrices_[optionIndex]);
Brent solver;
solver.setMaxEvaluations(maxEvaluations_);
result.push_back(solver.solve(f, accuracy_, guess, minVol, maxVol));
}
return result;
}
std::vector<Volatility> OptionletStripper2::spreadsVol() const {
calculate();
return spreadsVolImplied_;
}
std::vector<Rate> OptionletStripper2::atmCapFloorStrikes() const{
calculate();
return atmCapFloorStrikes_;
}
std::vector<Real> OptionletStripper2::atmCapFloorPrices() const {
calculate();
return atmCapFloorPrices_;
}
//===========================================================================//
// OptionletStripper2::ObjectiveFunction //
//===========================================================================//
OptionletStripper2::ObjectiveFunction::ObjectiveFunction(
const boost::shared_ptr<OptionletStripper1>& optionletStripper1,
const boost::shared_ptr<CapFloor>& cap,
Real targetValue):
optionletStripper1_(optionletStripper1),
cap_(cap),
targetValue_(targetValue){ }
Real OptionletStripper2::ObjectiveFunction::operator()(Volatility spreadVol) const {
boost::shared_ptr<OptionletVolatilityStructure> adapter(new
StrippedOptionletAdapter(optionletStripper1_));
boost::shared_ptr<SimpleQuote> spreadQuote(new SimpleQuote(spreadVol));
boost::shared_ptr<OptionletVolatilityStructure> spreadedAdapter(new
SpreadedOptionletVol(Handle<OptionletVolatilityStructure>(adapter),
Handle<Quote>(spreadQuote)));
boost::shared_ptr<BlackCapFloorEngine> engine(new
BlackCapFloorEngine(optionletStripper1_->index()->termStructure(),
Handle<OptionletVolatilityStructure>(spreadedAdapter)));
cap_->setPricingEngine(engine);
return cap_->NPV()-targetValue_;
}
}
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