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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2007 Allen Kuo
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/yield/fittedbonddiscountcurve.hpp>
#include <ql/math/optimization/simplex.hpp>
#include <ql/math/optimization/costfunction.hpp>
#include <ql/math/optimization/constraint.hpp>
#include <ql/cashflows/cashflows.hpp>
namespace QuantLib {
class FittedBondDiscountCurve::FittingMethod::FittingCost
: public CostFunction {
friend class FittedBondDiscountCurve::FittingMethod;
public:
FittingCost(FittedBondDiscountCurve::FittingMethod* fittingMethod);
Real value(const Array& x) const;
Disposable<Array> values(const Array& x) const;
private:
FittedBondDiscountCurve::FittingMethod* fittingMethod_;
mutable Date refDate_;
mutable std::vector<Integer> startingCashFlowIndex_;
};
FittedBondDiscountCurve::FittedBondDiscountCurve (
Natural settlementDays,
const Calendar& calendar,
const std::vector<boost::shared_ptr<FixedRateBondHelper> >&
instruments,
const DayCounter& dayCounter,
const FittingMethod& fittingMethod,
Real accuracy,
Size maxEvaluations,
const Array& guess,
Real simplexLambda)
: YieldTermStructure(settlementDays, calendar, dayCounter),
accuracy_(accuracy),
maxEvaluations_(maxEvaluations),
simplexLambda_(simplexLambda),
guessSolution_(guess),
instruments_(instruments),
fittingMethod_(fittingMethod) {
fittingMethod_->curve_ = this;
setup();
}
FittedBondDiscountCurve::FittedBondDiscountCurve (
const Date& referenceDate,
const std::vector<boost::shared_ptr<FixedRateBondHelper> >&
instruments,
const DayCounter& dayCounter,
const FittingMethod& fittingMethod,
Real accuracy,
Size maxEvaluations,
const Array& guess,
Real simplexLambda)
: YieldTermStructure(referenceDate, Calendar(), dayCounter),
accuracy_(accuracy),
maxEvaluations_(maxEvaluations),
simplexLambda_(simplexLambda),
guessSolution_(guess),
instruments_(instruments),
fittingMethod_(fittingMethod) {
fittingMethod_->curve_ = this;
setup();
}
Size FittedBondDiscountCurve::numberOfBonds() const {
return instruments_.size();
}
Date FittedBondDiscountCurve::maxDate() const {
calculate();
return maxDate_;
}
const FittedBondDiscountCurve::FittingMethod&
FittedBondDiscountCurve::fitResults() const {
calculate();
return *fittingMethod_;
}
void FittedBondDiscountCurve::update() {
TermStructure::update();
LazyObject::update();
}
void FittedBondDiscountCurve::setup() {
for (Size i=0; i<instruments_.size(); ++i)
registerWith(instruments_[i]);
}
void FittedBondDiscountCurve::performCalculations() const {
QL_REQUIRE(!instruments_.empty(), "no instruments given");
// double check bond quotes still valid and/or instruments not expired
for (Size i=0; i<instruments_.size(); ++i) {
QL_REQUIRE(instruments_[i]->quoteIsValid(),
"instrument with invalid quote");
instruments_[i]->setTermStructure(
const_cast<FittedBondDiscountCurve*>(this));
boost::shared_ptr<Bond> bond = instruments_[i]->bond();
QL_REQUIRE(!bond->isExpired(), "expired bond instrument");
}
maxDate_ = Date::minDate();
for (Size i=0; i<instruments_.size(); ++i)
maxDate_ = std::max(maxDate_, instruments_[i]->latestDate());
fittingMethod_->init();
fittingMethod_->calculate();
}
DiscountFactor FittedBondDiscountCurve::discountImpl(Time t) const {
calculate();
return fittingMethod_->discountFunction(fittingMethod_->solution_,t);
}
FittedBondDiscountCurve::FittingMethod::FittingMethod(bool constrainAtZero)
: constrainAtZero_(constrainAtZero) {}
Integer FittedBondDiscountCurve::FittingMethod::numberOfIterations() const {
return numberOfIterations_;
}
Real FittedBondDiscountCurve::FittingMethod::minimumCostValue() const {
return costValue_;
}
Array FittedBondDiscountCurve::FittingMethod::solution() const {
return solution_;
}
void FittedBondDiscountCurve::FittingMethod::init() {
Array tempWeights(curve_->instruments_.size(), 0.0);
Date today = curve_->referenceDate();
Real squaredSum = 0.0;
for (Size k=0; k<curve_->instruments_.size(); ++k) {
boost::shared_ptr<Bond> bond = curve_->instruments_[k]->bond();
Leg leg = bond->cashflows();
Real cleanPrice = curve_->instruments_[k]->quoteValue();
Rate ytm = bond->yield(cleanPrice,
curve_->instruments_[k]->dayCounter(),
Compounded,
curve_->instruments_[k]->frequency(),
today);
InterestRate r(ytm,
curve_->instruments_[k]->dayCounter(),
Compounded,
curve_->instruments_[k]->frequency());
Date settlement = bond->settlementDate(today);
Time duration =
CashFlows::duration(leg, r, Duration::Modified, settlement);
tempWeights[k] = 1.0/duration;
squaredSum += tempWeights[k]*tempWeights[k];
}
weights_ = tempWeights/std::sqrt(squaredSum);
// set cost function related below
costFunction_ = boost::shared_ptr<FittingCost>(new FittingCost(this));
costFunction_->refDate_ = curve_->referenceDate();
costFunction_->startingCashFlowIndex_.clear();
for (Size i=0; i<curve_->instruments_.size(); ++i) {
boost::shared_ptr<Bond> bond = curve_->instruments_[i]->bond();
Date settlementDate = bond->settlementDate(today);
Leg cf = bond->cashflows();
for (Size k=0; k<cf.size(); ++k) {
if (!cf[k]->hasOccurred(settlementDate)) {
costFunction_->startingCashFlowIndex_.push_back(k);
break;
}
}
}
}
void FittedBondDiscountCurve::FittingMethod::calculate() {
FittingCost& costFunction = *costFunction_;
Constraint constraint = NoConstraint();
// start with the guess solution, if it exists
Array x(size(), 0.0);
if (!curve_->guessSolution_.empty()) {
x = curve_->guessSolution_;
}
Simplex simplex(curve_->simplexLambda_);
Problem problem(costFunction, constraint, x);
Natural maxStationaryStateIterations = 100;
Real rootEpsilon = curve_->accuracy_;
Real functionEpsilon = curve_->accuracy_;
Real gradientNormEpsilon = curve_->accuracy_;
EndCriteria endCriteria(curve_->maxEvaluations_,
maxStationaryStateIterations,
rootEpsilon,
functionEpsilon,
gradientNormEpsilon);
simplex.minimize(problem,endCriteria);
solution_ = problem.currentValue();
numberOfIterations_ = problem.functionEvaluation();
costValue_ = problem.functionValue();
// save the results as the guess solution, in case of recalculation
curve_->guessSolution_ = solution_;
}
FittedBondDiscountCurve::FittingMethod::FittingCost::FittingCost(
FittedBondDiscountCurve::FittingMethod* fittingMethod)
: fittingMethod_(fittingMethod) {}
Real FittedBondDiscountCurve::FittingMethod::FittingCost::value(
const Array &x) const {
// speed optimization by setting some of the below in the constructor
// rather than here
Size numberOfBonds = fittingMethod_->curve_->instruments_.size();
Date today = fittingMethod_->curve_->referenceDate();
Array trialDirtyPrice(numberOfBonds,0.);
Real squaredError = 0.0;
for (Size i=0; i<numberOfBonds;++i) {
boost::shared_ptr<Bond> bond =
fittingMethod_->curve_->instruments_[i]->bond();
Real quotedPrice =
fittingMethod_->curve_->instruments_[i]->quoteValue();
Date settlement = bond->settlementDate(today);
Real dirtyPrice = quotedPrice + bond->accruedAmount(settlement);
DayCounter bondDayCount =
fittingMethod_->curve_->instruments_[i]->dayCounter();
Leg cf = bond->cashflows();
// loop over cashFlows: P_j = sum( cf_i * d(t_i))
for (Size k=startingCashFlowIndex_[i]; k<cf.size(); ++k) {
Time tenor = bondDayCount.yearFraction(today, cf[k]->date());
trialDirtyPrice[i] += cf[k]->amount() *
fittingMethod_->discountFunction(x,tenor);
}
// adjust dirty price (NPV) for a forward settlement
if (settlement != today ) {
Time tenor = bondDayCount.yearFraction(today, settlement);
trialDirtyPrice[i] = trialDirtyPrice[i]/
fittingMethod_->discountFunction(x,tenor);
}
squaredError = squaredError +
std::pow(fittingMethod_->weights_[i]*
(trialDirtyPrice[i] - dirtyPrice),2);
}
return squaredError;
}
Disposable<Array>
FittedBondDiscountCurve::FittingMethod::FittingCost::values(
const Array &x) const {
Array y(1);
y[0] = value(x);
return y;
}
}
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