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|
/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2003 RiskMap srl
Copyright (C) 2006, 2007 Ferdinando Ametrano
Copyright (C) 2006 Marco Bianchetti
Copyright (C) 2006 Cristina Duminuco
Copyright (C) 2007 StatPro Italia srl
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 "swaption.hpp"
#include "utilities.hpp"
#include <ql/instruments/swaption.hpp>
#include <ql/instruments/makevanillaswap.hpp>
#include <ql/termstructures/yield/flatforward.hpp>
#include <ql/indexes/ibor/euribor.hpp>
#include <ql/time/daycounters/actual365fixed.hpp>
#include <ql/time/daycounters/thirty360.hpp>
#include <ql/time/schedule.hpp>
#include <ql/pricingengines/swaption/blackswaptionengine.hpp>
#include <ql/pricingengines/swap/discountingswapengine.hpp>
#include <ql/utilities/dataformatters.hpp>
using namespace QuantLib;
using namespace boost::unit_test_framework;
QL_BEGIN_TEST_LOCALS(SwaptionTest)
// global data
Period exercises[] = { 1*Years, 2*Years, 3*Years, 5*Years, 7*Years, 10*Years };
Period lengths[] = { 1*Years, 2*Years, 3*Years, 5*Years, 7*Years, 10*Years, 15*Years, 20*Years };
VanillaSwap::Type type[] = { VanillaSwap::Receiver, VanillaSwap::Payer };
Date today_, settlement_;
Real nominal_;
Calendar calendar_;
BusinessDayConvention fixedConvention_;
Frequency fixedFrequency_;
DayCounter fixedDayCount_;
BusinessDayConvention floatingConvention_;
Period floatingTenor_;
boost::shared_ptr<IborIndex> index_;
Natural settlementDays_;
RelinkableHandle<YieldTermStructure> termStructure_;
// utilities
boost::shared_ptr<Swaption> makeSwaption(
const boost::shared_ptr<VanillaSwap>& swap,
const Date& exercise,
Volatility volatility,
Settlement::Type settlementType = Settlement::Physical) {
Handle<Quote> vol(boost::shared_ptr<Quote>(new SimpleQuote(volatility)));
boost::shared_ptr<PricingEngine> engine(new BlackSwaptionEngine(termStructure_, vol));
boost::shared_ptr<Swaption> result(new
Swaption(swap,
boost::shared_ptr<Exercise>(new EuropeanExercise(exercise)),
settlementType));
result->setPricingEngine(engine);
return result;
}
boost::shared_ptr<PricingEngine> makeEngine(Volatility volatility) {
Handle<Quote> h(boost::shared_ptr<Quote>(new SimpleQuote(volatility)));
return boost::shared_ptr<PricingEngine>(new BlackSwaptionEngine(termStructure_, h));
}
void setup() {
settlementDays_ = 2;
nominal_ = 1000000.0;
fixedConvention_ = Unadjusted;
fixedFrequency_ = Annual;
fixedDayCount_ = Thirty360();
index_ = boost::shared_ptr<IborIndex>(new
Euribor6M(termStructure_));
floatingConvention_ = index_->businessDayConvention();
floatingTenor_ = index_->tenor();
calendar_ = index_->fixingCalendar();
today_ = calendar_.adjust(Date::todaysDate());
Settings::instance().evaluationDate() = today_;
settlement_ = calendar_.advance(today_,settlementDays_,Days);
termStructure_.linkTo(flatRate(settlement_,0.05,Actual365Fixed())); // by default: COntinuous and annual
}
QL_END_TEST_LOCALS(SwaptionTest)
void SwaptionTest::testStrikeDependency() {
BOOST_MESSAGE("Testing swaption dependency on strike...");
SavedSettings backup;
setup();
Rate strikes[] = { 0.03, 0.04, 0.05, 0.06, 0.07 };
for (Size i=0; i<LENGTH(exercises); i++) {
for (Size j=0; j<LENGTH(lengths); j++) {
for (Size k=0; k<LENGTH(type); k++) {
Date exerciseDate = calendar_.advance(today_, exercises[i]);
Date startDate = calendar_.advance(exerciseDate,
settlementDays_,Days);
// store the results for different rates...
std::vector<Real> values;
std::vector<Real> values_cash;
Volatility vol = 0.20;
for (Size l=0; l<LENGTH(strikes); l++) {
boost::shared_ptr<VanillaSwap> swap =
MakeVanillaSwap(lengths[j], index_, strikes[l])
.withEffectiveDate(startDate)
.withFloatingLegSpread(0.0)
.withType(type[k]);
boost::shared_ptr<Swaption> swaption =
makeSwaption(swap,exerciseDate,vol);
// FLOATING_POINT_EXCEPTION
values.push_back(swaption->NPV());
boost::shared_ptr<Swaption> swaption_cash =
makeSwaption(swap,exerciseDate,vol,Settlement::Cash);
values_cash.push_back(swaption_cash->NPV());
}
// and check that they go the right way
if (type[k]==VanillaSwap::Payer) {
std::vector<Real>::iterator it =
std::adjacent_find(values.begin(), values.end(),
std::less<Real>());
if (it != values.end()) {
Size n = it - values.begin();
BOOST_ERROR("NPV of Payer swaption with delivery settlement"
"is increasing with the strike:" <<
"\n option tenor: " << exercises[i] <<
"\n option date: " << exerciseDate <<
"\n volatility: " << io::rate(vol) <<
"\n swap tenor: " << lengths[j] <<
"\n value: " << values[n ] << " at strike: " << io::rate(strikes[n ]) <<
"\n value: " << values[n+1] << " at strike: " << io::rate(strikes[n+1]));
}
std::vector<Real>::iterator it_cash =
std::adjacent_find(values_cash.begin(), values_cash.end(),
std::less<Real>());
if (it_cash != values_cash.end()) {
Size n = it_cash - values_cash.begin();
BOOST_ERROR("NPV of Payer swaption with cash settlement"
"is increasing with the strike:" <<
"\n option tenor: " << exercises[i] <<
"\n option date: " << exerciseDate <<
"\n volatility: " << io::rate(vol) <<
"\n swap tenor: " << lengths[j] <<
"\n value: " << values_cash[n ] << " at strike: " << io::rate(strikes[n ]) <<
"\n value: " << values_cash[n+1] << " at strike: " << io::rate(strikes[n+1]));
}
} else {
std::vector<Real>::iterator it =
std::adjacent_find(values.begin(), values.end(),
std::greater<Real>());
if (it != values.end()) {
Size n = it - values.begin();
BOOST_ERROR("NPV of Receiver swaption with delivery settlement"
"is increasing with the strike:" <<
"\n option tenor: " << exercises[i] <<
"\n option date: " << exerciseDate <<
"\n volatility: " << io::rate(vol) <<
"\n swap tenor: " << lengths[j] <<
"\n value: " << values[n ] << " at strike: " << io::rate(strikes[n ]) <<
"\n value: " << values[n+1] << " at strike: " << io::rate(strikes[n+1]));
}
std::vector<Real>::iterator it_cash =
std::adjacent_find(values_cash.begin(), values_cash.end(),
std::greater<Real>());
if (it_cash != values_cash.end()) {
Size n = it_cash - values_cash.begin();
BOOST_ERROR("NPV of Receiver swaption with cash settlement"
"is increasing with the strike:" <<
"\n option tenor: " << exercises[i] <<
"\n option date: " << exerciseDate <<
"\n volatility: " << io::rate(vol) <<
"\n swap tenor: " << lengths[j] <<
"\n value: " << values_cash[n ] << " at strike: " << io::rate(strikes[n ]) <<
"\n value: " << values_cash[n+1] << " at strike: " << io::rate(strikes[n+1]));
}
}
}
}
}
}
void SwaptionTest::testSpreadDependency() {
BOOST_MESSAGE("Testing swaption dependency on spread...");
SavedSettings backup;
setup();
Spread spreads[] = { -0.002, -0.001, 0.0, 0.001, 0.002 };
for (Size i=0; i<LENGTH(exercises); i++) {
for (Size j=0; j<LENGTH(lengths); j++) {
for (Size k=0; k<LENGTH(type); k++) {
Date exerciseDate = calendar_.advance(today_, exercises[i]);
Date startDate = calendar_.advance(exerciseDate,
settlementDays_,Days);
// store the results for different rates...
std::vector<Real> values;
std::vector<Real> values_cash;
for (Size l=0; l<LENGTH(spreads); l++) {
boost::shared_ptr<VanillaSwap> swap =
MakeVanillaSwap(lengths[j], index_, 0.06)
.withEffectiveDate(startDate)
.withFloatingLegSpread(spreads[l])
.withType(type[k]);
boost::shared_ptr<Swaption> swaption =
makeSwaption(swap,exerciseDate,0.20);
// FLOATING_POINT_EXCEPTION
values.push_back(swaption->NPV());
boost::shared_ptr<Swaption> swaption_cash =
makeSwaption(swap,exerciseDate,0.20,Settlement::Cash);
values_cash.push_back(swaption_cash->NPV());
}
// and check that they go the right way
if (type[k]==VanillaSwap::Payer) {
std::vector<Real>::iterator it =
std::adjacent_find(values.begin(), values.end(),
std::greater<Real>());
if (it != values.end()) {
Size n = it - values.begin();
BOOST_ERROR("NPV is decreasing with the spread " <<
"in a payer swaption (physical delivered):" <<
"\n exercise date: " << exerciseDate <<
"\n length: " << lengths[j] <<
"\n value: " << values[n] <<
" for spread: " << io::rate(spreads[n]) <<
"\n value: " << values[n+1] <<
" for spread: " << io::rate(spreads[n+1]));
}
std::vector<Real>::iterator it_cash =
std::adjacent_find(values_cash.begin(), values_cash.end(),
std::greater<Real>());
if (it_cash != values_cash.end()) {
Size n = it_cash - values_cash.begin();
BOOST_ERROR(
"NPV is decreasing with the spread "
<< "in a payer swaption (cash delivered): \n"
<< " exercise date: " << exerciseDate << "\n"
<< " length: " << lengths[j] << " years\n"
<< " value: " << values_cash[n]
<< " for spread: " << io::rate(spreads[n]) << "\n"
<< " value: " << values_cash[n+1]
<< " for spread: " << io::rate(spreads[n+1]));
}
} else {
std::vector<Real>::iterator it =
std::adjacent_find(values.begin(), values.end(),
std::less<Real>());
if (it != values.end()) {
Size n = it - values.begin();
BOOST_ERROR(
"NPV is increasing with the spread "
<< "in a receiver swaption (physical delivered): \n"
<< " exercise date: " << exerciseDate << "\n"
<< " length: " << lengths[j] << " years\n"
<< " value: " << values[n]
<< " for spread: " << io::rate(spreads[n]) << "\n"
<< " value: " << values[n+1]
<< " for spread: " << io::rate(spreads[n+1]));
}
std::vector<Real>::iterator it_cash =
std::adjacent_find(values_cash.begin(), values_cash.end(),
std::less<Real>());
if (it_cash != values_cash.end()) {
Size n = it_cash - values_cash.begin();
BOOST_ERROR(
"NPV is increasing with the spread "
<< "in a receiver swaption (cash delivered): \n"
<< " exercise date: " << exerciseDate << "\n"
<< " length: " << lengths[j] << " years\n"
<< " value: " << values_cash[n]
<< " for spread: " << io::rate(spreads[n]) << "\n"
<< " value: " << values_cash[n+1]
<< " for spread: " << io::rate(spreads[n+1]));
}
}
}
}
}
}
void SwaptionTest::testSpreadTreatment() {
BOOST_MESSAGE("Testing swaption treatment of spread...");
SavedSettings backup;
setup();
Spread spreads[] = { -0.002, -0.001, 0.0, 0.001, 0.002 };
for (Size i=0; i<LENGTH(exercises); i++) {
for (Size j=0; j<LENGTH(lengths); j++) {
for (Size k=0; k<LENGTH(type); k++) {
Date exerciseDate = calendar_.advance(today_, exercises[i]);
Date startDate = calendar_.advance(exerciseDate,
settlementDays_,Days);
for (Size l=0; l<LENGTH(spreads); l++) {
boost::shared_ptr<VanillaSwap> swap =
MakeVanillaSwap(lengths[j], index_, 0.06)
.withEffectiveDate(startDate)
.withFloatingLegSpread(spreads[l])
.withType(type[k]);
// FLOATING_POINT_EXCEPTION
Spread correction = spreads[l] *
swap->floatingLegBPS() /
swap->fixedLegBPS();
boost::shared_ptr<VanillaSwap> equivalentSwap =
MakeVanillaSwap(lengths[j], index_, 0.06+correction)
.withEffectiveDate(startDate)
.withFloatingLegSpread(0.0)
.withType(type[k]);
boost::shared_ptr<Swaption> swaption1 =
makeSwaption(swap,exerciseDate,0.20);
boost::shared_ptr<Swaption> swaption2 =
makeSwaption(equivalentSwap,exerciseDate,0.20);
boost::shared_ptr<Swaption> swaption1_cash =
makeSwaption(swap,exerciseDate,0.20,
Settlement::Cash);
boost::shared_ptr<Swaption> swaption2_cash =
makeSwaption(equivalentSwap,exerciseDate,0.20,
Settlement::Cash);
if (std::fabs(swaption1->NPV()-swaption2->NPV()) > 1.0e-6)
BOOST_ERROR("wrong spread treatment:" <<
"\n exercise: " << exerciseDate <<
"\n length: " << lengths[j] <<
"\n type " << type[k] <<
"\n spread: " << io::rate(spreads[l]) <<
"\n value of original swaption: " <<
swaption1->NPV() <<
"\n value of equivalent swaption: " <<
swaption2->NPV());
if (std::fabs(swaption1_cash->NPV()-swaption2_cash->NPV()) > 1.0e-6)
BOOST_ERROR(
"wrong spread treatment: \n"
<< " exercise date: " << exerciseDate << "\n"
<< " length: " << lengths[j] << " years\n"
<< " pay " << (type[k] ? "fixed\n"
: "floating\n")
<< " spread: " << io::rate(spreads[l]) << "\n"
<< " value of original swaption: "
<< swaption1_cash->NPV() << "\n"
<< " value of equivalent swaption: "
<< swaption2_cash->NPV());
}
}
}
}
}
void SwaptionTest::testCachedValue() {
BOOST_MESSAGE("Testing swaption value against cached value...");
SavedSettings backup;
setup();
today_ = Date(13, March, 2002);
settlement_ = Date(15, March, 2002);
Settings::instance().evaluationDate() = today_;
termStructure_.linkTo(flatRate(settlement_, 0.05, Actual365Fixed()));
Date exerciseDate = calendar_.advance(settlement_, 5*Years);
Date startDate = calendar_.advance(exerciseDate, settlementDays_, Days);
boost::shared_ptr<VanillaSwap> swap =
MakeVanillaSwap(10*Years, index_, 0.06).withEffectiveDate(startDate);
boost::shared_ptr<Swaption> swaption = makeSwaption(swap, exerciseDate,
0.20);
#ifndef QL_USE_INDEXED_COUPON
Real cachedNPV = 0.036388448721;
#else
Real cachedNPV = 0.036391718924;
#endif
// FLOATING_POINT_EXCEPTION
if (std::fabs(swaption->NPV()-cachedNPV) > 1.0e-12)
BOOST_ERROR("failed to reproduce cached swaption value:\n"
<< QL_FIXED << std::setprecision(12)
<< " calculated: " << swaption->NPV() << "\n"
<< " expected: " << cachedNPV);
}
void SwaptionTest::testVega() {
BOOST_MESSAGE("Testing swaption vega...");
SavedSettings backup;
setup();
Settlement::Type types[] = { Settlement::Physical, Settlement::Cash };
Rate strikes[] = { 0.03, 0.04, 0.05, 0.06, 0.07 };
Volatility vols[] = { 0.01, 0.20, 0.30, 0.70, 0.90 };
Volatility shift = 1e-8;
for (Size i=0; i<LENGTH(exercises); i++) {
Date exerciseDate = calendar_.advance(today_, exercises[i]);
Date startDate = calendar_.advance(exerciseDate,
settlementDays_*Days);
for (Size j=0; j<LENGTH(lengths); j++) {
//Date maturity = calendar_.advance(startDate, lengths[j],
// floatingConvention_);
for (Size t=0; t<LENGTH(strikes); t++) {
for (Size h=0; h<LENGTH(type); h++) {
boost::shared_ptr<VanillaSwap> swap =
MakeVanillaSwap(lengths[j], index_, strikes[t])
.withEffectiveDate(startDate)
.withFloatingLegSpread(0.0)
.withType(type[h]);
for (Size u=0; u<LENGTH(vols); u++) {
boost::shared_ptr<Swaption> swaption =
makeSwaption(swap, exerciseDate, vols[u], types[h]);
// FLOATING_POINT_EXCEPTION
boost::shared_ptr<Swaption> swaption1 =
makeSwaption(swap, exerciseDate, vols[u]-shift, types[h]);
boost::shared_ptr<Swaption> swaption2 =
makeSwaption(swap, exerciseDate, vols[u]+shift, types[h]);
Real swaptionNPV = swaption->NPV();
Real numericalVegaPerPoint =
(swaption2->NPV()-swaption1->NPV())/(200.0*shift);
// check only relevant vega
if (numericalVegaPerPoint/swaptionNPV>1.0e-7) {
Real analyticalVegaPerPoint =
swaption->result<Real>("vega")/100.0;
Real discrepancy = std::fabs(analyticalVegaPerPoint
- numericalVegaPerPoint);
discrepancy /= numericalVegaPerPoint;
Real tolerance = 0.015;
if (discrepancy > tolerance)
BOOST_FAIL("failed to compute swaption vega:" <<
"\n option tenor: " << exercises[i] <<
"\n volatility: " << io::rate(vols[u]) <<
"\n option type: " << swaption->type() <<
"\n swap tenor: " << lengths[j] <<
"\n strike: " << io::rate(strikes[t]) <<
"\n atm rate: " << io::rate(swaption->atmRate()) <<
"\n settlement: " << types[h] <<
"\n nominal: " << swaption->underlyingSwap()->nominal() <<
"\n npv: " << swaptionNPV <<
"\n calculated vega: " << analyticalVegaPerPoint <<
"\n expected vega: " << numericalVegaPerPoint <<
"\n discrepancy: " << io::rate(discrepancy) <<
"\n tolerance: " << io::rate(tolerance));
}
}
}
}
}
}
}
void SwaptionTest::testCashSettledSwaptions() {
BOOST_MESSAGE("Testing cash settled swaptions modified annuity...");
SavedSettings backup;
setup();
Rate strike = 0.05;
for (Size i=0; i<LENGTH(exercises); i++) {
for (Size j=0; j<LENGTH(lengths); j++) {
Date exerciseDate = calendar_.advance(today_,exercises[i]);
Date startDate = calendar_.advance(exerciseDate,settlementDays_,Days);
Date maturity = calendar_.advance(startDate,lengths[j],floatingConvention_);
Schedule floatSchedule(startDate, maturity, floatingTenor_,
calendar_,floatingConvention_,floatingConvention_,
DateGeneration::Forward, false);
// Swap with fixed leg conventions: Business Days = Unadjusted, DayCount = 30/360
Schedule fixedSchedule_u(startDate, maturity, Period(fixedFrequency_),
calendar_, Unadjusted, Unadjusted,
DateGeneration::Forward, true);
boost::shared_ptr<VanillaSwap> swap_u360(
new VanillaSwap(type[0], nominal_,
fixedSchedule_u,strike,Thirty360(),
floatSchedule,index_,0.0,
index_->dayCounter()));
// Swap with fixed leg conventions: Business Days = Unadjusted, DayCount = Act/365
boost::shared_ptr<VanillaSwap> swap_u365(
new VanillaSwap(type[0],nominal_,
fixedSchedule_u,strike,Actual365Fixed(),
floatSchedule,index_,0.0,
index_->dayCounter()));
// Swap with fixed leg conventions: Business Days = Modified Following, DayCount = 30/360
Schedule fixedSchedule_a(startDate,maturity,Period(fixedFrequency_),
calendar_,ModifiedFollowing,ModifiedFollowing,
DateGeneration::Forward, true);
boost::shared_ptr<VanillaSwap> swap_a360(
new VanillaSwap(type[0],nominal_,
fixedSchedule_a,strike,Thirty360(),
floatSchedule,index_,0.0,
index_->dayCounter()));
// Swap with fixed leg conventions: Business Days = Modified Following, DayCount = Act/365
boost::shared_ptr<VanillaSwap> swap_a365(
new VanillaSwap(type[0],nominal_,
fixedSchedule_a,strike,Actual365Fixed(),
floatSchedule,index_,0.0,
index_->dayCounter()));
boost::shared_ptr<PricingEngine> swapEngine(
new DiscountingSwapEngine(termStructure_));
swap_u360->setPricingEngine(swapEngine);
swap_a360->setPricingEngine(swapEngine);
swap_u365->setPricingEngine(swapEngine);
swap_a365->setPricingEngine(swapEngine);
const Leg& swapFixedLeg_u360 = swap_u360->fixedLeg();
const Leg& swapFixedLeg_a360 = swap_a360->fixedLeg();
const Leg& swapFixedLeg_u365 = swap_u365->fixedLeg();
const Leg& swapFixedLeg_a365 = swap_a365->fixedLeg();
// FlatForward curves
// FLOATING_POINT_EXCEPTION
Handle<YieldTermStructure> termStructure_u360(
boost::shared_ptr<YieldTermStructure>(
new FlatForward(settlement_,swap_u360->fairRate(),
Thirty360(),Compounded,fixedFrequency_)));
Handle<YieldTermStructure> termStructure_a360(
boost::shared_ptr<YieldTermStructure>(
new FlatForward(settlement_,swap_a360->fairRate(),
Thirty360(),Compounded,fixedFrequency_)));
Handle<YieldTermStructure> termStructure_u365(
boost::shared_ptr<YieldTermStructure>(
new FlatForward(settlement_,swap_u365->fairRate(),
Actual365Fixed(),Compounded,
fixedFrequency_)));
Handle<YieldTermStructure> termStructure_a365(
boost::shared_ptr<YieldTermStructure>(
new FlatForward(settlement_,swap_a365->fairRate(),
Actual365Fixed(),Compounded,
fixedFrequency_)));
// Annuity calculated by swap method fixedLegBPS().
// Fixed leg conventions: Unadjusted, 30/360
Real annuity_u360 = swap_u360->fixedLegBPS() / 0.0001;
annuity_u360 = swap_u360->type()==VanillaSwap::Payer ?
-annuity_u360 : annuity_u360;
// Fixed leg conventions: ModifiedFollowing, act/365
Real annuity_a365 = swap_a365->fixedLegBPS() / 0.0001;
annuity_a365 = swap_a365->type()==VanillaSwap::Payer ?
-annuity_a365 : annuity_a365;
// Fixed leg conventions: ModifiedFollowing, 30/360
Real annuity_a360 = swap_a360->fixedLegBPS() / 0.0001;
annuity_a360 = swap_a360->type()==VanillaSwap::Payer ?
-annuity_a360 : annuity_a360;
// Fixed leg conventions: Unadjusted, act/365
Real annuity_u365 = swap_u365->fixedLegBPS() / 0.0001;
annuity_u365 = swap_u365->type()==VanillaSwap::Payer ?
-annuity_u365 : annuity_u365;
// Calculation of Modified Annuity (cash settlement)
// Fixed leg conventions of swap: unadjusted, 30/360
Real cashannuity_u360 = 0.;
Size i;
for (i=0; i<swapFixedLeg_u360.size(); i++) {
cashannuity_u360 += swapFixedLeg_u360[i]->amount()/strike
* termStructure_u360->discount(
swapFixedLeg_u360[i]->date());
}
// Fixed leg conventions of swap: unadjusted, act/365
Real cashannuity_u365 = 0.;
for (i=0; i<swapFixedLeg_u365.size(); i++) {
cashannuity_u365 += swapFixedLeg_u365[i]->amount()/strike
* termStructure_u365->discount(
swapFixedLeg_u365[i]->date());
}
// Fixed leg conventions of swap: modified following, 30/360
Real cashannuity_a360 = 0.;
for (i=0; i<swapFixedLeg_a360.size(); i++) {
cashannuity_a360 += swapFixedLeg_a360[i]->amount()/strike
* termStructure_a360->discount(
swapFixedLeg_a360[i]->date());
}
// Fixed leg conventions of swap: modified following, act/365
Real cashannuity_a365 = 0.;
for (i=0; i<swapFixedLeg_a365.size(); i++) {
cashannuity_a365 += swapFixedLeg_a365[i]->amount()/strike
* termStructure_a365->discount(
swapFixedLeg_a365[i]->date());
}
// Swaptions: underlying swap fixed leg conventions: unadjusted, 30/360
// Physical settled swaption
boost::shared_ptr<Swaption> swaption_p_u360 =
makeSwaption(swap_u360,maturity,0.20);
Real value_p_u360 = swaption_p_u360->NPV();
// Cash settled swaption
boost::shared_ptr<Swaption> swaption_c_u360 =
makeSwaption(swap_u360,maturity,0.20,
Settlement::Cash);
Real value_c_u360 = swaption_c_u360->NPV();
// the NPV's ratio must be equal to annuities ratio
Real npv_ratio_u360 = value_c_u360 / value_p_u360;
Real annuity_ratio_u360 = cashannuity_u360 / annuity_u360;
// Swaptions: underlying swap fixed leg conventions: modified following, act/365
// Physical settled swaption
boost::shared_ptr<Swaption> swaption_p_a365 =
makeSwaption(swap_a365,maturity,0.20);
Real value_p_a365 = swaption_p_a365->NPV();
// Cash settled swaption
boost::shared_ptr<Swaption> swaption_c_a365 =
makeSwaption(swap_a365,maturity,0.20,
Settlement::Cash);
Real value_c_a365 = swaption_c_a365->NPV();
// the NPV's ratio must be equal to annuities ratio
Real npv_ratio_a365 = value_c_a365 / value_p_a365;
Real annuity_ratio_a365 = cashannuity_a365 / annuity_a365;
// Swaptions: underlying swap fixed leg conventions: modified following, 30/360
// Physical settled swaption
boost::shared_ptr<Swaption> swaption_p_a360 =
makeSwaption(swap_a360,maturity,0.20);
Real value_p_a360 = swaption_p_a360->NPV();
// Cash settled swaption
boost::shared_ptr<Swaption> swaption_c_a360 =
makeSwaption(swap_a360,maturity,0.20,
Settlement::Cash);
Real value_c_a360 = swaption_c_a360->NPV();
// the NPV's ratio must be equal to annuities ratio
Real npv_ratio_a360 = value_c_a360 / value_p_a360;
Real annuity_ratio_a360 = cashannuity_a360 / annuity_a360;
// Swaptions: underlying swap fixed leg conventions: unadjusted, act/365
// Physical settled swaption
boost::shared_ptr<Swaption> swaption_p_u365 =
makeSwaption(swap_u365,maturity,0.20);
Real value_p_u365 = swaption_p_u365->NPV();
// Cash settled swaption
boost::shared_ptr<Swaption> swaption_c_u365 =
makeSwaption(swap_u365,maturity,0.20,
Settlement::Cash);
Real value_c_u365 = swaption_c_u365->NPV();
// the NPV's ratio must be equal to annuities ratio
Real npv_ratio_u365 = value_c_u365 / value_p_u365;
Real annuity_ratio_u365 = cashannuity_u365 / annuity_u365;
if (std::fabs(annuity_ratio_u360-npv_ratio_u360)>1e-10 ) {
BOOST_ERROR("\n" <<
" The npv's ratio must be equal to " <<
" annuities ratio" << "\n"
" Swaption " <<
exercises[i].units() << "y x " << lengths[j].units() << "y" <<
" (underlying swap fixed leg Unadjusted, 30/360)" << "\n" <<
" Today : " <<
today_ << "\n" <<
" Settlement date : " <<
settlement_ << "\n" <<
" Exercise date : " <<
exerciseDate << "\n" <<
" Swap start date : " <<
startDate << "\n" <<
" Swap end date : " <<
maturity << "\n" <<
" physical delivered swaption npv : " <<
value_p_u360 << "\t\t\t" <<
" annuity : " <<
annuity_u360 << "\n" <<
" cash delivered swaption npv : " <<
value_c_u360 << "\t\t\t" <<
" annuity : " <<
cashannuity_u360 << "\n" <<
" npv ratio : " <<
npv_ratio_u360 << "\n" <<
" annuity ratio : " <<
annuity_ratio_u360 << "\n" <<
" difference : " <<
(annuity_ratio_u360-npv_ratio_u360) );
}
if (std::fabs(annuity_ratio_a365-npv_ratio_a365)>1e-10) {
BOOST_ERROR("\n" <<
" The npv's ratio must be equal to " <<
" annuities ratio" << "\n"
" Swaption " <<
exercises[i].units() << "y x " << lengths[j].units() << "y" <<
" (underlying swap fixed leg Modified Following, act/365" << "\n" <<
" Today : " <<
today_ << "\n" <<
" Settlement date : " <<
settlement_ << "\n" <<
" Exercise date : " <<
exerciseDate << "\n" <<
" Swap start date : " <<
startDate << "\n" <<
" Swap end date : " <<
maturity << "\n" <<
" physical delivered swaption npv : " <<
value_p_a365 << "\t\t\t" <<
" annuity : " <<
annuity_a365 << "\n" <<
" cash delivered swaption npv : " <<
value_c_a365 << "\t\t\t" <<
" annuity : " <<
cashannuity_a365 << "\n" <<
" npv ratio : " <<
npv_ratio_a365 << "\n" <<
" annuity ratio : " <<
annuity_ratio_a365 << "\n" <<
" difference : " <<
(annuity_ratio_a365-npv_ratio_a365) );
}
if (std::fabs(annuity_ratio_a360-npv_ratio_a360)>1e-10) {
BOOST_ERROR("\n" <<
" The npv's ratio must be equal to " <<
" annuities ratio" << "\n"
" Swaption " <<
exercises[i].units() << "y x " << lengths[j].units() << "y" <<
" (underlying swap fixed leg Unadjusted, 30/360)" << "\n" <<
" Today : " <<
today_ << "\n" <<
" Settlement date : " <<
settlement_ << "\n" <<
" Exercise date : " <<
exerciseDate << "\n" <<
" Swap start date : " <<
startDate << "\n" <<
" Swap end date : " <<
maturity << "\n" <<
" physical delivered swaption npv : " <<
value_p_a360 << "\t\t\t" <<
" annuity : " <<
annuity_a360 << "\n" <<
" cash delivered swaption npv : " <<
value_c_a360 << "\t\t\t" <<
" annuity : " <<
cashannuity_a360 << "\n" <<
" npv ratio : " <<
npv_ratio_a360 << "\n" <<
" annuity ratio : " <<
annuity_ratio_a360 << "\n" <<
" difference : " <<
(annuity_ratio_a360-npv_ratio_a360) );
}
if (std::fabs(annuity_ratio_u365-npv_ratio_u365)>1e-10) {
BOOST_ERROR("\n" <<
" The npv's ratio must be equal to " <<
" annuities ratio" << "\n"
" Swaption " <<
exercises[i].units() << "y x " << lengths[j].units() << "y" <<
" (underlying swap fixed leg Unadjusted, act/365)" << "\n" <<
" Today : " <<
today_ << "\n" <<
" Settlement date : " <<
settlement_ << "\n" <<
" Exercise date : " <<
exerciseDate << "\n" <<
" Swap start date : " <<
startDate << "\n" <<
" Swap end date : " <<
maturity << "\n" <<
" physical delivered swaption npv : " <<
value_p_u365 << "\t\t\t" <<
" annuity : " <<
annuity_u365 << "\n" <<
" cash delivered swaption npv : " <<
value_c_u365 << "\t\t\t" <<
" annuity : " <<
cashannuity_u365 << "\n" <<
" npv ratio : " <<
npv_ratio_u365 << "\n" <<
" annuity ratio : " <<
annuity_ratio_u365 << "\n" <<
" difference : " <<
(annuity_ratio_u365-npv_ratio_u365) );
}
}
}
}
void SwaptionTest::testImpliedVolatility() {
BOOST_MESSAGE("Testing implied volatility for swaptions...");
SavedSettings backup;
setup();
Size maxEvaluations = 100;
Real tolerance = 1.0e-08;
Settlement::Type types[] = { Settlement::Physical, Settlement::Cash };
// test data
Rate strikes[] = { 0.03, 0.04, 0.05, 0.06, 0.07 };
Volatility vols[] = { 0.05, 0.10, 0.20, 0.30, 0.70 };
for (Size i=0; i<LENGTH(exercises); i++) {
for (Size j=0; j<LENGTH(lengths); j++) {
Date exerciseDate = calendar_.advance(today_,exercises[i]);
Date startDate = calendar_.advance(exerciseDate, settlementDays_,
Days);
Date maturity = calendar_.advance(startDate, lengths[j],
floatingConvention_);
for (Size t=0; t<LENGTH(strikes); t++) {
for (Size k=0; k<LENGTH(type); k++) {
boost::shared_ptr<VanillaSwap> swap =
MakeVanillaSwap(lengths[j], index_, strikes[t])
.withEffectiveDate(startDate)
.withFloatingLegSpread(0.0)
.withType(type[k]);
for (Size h=0; h<LENGTH(types); h++) {
for (Size u=0; u<LENGTH(vols); u++) {
boost::shared_ptr<Swaption> swaption =
makeSwaption(swap, maturity, vols[u],
types[h]);
// Black price
// FLOATING_POINT_EXCEPTION
Real value = swaption->NPV();
Volatility implVol = 0.0;
try {
implVol =
swaption->impliedVolatility(value,
termStructure_,
tolerance,
maxEvaluations);
} catch (std::exception& e) {
BOOST_FAIL("\n Swaption: " << exercises[i] <<
"x" << lengths[j] <<
"\n type: " << swaption->type() <<
"\n settlement: " << types[h] <<
"\n strike: " << io::rate(strikes[t]) <<
"\n AtTheMoney: " << io::rate(swap->fairRate()) <<
"\n value: " << value <<
"\n volatility: " << io::rate(vols[u]) <<
"\n" << e.what());
}
if (std::fabs(implVol-vols[u]) > tolerance) {
// the difference might not matter
swaption->setPricingEngine(makeEngine(implVol));
Real value2 = swaption->NPV();
if (std::fabs(value-value2) > tolerance) {
if (type[k]==VanillaSwap::Payer) {
BOOST_ERROR(
" Payer swaption " <<
exercises[i] << "y x " << lengths[j] << "y" << "\n"
<< " type: "
<< types[h] << ":\n"
<< " strike: "
<< strikes[t] << "\n"
<< " original volatility: "
<< io::volatility(vols[u]) << "\n"
<< " price: "
<< value << "\n"
<< " implied volatility: "
<< io::volatility(implVol) << "\n"
<< " corresponding price: " << value2);
} else {
BOOST_ERROR(
" Receiver swaption " <<
exercises[i] << "y x " << lengths[j] << "y" << "\n"
<< " type: "
<< types[h] << ":\n"
<< " strike: "
<< strikes[t] << "\n"
<< " original volatility: "
<< io::volatility(vols[u]) << "\n"
<< " price: "
<< value << "\n"
<< " implied volatility: "
<< io::volatility(implVol) << "\n"
<< " corresponding price: " << value2);
}
}
}
}
}
}
}
}
}
}
test_suite* SwaptionTest::suite() {
test_suite* suite = BOOST_TEST_SUITE("Swaption tests");
// FLOATING_POINT_EXCEPTION
suite->add(BOOST_TEST_CASE(&SwaptionTest::testCashSettledSwaptions));
// FLOATING_POINT_EXCEPTION
suite->add(BOOST_TEST_CASE(&SwaptionTest::testStrikeDependency));
// FLOATING_POINT_EXCEPTION
suite->add(BOOST_TEST_CASE(&SwaptionTest::testSpreadDependency));
// FLOATING_POINT_EXCEPTION
suite->add(BOOST_TEST_CASE(&SwaptionTest::testSpreadTreatment));
// FLOATING_POINT_EXCEPTION
suite->add(BOOST_TEST_CASE(&SwaptionTest::testCachedValue));
// FLOATING_POINT_EXCEPTION
suite->add(BOOST_TEST_CASE(&SwaptionTest::testImpliedVolatility));
// FLOATING_POINT_EXCEPTION
suite->add(BOOST_TEST_CASE(&SwaptionTest::testVega));
return suite;
}
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