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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2006 Cristina Duminuco
Copyright (C) 2006 Ferdinando Ametrano
Copyright (C) 2006 Katiuscia Manzoni
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 "swaptionvolatilitycube.hpp"
#include "swaptionvolstructuresutilities.hpp"
#include "utilities.hpp"
#include <ql/time/daycounters/thirty360.hpp>
#include <ql/indexes/ibor/euribor.hpp>
#include <ql/indexes/swapindex.hpp>
#include <ql/quotes/simplequote.hpp>
#include <ql/termstructures/volatility/swaption/swaptionvolcube2.hpp>
#include <ql/termstructures/volatility/swaption/swaptionvolcube1.hpp>
#include <ql/termstructures/volatility/swaption/spreadedswaptionvol.hpp>
#include <ql/utilities/dataformatters.hpp>
using namespace QuantLib;
using namespace boost::unit_test_framework;
QL_BEGIN_TEST_LOCALS(SwaptionVolatilityCubeTest)
// global data
Date referenceDate_;
SwaptionMarketConventions conventions_;
AtmVolatility atm_;
RelinkableHandle<SwaptionVolatilityStructure> atmVolMatrix_;
VolatilityCube cube_;
Natural swapSettlementDays_;
Frequency fixedLegFrequency_;
BusinessDayConvention fixedLegConvention_;
DayCounter fixedLegDayCounter_;
RelinkableHandle<YieldTermStructure> termStructure_;
boost::shared_ptr<IborIndex> iborIndex_;
boost::shared_ptr<SwapIndex> swapIndexBase_;
Time shortTenor_;
boost::shared_ptr<IborIndex> iborIndexShortTenor_;
bool vegaWeightedSmileFit_;
// utilities
void makeAtmVolTest(const SwaptionVolatilityCube& volCube,
Real tolerance) {
for (Size i=0; i<atm_.tenors.options.size(); i++) {
for (Size j=0; j<atm_.tenors.swaps.size(); j++) {
Rate strike = volCube.atmStrike(atm_.tenors.options[i], atm_.tenors.swaps[j]);
Volatility expVol = atmVolMatrix_->volatility(
atm_.tenors.options[i], atm_.tenors.swaps[j], strike, true);
Volatility actVol = volCube.volatility(
atm_.tenors.options[i], atm_.tenors.swaps[j], strike, true);
Volatility error = std::abs(expVol-actVol);
if (error>tolerance)
BOOST_ERROR("\nrecovery of atm vols failed:"
"\nexpiry time = " << atm_.tenors.options[i] <<
"\nswap length = " << atm_.tenors.swaps[j] <<
"\n atm strike = " << io::rate(strike) <<
"\n exp. vol = " << io::volatility(expVol) <<
"\n actual vol = " << io::volatility(actVol) <<
"\n error = " << io::volatility(error) <<
"\n tolerance = " << tolerance);
}
}
}
void makeVolSpreadsTest(const SwaptionVolatilityCube& volCube,
Real tolerance) {
for (Size i=0; i<cube_.tenors.options.size(); i++) {
for (Size j=0; j<cube_.tenors.swaps.size(); j++) {
for (Size k=0; k<cube_.strikeSpreads.size(); k++) {
Rate atmStrike = volCube.atmStrike(cube_.tenors.options[i], cube_.tenors.swaps[j]);
Volatility atmVol = atmVolMatrix_->volatility(
cube_.tenors.options[i], cube_.tenors.swaps[j], atmStrike, true);
Volatility vol = volCube.volatility(
cube_.tenors.options[i], cube_.tenors.swaps[j], atmStrike+cube_.strikeSpreads[k], true);
Volatility spread = vol-atmVol;
Volatility expVolSpread = cube_.volSpreads[i*cube_.tenors.swaps.size()+j][k];
Volatility error = std::abs(expVolSpread-spread);
if (error>tolerance)
BOOST_ERROR("\nrecovery of smile vol spreads failed:"
"\n option tenor = " << cube_.tenors.options[i] <<
"\n swap tenor = " << cube_.tenors.swaps[j] <<
"\n atm strike = " << io::rate(atmStrike) <<
"\n strike spread = " << io::rate(cube_.strikeSpreads[k]) <<
"\n atm vol = " << io::volatility(atmVol) <<
"\n smiled vol = " << io::volatility(vol) <<
"\n vol spread = " << io::volatility(spread) <<
"\n exp. vol spread = " << io::volatility(expVolSpread) <<
"\n error = " << io::volatility(error) <<
"\n tolerance = " << tolerance);
}
}
}
}
void setup() {
referenceDate_ = Settings::instance().evaluationDate();
//referenceDate_ = Date(6, September, 2006);
Settings::instance().evaluationDate() = referenceDate_;
conventions_.setConventions();
// ATM swaptionvolmatrix
atm_.setMarketData();
atmVolMatrix_ = RelinkableHandle<SwaptionVolatilityStructure>(
boost::shared_ptr<SwaptionVolatilityStructure>(new
SwaptionVolatilityMatrix(conventions_.calendar,
atm_.tenors.options,
atm_.tenors.swaps,
atm_.volsHandle,
conventions_.dayCounter,
conventions_.optionBdc)));
// Swaptionvolcube
cube_.setMarketData();
swapSettlementDays_ = 2;
fixedLegFrequency_ = Annual;
fixedLegConvention_ = Unadjusted;
fixedLegDayCounter_ = Thirty360();
termStructure_.linkTo(flatRate(referenceDate_, 0.05, Actual365Fixed()));
iborIndex_ = boost::shared_ptr<IborIndex>(new Euribor6M(termStructure_));
shortTenor_ = 2;
iborIndexShortTenor_ = boost::shared_ptr<IborIndex>(new
Euribor3M(termStructure_));
swapIndexBase_ = boost::shared_ptr<SwapIndex>(new
SwapIndex("EurliborSwapFixA",
10*Years,
swapSettlementDays_,
iborIndex_->currency(),
conventions_.calendar,
Period(fixedLegFrequency_),
fixedLegConvention_,
iborIndex_->dayCounter(),
iborIndex_));
vegaWeightedSmileFit_=false;
}
QL_END_TEST_LOCALS(SwaptionVolatilityCubeTest)
void SwaptionVolatilityCubeTest::testAtmVols() {
BOOST_MESSAGE("Testing swaption volatility cube (atm vols)...");
SavedSettings backup;
setup();
SwaptionVolCube2 volCube(atmVolMatrix_,
cube_.tenors.options,
cube_.tenors.swaps,
cube_.strikeSpreads,
cube_.volSpreadsHandle,
swapIndexBase_,
vegaWeightedSmileFit_);
Real tolerance = 1.0e-16;
makeAtmVolTest(volCube, tolerance);
}
void SwaptionVolatilityCubeTest::testSmile() {
BOOST_MESSAGE("Testing swaption volatility cube (smile)...");
SavedSettings backup;
setup();
SwaptionVolCube2 volCube(atmVolMatrix_,
cube_.tenors.options,
cube_.tenors.swaps,
cube_.strikeSpreads,
cube_.volSpreadsHandle,
swapIndexBase_,
vegaWeightedSmileFit_);
Real tolerance = 1.0e-16;
makeVolSpreadsTest(volCube, tolerance);
}
void SwaptionVolatilityCubeTest::testSabrVols() {
BOOST_MESSAGE("Testing swaption volatility cube (sabr interpolation)...");
SavedSettings backup;
setup();
std::vector<std::vector<Handle<Quote> > >
parametersGuess(cube_.tenors.options.size()*cube_.tenors.swaps.size());
for (Size i=0; i<cube_.tenors.options.size()*cube_.tenors.swaps.size(); i++) {
parametersGuess[i] = std::vector<Handle<Quote> >(4);
parametersGuess[i][0] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.2)));
parametersGuess[i][1] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.5)));
parametersGuess[i][2] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.4)));
parametersGuess[i][3] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.0)));
}
std::vector<bool> isParameterFixed(4, false);
SwaptionVolCube1 volCube(atmVolMatrix_,
cube_.tenors.options,
cube_.tenors.swaps,
cube_.strikeSpreads,
cube_.volSpreadsHandle,
swapIndexBase_,
vegaWeightedSmileFit_,
parametersGuess,
isParameterFixed,
true);
Real tolerance = 3.0e-4;
makeAtmVolTest(volCube, tolerance);
tolerance = 12.0e-4;
makeVolSpreadsTest(volCube, tolerance);
}
void SwaptionVolatilityCubeTest::testSpreadedCube() {
BOOST_MESSAGE("Testing spreaded swaption volatility cube...");
SavedSettings backup;
setup();
std::vector<std::vector<Handle<Quote> > >
parametersGuess(cube_.tenors.options.size()*cube_.tenors.swaps.size());
for (Size i=0; i<cube_.tenors.options.size()*cube_.tenors.swaps.size(); i++) {
parametersGuess[i] = std::vector<Handle<Quote> >(4);
parametersGuess[i][0] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.2)));
parametersGuess[i][1] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.5)));
parametersGuess[i][2] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.4)));
parametersGuess[i][3] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.0)));
}
std::vector<bool> isParameterFixed(4, false);
Handle<SwaptionVolatilityStructure> volCube( boost::shared_ptr<SwaptionVolatilityStructure>(new
SwaptionVolCube1(atmVolMatrix_,
cube_.tenors.options,
cube_.tenors.swaps,
cube_.strikeSpreads,
cube_.volSpreadsHandle,
swapIndexBase_,
vegaWeightedSmileFit_,
parametersGuess,
isParameterFixed,
true)));
boost::shared_ptr<SimpleQuote> spread (new SimpleQuote(0.0001));
Handle<Quote> spreadHandle(spread);
boost::shared_ptr<SwaptionVolatilityStructure> spreadedVolCube
(new SpreadedSwaptionVolatilityStructure(volCube, spreadHandle));
std::vector<Real> strikes;
for (Size k=1; k<100; k++)
strikes.push_back(k*.01);
for (Size i=0; i<cube_.tenors.options.size(); i++) {
for (Size j=0; j<cube_.tenors.swaps.size(); j++) {
boost::shared_ptr<SmileSection> smileSectionByCube =
volCube->smileSection(cube_.tenors.options[i], cube_.tenors.swaps[j]);
boost::shared_ptr<SmileSection> smileSectionBySpreadedCube =
spreadedVolCube->smileSection(cube_.tenors.options[i], cube_.tenors.swaps[j]);
for (Size k=0; k<strikes.size(); k++) {
Real strike = strikes[k];
Real diff = spreadedVolCube->volatility(cube_.tenors.options[i], cube_.tenors.swaps[j], strike)
- volCube->volatility(cube_.tenors.options[i], cube_.tenors.swaps[j], strike);
if (std::fabs(diff-spread->value())>1e-16)
BOOST_ERROR("\ndiff!=spread in volatility method:"
"\nexpiry time = " << cube_.tenors.options[i] <<
"\nswap length = " << cube_.tenors.swaps[j] <<
"\n atm strike = " << io::rate(strike) <<
"\ndiff = " << diff <<
"\nspread = " << spread->value());
diff = smileSectionBySpreadedCube->volatility(strike)
- smileSectionByCube->volatility(strike);
if (std::fabs(diff-spread->value())>1e-16)
BOOST_ERROR("\ndiff!=spread in smile section method:"
"\nexpiry time = " << cube_.tenors.options[i] <<
"\nswap length = " << cube_.tenors.swaps[j] <<
"\n atm strike = " << io::rate(strike) <<
"\ndiff = " << diff <<
"\nspread = " << spread->value());
}
}
}
//testing observability
Flag f;
f.registerWith(spreadedVolCube);
volCube->update();
if(!f.isUp())
BOOST_ERROR("SpreadedSwaptionVolatilityStructure "
<< "does not propagate notifications");
f.lower();
spread->setValue(.001);
if(!f.isUp())
BOOST_ERROR("SpreadedSwaptionVolatilityStructure "
<< "does not propagate notifications");
}
void SwaptionVolatilityCubeTest::testObservability() {
BOOST_MESSAGE("Testing volatility cube observability...");
SavedSettings backup;
setup();
std::vector<std::vector<Handle<Quote> > >
parametersGuess(cube_.tenors.options.size()*cube_.tenors.swaps.size());
for (Size i=0; i<cube_.tenors.options.size()*cube_.tenors.swaps.size(); i++) {
parametersGuess[i] = std::vector<Handle<Quote> >(4);
parametersGuess[i][0] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.2)));
parametersGuess[i][1] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.5)));
parametersGuess[i][2] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.4)));
parametersGuess[i][3] =
Handle<Quote>(boost::shared_ptr<Quote>(new SimpleQuote(0.0)));
}
std::vector<bool> isParameterFixed(4, false);
std::string description;
boost::shared_ptr<SwaptionVolCube1> volCube1_0, volCube1_1;
// VolCube created before change of reference date
volCube1_0 = boost::shared_ptr<SwaptionVolCube1>(new SwaptionVolCube1(atmVolMatrix_,
cube_.tenors.options,
cube_.tenors.swaps,
cube_.strikeSpreads,
cube_.volSpreadsHandle,
swapIndexBase_,
vegaWeightedSmileFit_,
parametersGuess,
isParameterFixed,
true));
Date referenceDate = Settings::instance().evaluationDate();
Settings::instance().evaluationDate() =
conventions_.calendar.advance(referenceDate, Period(1, Days), conventions_.optionBdc);
// VolCube created after change of reference date
volCube1_1 = boost::shared_ptr<SwaptionVolCube1>(new SwaptionVolCube1(atmVolMatrix_,
cube_.tenors.options,
cube_.tenors.swaps,
cube_.strikeSpreads,
cube_.volSpreadsHandle,
swapIndexBase_,
vegaWeightedSmileFit_,
parametersGuess,
isParameterFixed,
true));
Rate dummyStrike = 0.03;
for (Size i=0;i<cube_.tenors.options.size(); i++ ) {
for (Size j=0; j<cube_.tenors.swaps.size(); j++) {
for (Size k=0; k<cube_.strikeSpreads.size(); k++) {
Volatility v0 = volCube1_0->volatility(cube_.tenors.options[i],
cube_.tenors.swaps[j],
dummyStrike + cube_.strikeSpreads[k],
false);
Volatility v1 = volCube1_1->volatility(cube_.tenors.options[i],
cube_.tenors.swaps[j],
dummyStrike + cube_.strikeSpreads[k],
false);
if (v0 != v1)
BOOST_ERROR(description <<
" option tenor = " << cube_.tenors.options[i] <<
" swap tenor = " << cube_.tenors.swaps[j] <<
" strike = " << io::rate(dummyStrike+cube_.strikeSpreads[k])<<
" v0 = " << io::volatility(v0) <<
" v1 = " << io::volatility(v1));
}
}
}
Settings::instance().evaluationDate() = referenceDate;
boost::shared_ptr<SwaptionVolCube2> volCube2_0, volCube2_1;
// VolCube created before change of reference date
volCube2_0 = boost::shared_ptr<SwaptionVolCube2>(new SwaptionVolCube2(atmVolMatrix_,
cube_.tenors.options,
cube_.tenors.swaps,
cube_.strikeSpreads,
cube_.volSpreadsHandle,
swapIndexBase_,
vegaWeightedSmileFit_));
Settings::instance().evaluationDate() =
conventions_.calendar.advance(referenceDate, Period(1, Days), conventions_.optionBdc);
// VolCube created after change of reference date
volCube2_1 = boost::shared_ptr<SwaptionVolCube2>(new SwaptionVolCube2(atmVolMatrix_,
cube_.tenors.options,
cube_.tenors.swaps,
cube_.strikeSpreads,
cube_.volSpreadsHandle,
swapIndexBase_,
vegaWeightedSmileFit_));
for (Size i=0;i<cube_.tenors.options.size(); i++ ) {
for (Size j=0; j<cube_.tenors.swaps.size(); j++) {
for (Size k=0; k<cube_.strikeSpreads.size(); k++) {
Volatility v0 = volCube2_0->volatility(cube_.tenors.options[i],
cube_.tenors.swaps[j],
dummyStrike + cube_.strikeSpreads[k],
false);
Volatility v1 = volCube2_1->volatility(cube_.tenors.options[i],
cube_.tenors.swaps[j],
dummyStrike + cube_.strikeSpreads[k],
false);
if (v0 != v1)
BOOST_ERROR(description <<
" option tenor = " << cube_.tenors.options[i] <<
" swap tenor = " << cube_.tenors.swaps[j] <<
" strike = " << io::rate(dummyStrike+cube_.strikeSpreads[k])<<
" v0 = " << io::volatility(v0) <<
" v1 = " << io::volatility(v1));
}
}
}
Settings::instance().evaluationDate() = referenceDate;
}
test_suite* SwaptionVolatilityCubeTest::suite() {
test_suite* suite = BOOST_TEST_SUITE("Swaption Volatility Cube tests");
// SwaptionVolCubeByLinear reproduces ATM vol with machine precision
suite->add(BOOST_TEST_CASE(&SwaptionVolatilityCubeTest::testAtmVols));
// SwaptionVolCubeByLinear reproduces smile spreads with machine precision
suite->add(BOOST_TEST_CASE(&SwaptionVolatilityCubeTest::testSmile));
// SwaptionVolCubeBySabr reproduces ATM vol with given tolerance
// SwaptionVolCubeBySabr reproduces smile spreads with given tolerance
suite->add(BOOST_TEST_CASE(&SwaptionVolatilityCubeTest::testSabrVols));
suite->add(BOOST_TEST_CASE(&SwaptionVolatilityCubeTest::testSpreadedCube));
suite->add(BOOST_TEST_CASE(&SwaptionVolatilityCubeTest::testObservability));
return suite;
}
|
