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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2008 Roland Stamm
Copyright (C) 2009 Jose Aparicio
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/experimental/credit/blackcdsoptionengine.hpp>
#include <ql/pricingengines/blackformula.hpp>
#include <ql/termstructures/yieldtermstructure.hpp>
#include <ql/quote.hpp>
#include <ql/exercise.hpp>
namespace QuantLib {
BlackCdsOptionEngine::BlackCdsOptionEngine(
const Handle<DefaultProbabilityTermStructure>& probability,
Real recoveryRate,
const Handle<YieldTermStructure>& termStructure,
const Handle<Quote>& volatility)
: probability_(probability), recoveryRate_(recoveryRate),
termStructure_(termStructure), volatility_(volatility) {
registerWith(probability_);
registerWith(termStructure_);
registerWith(volatility_);
}
void BlackCdsOptionEngine::calculate() const {
Date maturityDate = arguments_.swap->coupons().front()->date();
Date exerciseDate = arguments_.exercise->date(0);
QL_REQUIRE(maturityDate > exerciseDate,
"Underlying CDS should start after option maturity");
Date settlement = termStructure_->referenceDate();
Rate spotFwdSpread = arguments_.swap->fairSpread();
Rate swapSpread = arguments_.swap->runningSpread();
DayCounter tSDc = termStructure_->dayCounter();
// The sense of the underlying/option has to be sent this way
// to the Black formula, no sign.
Real riskyAnnuity =
std::fabs(arguments_.swap->couponLegNPV() / swapSpread);
results_.riskyAnnuity = riskyAnnuity;
Time T = tSDc.yearFraction(settlement, exerciseDate);
Real stdDev = volatility_->value() * std::sqrt(T);
Option::Type callPut = (arguments_.side == Protection::Buyer) ?
Option::Call : Option::Put;
results_.value =
blackFormula(callPut, swapSpread, spotFwdSpread,
stdDev, riskyAnnuity);
// if a non knock-out payer option, add front end protection value
if (arguments_.side == Protection::Buyer && !arguments_.knocksOut) {
Real frontEndProtection =
callPut * arguments_.swap->notional()
* (1.-recoveryRate_)
* probability_->defaultProbability(exerciseDate)
* termStructure_->discount(exerciseDate);
results_.value += frontEndProtection;
}
}
Handle<YieldTermStructure> BlackCdsOptionEngine::termStructure() {
return termStructure_;
}
Handle<Quote> BlackCdsOptionEngine::volatility() {
return volatility_;
}
}
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