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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/cdsoption.hpp>
#include <ql/experimental/credit/blackcdsoptionengine.hpp>
#include <ql/exercise.hpp>
#include <ql/quotes/simplequote.hpp>
#include <ql/instruments/payoffs.hpp>
#include <ql/termstructures/yieldtermstructure.hpp>
#include <ql/math/distributions/normaldistribution.hpp>
#include <ql/math/solvers1d/brent.hpp>
namespace QuantLib {
namespace {
class ImpliedVolHelper {
public:
ImpliedVolHelper(
const CdsOption& cdsoption,
const Handle<DefaultProbabilityTermStructure>& probability,
Real recoveryRate,
const Handle<YieldTermStructure>& termStructure,
Real targetValue)
: targetValue_(targetValue) {
vol_ = boost::shared_ptr<SimpleQuote>(new SimpleQuote(0.0));
Handle<Quote> h(vol_);
engine_ = boost::shared_ptr<PricingEngine>(
new BlackCdsOptionEngine(probability, recoveryRate,
termStructure, h));
cdsoption.setupArguments(engine_->getArguments());
results_ =
dynamic_cast<const Instrument::results*>(
engine_->getResults());
}
Real operator()(Volatility x) const {
vol_->setValue(x);
engine_->calculate();
return results_->value-targetValue_;
}
private:
boost::shared_ptr<PricingEngine> engine_;
Real targetValue_;
boost::shared_ptr<SimpleQuote> vol_;
const Instrument::results* results_;
};
}
CdsOption::CdsOption(const boost::shared_ptr<CreditDefaultSwap>& swap,
const boost::shared_ptr<Exercise>& exercise,
bool knocksOut)
: Option(boost::shared_ptr<Payoff>(new NullPayoff), exercise),
swap_(swap), knocksOut_(knocksOut) {
QL_REQUIRE(swap->side() == Protection::Buyer || knocksOut_,
"receiver CDS options must knock out");
QL_REQUIRE(!swap->upfront(), "underlying must be running-spread only");
registerWith(swap_);
}
bool CdsOption::isExpired () const {
return detail::simple_event(exercise_->dates().back()).hasOccurred();
}
void CdsOption::setupExpired() const {
Instrument::setupExpired();
riskyAnnuity_ = 0.0;
}
void CdsOption::setupArguments(PricingEngine::arguments* args) const {
swap_->setupArguments(args);
Option::setupArguments(args);
CdsOption::arguments* arguments =
dynamic_cast<CdsOption::arguments*>(args);
QL_REQUIRE(arguments != 0, "wrong argument type");
arguments->swap = swap_;
arguments->knocksOut = knocksOut_;
}
void CdsOption::fetchResults(const PricingEngine::results* r) const {
Option::fetchResults(r);
const CdsOption::results* results =
dynamic_cast<const CdsOption::results*>(r);
QL_ENSURE(results != 0, "wrong results type");
riskyAnnuity_ = results->riskyAnnuity;
}
Rate CdsOption::atmRate() const{
return swap_->fairSpread();
}
Real CdsOption::riskyAnnuity() const {
calculate();
QL_REQUIRE(riskyAnnuity_ != Null<Real>(), "risky annuity not provided");
return riskyAnnuity_;
}
Volatility CdsOption::impliedVolatility(
Real targetValue,
const Handle<YieldTermStructure>& termStructure,
const Handle<DefaultProbabilityTermStructure>& probability,
Real recoveryRate,
Real accuracy,
Size maxEvaluations,
Volatility minVol,
Volatility maxVol) const {
calculate();
QL_REQUIRE(!isExpired(), "instrument expired");
Volatility guess = 0.10;
ImpliedVolHelper f(*this, probability, recoveryRate,
termStructure, targetValue);
Brent solver;
solver.setMaxEvaluations(maxEvaluations);
return solver.solve(f, accuracy, guess, minVol, maxVol);
}
void CdsOption::arguments::validate() const {
CreditDefaultSwap::arguments::validate();
Option::arguments::validate();
QL_REQUIRE(swap, "CDS not set");
QL_REQUIRE(exercise, "exercise not set");
}
void CdsOption::results::reset() {
Option::results::reset();
riskyAnnuity = Null<Real>();
}
}
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