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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2008 Mark Joshi
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/models/marketmodels/evolvers/svddfwdratepc.hpp>
#include <ql/models/marketmodels/marketmodel.hpp>
#include <ql/models/marketmodels/evolutiondescription.hpp>
#include <ql/models/marketmodels/browniangenerator.hpp>
#include <ql/models/marketmodels/driftcomputation/lmmdriftcalculator.hpp>
#include <ql/models/marketmodels/evolvers/marketmodelvolprocess.hpp>
namespace QuantLib {
SVDDFwdRatePc::SVDDFwdRatePc(const boost::shared_ptr<MarketModel>& marketModel,
const BrownianGeneratorFactory& factory,
const boost::shared_ptr<MarketModelVolProcess>& volProcess,
Size firstVolatilityFactor,
Size volatilityFactorStep,
const std::vector<Size>& numeraires,
Size initialStep )
: marketModel_(marketModel),
volProcess_(volProcess),
firstVolatilityFactor_(firstVolatilityFactor),
volatilityFactorStep_(volatilityFactorStep),
volFactorsPerStep_(volProcess->variatesPerStep()),
numeraires_(numeraires),
initialStep_(initialStep),
isVolVariate_(false,volProcess->variatesPerStep()+marketModel_->numberOfFactors()),
numberOfRates_(marketModel->numberOfRates()),
numberOfFactors_(marketModel_->numberOfFactors()),
curveState_(marketModel->evolution().rateTimes()),
forwards_(marketModel->initialRates()),
displacements_(marketModel->displacements()),
logForwards_(numberOfRates_), initialLogForwards_(numberOfRates_),
drifts1_(numberOfRates_), drifts2_(numberOfRates_),
initialDrifts_(numberOfRates_), allBrownians_(volProcess->variatesPerStep()+marketModel_->numberOfFactors()),
brownians_(numberOfFactors_),
volBrownians_(volProcess->variatesPerStep()),
correlatedBrownians_(numberOfRates_),
alive_(marketModel->evolution().firstAliveRate())
{
QL_REQUIRE(initialStep ==0, "initial step zero only supported currently. ");
checkCompatibility(marketModel->evolution(), numeraires);
Size steps = marketModel->evolution().numberOfSteps();
generator_ = factory.create(numberOfFactors_+volFactorsPerStep_, steps-initialStep_);
currentStep_ = initialStep_;
calculators_.reserve(steps);
fixedDrifts_.reserve(steps);
for (Size j=0; j<steps; ++j)
{
const Matrix& A = marketModel_->pseudoRoot(j);
calculators_.push_back(
LMMDriftCalculator(A,
displacements_,
marketModel->evolution().rateTaus(),
numeraires[j],
alive_[j]));
std::vector<Real> fixed(numberOfRates_);
for (Size k=0; k<numberOfRates_; ++k)
{
Real variance =
std::inner_product(A.row_begin(k), A.row_end(k),
A.row_begin(k), 0.0);
fixed[k] = -0.5*variance;
}
fixedDrifts_.push_back(fixed);
}
setForwards(marketModel_->initialRates());
Size variatesPerStep = numberOfFactors_+volFactorsPerStep_;
firstVolatilityFactor_ = std::min(firstVolatilityFactor_,variatesPerStep - volFactorsPerStep_);
Size volIncrement = (variatesPerStep - firstVolatilityFactor_)/volFactorsPerStep_;
for (Size i=0; i < volFactorsPerStep_; ++i)
isVolVariate_[firstVolatilityFactor_+i*volIncrement] = true;
}
const std::vector<Size>& SVDDFwdRatePc::numeraires() const {
return numeraires_;
}
void SVDDFwdRatePc::setForwards(const std::vector<Real>& forwards)
{
QL_REQUIRE(forwards.size()==numberOfRates_,
"mismatch between forwards and rateTimes");
for (Size i=0; i<numberOfRates_; ++i)
initialLogForwards_[i] = std::log(forwards[i] +
displacements_[i]);
calculators_[initialStep_].compute(forwards, initialDrifts_);
}
void SVDDFwdRatePc::setInitialState(const CurveState& cs)
{
setForwards(cs.forwardRates());
}
Real SVDDFwdRatePc::startNewPath()
{
currentStep_ = initialStep_;
std::copy(initialLogForwards_.begin(), initialLogForwards_.end(),
logForwards_.begin());
volProcess_->nextPath();
return generator_->nextPath();
}
Real SVDDFwdRatePc::advanceStep()
{
// we're going from T1 to T2
// a) compute drifts D1 at T1;
if (currentStep_ > initialStep_)
{
calculators_[currentStep_].compute(forwards_, drifts1_);
}
else
{
std::copy(initialDrifts_.begin(), initialDrifts_.end(),
drifts1_.begin());
}
// b) evolve forwards up to T2 using D1;
Real weight = generator_->nextStep(allBrownians_);
// divide Brownians between vol process and forward process
for (Size i=0, j=0, k=0; i < allBrownians_.size(); ++i)
if ( isVolVariate_[i])
{
volBrownians_[j] = allBrownians_[i];
++j;
}
else
{
brownians_[k] = allBrownians_[i];
++k;
}
// get sd for step
Real weight2 = volProcess_->nextstep(volBrownians_);
Real sdMultiplier = volProcess_->stepSd();
Real varianceMultiplier = sdMultiplier*sdMultiplier;
const Matrix& A = marketModel_->pseudoRoot(currentStep_);
const std::vector<Real>& fixedDrift = fixedDrifts_[currentStep_];
Size alive = alive_[currentStep_];
for (Size i=alive; i<numberOfRates_; ++i) {
logForwards_[i] += varianceMultiplier*(drifts1_[i] + fixedDrift[i]);
logForwards_[i] += sdMultiplier*
std::inner_product(A.row_begin(i), A.row_end(i),
brownians_.begin(), 0.0);
forwards_[i] = std::exp(logForwards_[i]) - displacements_[i];
}
// c) recompute drifts D2 using the predicted forwards;
calculators_[currentStep_].compute(forwards_, drifts2_);
// d) correct forwards using both drifts
for (Size i=alive; i<numberOfRates_; ++i) {
logForwards_[i] += varianceMultiplier*(drifts2_[i]-drifts1_[i])/2.0;
forwards_[i] = std::exp(logForwards_[i]) - displacements_[i];
}
// e) update curve state
curveState_.setOnForwardRates(forwards_);
++currentStep_;
return weight*weight2;
}
Size SVDDFwdRatePc::currentStep() const {
return currentStep_;
}
const CurveState& SVDDFwdRatePc::currentState() const {
return curveState_;
}
}
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