1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
182
183
184
185
186
187
188
189
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
213
214
215
216
217
218
219
220
221
222
223
|
/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2015 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/qldefines.hpp>
#if !defined(BOOST_ALL_NO_LIB) && defined(BOOST_MSVC)
# include <ql/auto_link.hpp>
#endif
#include <ql/instruments/vanillaswap.hpp>
#include <ql/instruments/makevanillaswap.hpp>
#include <ql/pricingengines/swap/discountingswapengine.hpp>
#include <ql/pricingengines/swap/cvaswapengine.hpp>
#include <ql/termstructures/yield/piecewiseyieldcurve.hpp>
#include <ql/termstructures/yield/ratehelpers.hpp>
#include <ql/termstructures/credit/interpolatedhazardratecurve.hpp>
#include <ql/indexes/ibor/euribor.hpp>
#include <ql/time/calendars/target.hpp>
#include <ql/time/daycounters/actualactual.hpp>
#include <ql/time/daycounters/actual360.hpp>
#include <iostream>
#include <iomanip>
using namespace std;
using namespace QuantLib;
/*
This example reproduces Table 2 on page 11 of
A Formula for Interest Rate Swaps Valuation under
Counterparty Risk in presence of Netting Agreements
Damiano Brigo and Massimo Masetti; May 4, 2005
*/
int main(int, char* []) {
try {
std::cout << std::endl;
Calendar calendar = TARGET();
Date todaysDate(10, March, 2004);
// must be a business day
todaysDate = calendar.adjust(todaysDate);
Settings::instance().evaluationDate() = todaysDate;
auto yieldIndx = ext::make_shared<Euribor3M>();
Size tenorsSwapMkt[] = {5, 10, 15, 20, 25, 30};
// rates ignoring counterparty risk:
Rate ratesSwapmkt[] = {.03249, .04074, .04463, .04675, .04775, .04811};
vector<ext::shared_ptr<RateHelper>> swapHelpers;
swapHelpers.reserve(sizeof(tenorsSwapMkt)/sizeof(Size));
for(Size i=0; i<sizeof(tenorsSwapMkt)/sizeof(Size); i++)
swapHelpers.push_back(ext::make_shared<SwapRateHelper>(
makeQuoteHandle(ratesSwapmkt[i]),
tenorsSwapMkt[i] * Years,
TARGET(),
Quarterly,
ModifiedFollowing,
ActualActual(ActualActual::ISDA),
yieldIndx));
auto swapTS = ext::make_shared<PiecewiseYieldCurve<Discount, LogLinear>>(
2, TARGET(), swapHelpers, ActualActual(ActualActual::ISDA));
swapTS->enableExtrapolation();
auto riskFreeEngine = ext::make_shared<DiscountingSwapEngine>(
Handle<YieldTermStructure>(swapTS));
std::vector<Handle<DefaultProbabilityTermStructure>>
defaultIntensityTS;
Size defaultTenors[] = {0, 12, 36, 60, 84, 120, 180, 240, 300,
360};// months
// Three risk levels:
Real intensitiesLow[] = {0.0036, 0.0036, 0.0065, 0.0099, 0.0111,
0.0177, 0.0177, 0.0177, 0.0177, 0.0177,
0.0177};
Real intensitiesMedium[] = {0.0202, 0.0202, 0.0231, 0.0266, 0.0278,
0.0349, 0.0349, 0.0349, 0.0349, 0.0349,
0.0349};
Real intensitiesHigh[] = {0.0534, 0.0534, 0.0564, 0.06, 0.0614, 0.0696,
0.0696, 0.0696, 0.0696, 0.0696, 0.0696};
// Recovery rates:
Real ctptyRRLow = 0.4, ctptyRRMedium = 0.35, ctptyRRHigh = 0.3;
std::vector<Date> defaultTSDates;
std::vector<Real> intesitiesVLow, intesitiesVMedium, intesitiesVHigh;
for(Size i=0; i<sizeof(defaultTenors)/sizeof(Size); i++) {
defaultTSDates.push_back(TARGET().advance(todaysDate,
Period(defaultTenors[i], Months)));
intesitiesVLow.push_back(intensitiesLow[i]);
intesitiesVMedium.push_back(intensitiesMedium[i]);
intesitiesVHigh.push_back(intensitiesHigh[i]);
}
defaultIntensityTS.emplace_back(
ext::make_shared<InterpolatedHazardRateCurve<BackwardFlat>>(defaultTSDates, intesitiesVLow,
Actual360(), TARGET()));
defaultIntensityTS.emplace_back(
ext::make_shared<InterpolatedHazardRateCurve<BackwardFlat>>(defaultTSDates, intesitiesVMedium,
Actual360(), TARGET()));
defaultIntensityTS.emplace_back(
ext::make_shared<InterpolatedHazardRateCurve<BackwardFlat>>(defaultTSDates, intesitiesVHigh,
Actual360(), TARGET()));
Volatility blackVol = 0.15;
auto ctptySwapCvaLow = ext::make_shared<CounterpartyAdjSwapEngine>(
Handle<YieldTermStructure>(swapTS),
blackVol,
defaultIntensityTS[0],
ctptyRRLow);
auto ctptySwapCvaMedium = ext::make_shared<CounterpartyAdjSwapEngine>(
Handle<YieldTermStructure>(swapTS),
blackVol,
defaultIntensityTS[1],
ctptyRRMedium);
auto ctptySwapCvaHigh = ext::make_shared<CounterpartyAdjSwapEngine>(
Handle<YieldTermStructure>(swapTS),
blackVol,
defaultIntensityTS[2],
ctptyRRHigh);
defaultIntensityTS[0]->enableExtrapolation();
defaultIntensityTS[1]->enableExtrapolation();
defaultIntensityTS[2]->enableExtrapolation();
/// SWAP RISKY REPRICE----------------------------------------------
// fixed leg
Frequency fixedLegFrequency = Quarterly;
BusinessDayConvention fixedLegConvention = ModifiedFollowing;
DayCounter fixedLegDayCounter = ActualActual(ActualActual::ISDA);
DayCounter floatingLegDayCounter = ActualActual(ActualActual::ISDA);
Swap::Type swapType = Swap::Payer;
auto yieldIndxS = ext::make_shared<Euribor3M>(Handle<YieldTermStructure>(swapTS));
std::vector<VanillaSwap> riskySwaps;
riskySwaps.reserve(sizeof(tenorsSwapMkt)/sizeof(Size));
for(Size i=0; i<sizeof(tenorsSwapMkt)/sizeof(Size); i++)
riskySwaps.push_back(MakeVanillaSwap(tenorsSwapMkt[i]*Years,
yieldIndxS,
ratesSwapmkt[i],
0*Days)
.withSettlementDays(2)
.withFixedLegDayCount(fixedLegDayCounter)
.withFixedLegTenor(Period(fixedLegFrequency))
.withFixedLegConvention(fixedLegConvention)
.withFixedLegTerminationDateConvention(fixedLegConvention)
.withFixedLegCalendar(calendar)
.withFloatingLegCalendar(calendar)
.withNominal(100.)
.withType(swapType));
cout << "-- Correction in the contract fix rate in bp --" << endl;
/* The paper plots correction to be substracted, here is printed
with its sign
*/
for(Size i=0; i<riskySwaps.size(); i++) {
cout << fixed << setprecision(3);
cout << setw(4);
riskySwaps[i].setPricingEngine(riskFreeEngine);
// should recover the input here:
Real nonRiskyFair = riskySwaps[i].fairRate();
cout << tenorsSwapMkt[i];
cout << setw(5);
cout << " | " << io::rate(nonRiskyFair);
cout << fixed << setprecision(2);
cout << setw(5);
// Low Risk:
riskySwaps[i].setPricingEngine(ctptySwapCvaLow);
cout << " | " << setw(6)
<< 10000.*(riskySwaps[i].fairRate() - nonRiskyFair);
//cout << " | " << setw(6) << riskySwaps[i].NPV() ;
// Medium Risk:
riskySwaps[i].setPricingEngine(ctptySwapCvaMedium);
cout << " | " << setw(6)
<< 10000.*(riskySwaps[i].fairRate() - nonRiskyFair);
//cout << " | " << setw(6) << riskySwaps[i].NPV() ;
riskySwaps[i].setPricingEngine(ctptySwapCvaHigh);
cout << " | " << setw(6)
<< 10000.*(riskySwaps[i].fairRate() - nonRiskyFair);
//cout << " | " << setw(6) << riskySwaps[i].NPV() ;
cout << endl;
}
cout << endl;
return 0;
} catch (exception& e) {
cerr << e.what() << endl;
return 1;
} catch (...) {
cerr << "unknown error" << endl;
return 1;
}
}
|
