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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2008, 2009 StatPro Italia srl
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 "toplevelfixture.hpp"
#include "utilities.hpp"
#include <ql/experimental/credit/cdsoption.hpp>
#include <ql/experimental/credit/blackcdsoptionengine.hpp>
#include <ql/instruments/creditdefaultswap.hpp>
#include <ql/pricingengines/credit/midpointcdsengine.hpp>
#include <ql/termstructures/credit/flathazardrate.hpp>
#include <ql/time/calendars/target.hpp>
#include <ql/time/daycounters/actual360.hpp>
#include <ql/termstructures/yield/flatforward.hpp>
#include <ql/quotes/simplequote.hpp>
#include <iomanip>
using namespace QuantLib;
using namespace boost::unit_test_framework;
BOOST_FIXTURE_TEST_SUITE(QuantLibTests, TopLevelFixture)
BOOST_AUTO_TEST_SUITE(CdsOptionTests)
BOOST_AUTO_TEST_CASE(testCached) {
BOOST_TEST_MESSAGE("Testing CDS-option value against cached values...");
Date cachedToday = Date(10,December,2007);
Settings::instance().evaluationDate() = cachedToday;
Calendar calendar = TARGET();
RelinkableHandle<YieldTermStructure> riskFree;
riskFree.linkTo(ext::shared_ptr<YieldTermStructure>(
new FlatForward(cachedToday,0.02,Actual360())));
Date expiry = calendar.advance(cachedToday,9,Months);
Date startDate = calendar.advance(expiry,1,Months);
Date maturity = calendar.advance(startDate,7,Years);
DayCounter dayCounter = Actual360();
BusinessDayConvention convention = ModifiedFollowing;
Real notional = 1000000.0;
Handle<Quote> hazardRate(ext::shared_ptr<Quote>(new SimpleQuote(0.001)));
Schedule schedule(startDate,maturity, Period(Quarterly),
calendar, convention, convention,
DateGeneration::Forward, false);
Real recoveryRate = 0.4;
Handle<DefaultProbabilityTermStructure> defaultProbability(
ext::shared_ptr<DefaultProbabilityTermStructure>(
new FlatHazardRate(0, calendar, hazardRate, dayCounter)));
ext::shared_ptr<PricingEngine> swapEngine(
new MidPointCdsEngine(defaultProbability, recoveryRate, riskFree));
CreditDefaultSwap swap(Protection::Seller, notional, 0.001, schedule,
convention, dayCounter);
swap.setPricingEngine(swapEngine);
Rate strike = swap.fairSpread();
Handle<Quote> cdsVol(ext::shared_ptr<Quote>(new SimpleQuote(0.20)));
ext::shared_ptr<CreditDefaultSwap> underlying(
new CreditDefaultSwap(Protection::Seller, notional, strike, schedule,
convention, dayCounter));
underlying->setPricingEngine(swapEngine);
ext::shared_ptr<Exercise> exercise(new EuropeanExercise(expiry));
CdsOption option1(underlying, exercise);
option1.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BlackCdsOptionEngine(defaultProbability, recoveryRate,
riskFree, cdsVol)));
Real cachedValue = 270.976348;
if (std::fabs(option1.NPV() - cachedValue) > 1.0e-5)
BOOST_ERROR("failed to reproduce cached value:\n"
<< std::fixed << std::setprecision(6)
<< " calculated: " << option1.NPV() << "\n"
<< " expected: " << cachedValue);
underlying = ext::make_shared<CreditDefaultSwap>(
Protection::Buyer, notional, strike, schedule,
convention, dayCounter);
underlying->setPricingEngine(swapEngine);
CdsOption option2(underlying, exercise);
option2.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BlackCdsOptionEngine(defaultProbability, recoveryRate,
riskFree, cdsVol)));
cachedValue = 270.976348;
if (std::fabs(option2.NPV() - cachedValue) > 1.0e-5)
BOOST_ERROR("failed to reproduce cached value:\n"
<< std::fixed << std::setprecision(6)
<< " calculated: " << option2.NPV() << "\n"
<< " expected: " << cachedValue);
}
BOOST_AUTO_TEST_SUITE_END()
BOOST_AUTO_TEST_SUITE_END()
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