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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2008 Allen Kuo
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/callablebonds/blackcallablebondengine.hpp>
#include <ql/experimental/callablebonds/callablebondvolstructure.hpp>
#include <ql/experimental/callablebonds/callablebondconstantvol.hpp>
#include <ql/cashflows/cashflows.hpp>
#include <ql/pricingengines/blackformula.hpp>
#include <ql/time/calendars/nullcalendar.hpp>
using namespace std;
namespace QuantLib {
BlackCallableFixedRateBondEngine::BlackCallableFixedRateBondEngine(
const Handle<Quote>& fwdYieldVol,
const Handle<YieldTermStructure>& discountCurve)
: volatility_(boost::shared_ptr<CallableBondVolatilityStructure>(
new CallableBondConstantVolatility(0, NullCalendar(),
fwdYieldVol,
Actual365Fixed()))),
discountCurve_(discountCurve) {
registerWith(volatility_);
registerWith(discountCurve_);
}
//! no vol structures implemented yet besides constant volatility
BlackCallableFixedRateBondEngine::BlackCallableFixedRateBondEngine(
const Handle<CallableBondVolatilityStructure>& yieldVolStructure,
const Handle<YieldTermStructure>& discountCurve)
: volatility_(yieldVolStructure), discountCurve_(discountCurve) {
registerWith(volatility_);
registerWith(discountCurve_);
}
Real BlackCallableFixedRateBondEngine::spotIncome() const {
//! settle date of embedded option assumed same as that of bond
Date settlement = arguments_.settlementDate;
Leg cf = arguments_.cashflows;
Date optionMaturity = arguments_.putCallSchedule[0]->date();
/* the following assumes
1. cashflows are in ascending order !
2. income = coupons paid between settlementDate() and put/call date
*/
Real income = 0.0;
for (Size i = 0; i < cf.size() - 1; ++i) {
if (!cf[i]->hasOccurred(settlement, false)) {
if (cf[i]->hasOccurred(optionMaturity, false)) {
income += cf[i]->amount() *
discountCurve_->discount(cf[i]->date());
} else {
break;
}
}
}
return income/discountCurve_->discount(settlement);
}
Volatility BlackCallableFixedRateBondEngine::forwardPriceVolatility()
const {
Date bondMaturity = arguments_.redemptionDate;
Date exerciseDate = arguments_.callabilityDates[0];
Leg fixedLeg = arguments_.cashflows;
// value of bond cash flows at option maturity
Real fwdNpv = CashFlows::npv(fixedLeg,
**discountCurve_,
false, exerciseDate);
DayCounter dayCounter = arguments_.paymentDayCounter;
Frequency frequency = arguments_.frequency;
// adjust if zero coupon bond (see also bond.cpp)
if (frequency == NoFrequency || frequency == Once)
frequency = Annual;
Rate fwdYtm = CashFlows::yield(fixedLeg,
fwdNpv,
dayCounter,
Compounded,
frequency,
false, exerciseDate);
InterestRate fwdRate(fwdYtm,
dayCounter,
Compounded,
frequency);
Time fwdDur = CashFlows::duration(fixedLeg,
fwdRate,
Duration::Modified,
false, exerciseDate);
Real cashStrike = arguments_.callabilityPrices[0];
dayCounter = volatility_->dayCounter();
Date referenceDate = volatility_->referenceDate();
Time exerciseTime = dayCounter.yearFraction(referenceDate,
exerciseDate);
Time maturityTime = dayCounter.yearFraction(referenceDate,
bondMaturity);
Volatility yieldVol = volatility_->volatility(exerciseTime,
maturityTime-exerciseTime,
cashStrike);
Volatility fwdPriceVol = yieldVol*fwdDur*fwdYtm;
return fwdPriceVol;
}
void BlackCallableFixedRateBondEngine::calculate() const {
// validate args for Black engine
QL_REQUIRE(arguments_.putCallSchedule.size() == 1,
"Must have exactly one call/put date to use Black Engine");
Date settle = arguments_.settlementDate;
Date exerciseDate = arguments_.callabilityDates[0];
QL_REQUIRE(exerciseDate >= settle,
"must have exercise Date >= settlement Date");
Leg fixedLeg = arguments_.cashflows;
Real value = CashFlows::npv(fixedLeg,
**discountCurve_,
false, settle);
Real npv = CashFlows::npv(fixedLeg,
**discountCurve_,
false, discountCurve_->referenceDate());
Real fwdCashPrice = (value - spotIncome())/
discountCurve_->discount(exerciseDate);
Real cashStrike = arguments_.callabilityPrices[0];
Option::Type type = (arguments_.putCallSchedule[0]->type() ==
Callability::Call ? Option::Call : Option::Put);
Volatility priceVol = forwardPriceVolatility();
Time exerciseTime = volatility_->dayCounter().yearFraction(
volatility_->referenceDate(),
exerciseDate);
Real embeddedOptionValue =
blackFormula(type,
cashStrike,
fwdCashPrice,
priceVol*std::sqrt(exerciseTime));
if (type == Option::Call) {
results_.value = npv - embeddedOptionValue;
results_.settlementValue = value - embeddedOptionValue;
} else {
results_.value = npv + embeddedOptionValue;
results_.settlementValue = value + embeddedOptionValue;
}
}
}
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