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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2012, 2013 Grzegorz Andruszkiewicz
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/catbonds/montecarlocatbondengine.hpp>
#include <ql/cashflows/cashflows.hpp>
#include <algorithm>
namespace QuantLib {
MonteCarloCatBondEngine::MonteCarloCatBondEngine(
const boost::shared_ptr<CatRisk> catRisk,
const Handle<YieldTermStructure>& discountCurve,
boost::optional<bool> includeSettlementDateFlows)
: catRisk_(catRisk), discountCurve_(discountCurve),
includeSettlementDateFlows_(includeSettlementDateFlows) {
registerWith(discountCurve_);
}
void MonteCarloCatBondEngine::calculate() const {
QL_REQUIRE(!discountCurve_.empty(),
"discounting term structure handle is empty");
results_.valuationDate = (*discountCurve_)->referenceDate();
bool includeRefDateFlows =
includeSettlementDateFlows_ ?
*includeSettlementDateFlows_ :
Settings::instance().includeReferenceDateEvents();
Real lossProbability;
Real exhaustionProbability;
Real expectedLoss;
results_.value = npv(includeRefDateFlows,
results_.valuationDate,
results_.valuationDate,
lossProbability,
exhaustionProbability,
expectedLoss);
results_.lossProbability = lossProbability;
results_.exhaustionProbability = exhaustionProbability;
results_.expectedLoss = expectedLoss;
// a bond's cashflow on settlement date is never taken into
// account, so we might have to play it safe and recalculate
if (!includeRefDateFlows
&& results_.valuationDate == arguments_.settlementDate) {
// same parameters as above, we can avoid another call
results_.settlementValue = results_.value;
} else {
// no such luck
results_.settlementValue =
npv(includeRefDateFlows, arguments_.settlementDate, arguments_.settlementDate, lossProbability, exhaustionProbability, expectedLoss);
}
}
Real MonteCarloCatBondEngine::npv(bool includeSettlementDateFlows, Date settlementDate, Date npvDate, Real& lossProbability, Real &exhaustionProbability, Real& expectedLoss) const
{
const size_t MAX_PATHS = 10000; //TODO
lossProbability = 0.0;
exhaustionProbability = 0.0;
expectedLoss = 0.0;
if (arguments_.cashflows.empty())
return 0.0;
if (settlementDate == Date())
settlementDate = Settings::instance().evaluationDate();
if (npvDate == Date())
npvDate = settlementDate;
Real totalNPV = 0.0;
Date effectiveDate = std::max(arguments_.startDate, settlementDate);
Date maturityDate = (*arguments_.cashflows.rbegin())->date();
boost::shared_ptr<CatSimulation> catSimulation = catRisk_->newSimulation(effectiveDate, maturityDate);
std::vector<std::pair<Date, Real> > eventsPath;
NotionalPath notionalPath;
Real riskFreeNPV = pathNpv(includeSettlementDateFlows, settlementDate, notionalPath);
size_t pathCount=0;
while(catSimulation->nextPath(eventsPath) && pathCount<MAX_PATHS)
{
arguments_.notionalRisk->updatePath(eventsPath, notionalPath);
if(notionalPath.loss()>0) { //optimization, most paths will not include any loss
totalNPV += pathNpv(includeSettlementDateFlows, settlementDate, notionalPath);
lossProbability+=1;
if (notionalPath.loss()==1)
exhaustionProbability+=1;
expectedLoss+=notionalPath.loss();
} else {
totalNPV += riskFreeNPV;
}
pathCount++;
}
lossProbability/=pathCount;
exhaustionProbability/=pathCount;
expectedLoss/=pathCount;
return totalNPV/(pathCount*discountCurve_->discount(npvDate));
}
Real MonteCarloCatBondEngine::pathNpv(bool includeSettlementDateFlows,
Date settlementDate,
const NotionalPath& notionalPath) const {
Real totalNPV = 0.0;
for (Size i=0; i<arguments_.cashflows.size(); ++i) {
if (!arguments_.cashflows[i]->hasOccurred(settlementDate,
includeSettlementDateFlows)) {
Real amount = cashFlowRiskyValue(arguments_.cashflows[i], notionalPath);
totalNPV += amount * discountCurve_->discount(arguments_.cashflows[i]->date());
}
}
return totalNPV;
}
Real MonteCarloCatBondEngine::cashFlowRiskyValue(const boost::shared_ptr<CashFlow> cf,
const NotionalPath& notionalPath) const {
return cf->amount()*notionalPath.notionalRate(cf->date()); //TODO: fix for more complicated cashflows
}
}
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