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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2007, 2008 Ferdinando Ametrano
Copyright (C) 2007 Franois du Vignaud
Copyright (C) 2007 Katiuscia Manzoni
Copyright (C) 2007 Giorgio Facchinetti
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/termstructures/volatility/optionlet/optionletstripper1.hpp>
#include <ql/instruments/makecapfloor.hpp>
#include <ql/pricingengines/capfloor/blackcapfloorengine.hpp>
#include <ql/pricingengines/blackformula.hpp>
#include <ql/indexes/iborindex.hpp>
#include <ql/quotes/simplequote.hpp>
#include <ql/utilities/dataformatters.hpp>
using boost::shared_ptr;
namespace QuantLib {
OptionletStripper1::OptionletStripper1(
const shared_ptr<CapFloorTermVolSurface>& termVolSurface,
const shared_ptr<IborIndex>& index,
Rate switchStrike,
Real accuracy,
Natural maxIter,
const Handle<YieldTermStructure>& discount)
: OptionletStripper(termVolSurface, index, discount),
volQuotes_(nOptionletTenors_,
std::vector<shared_ptr<SimpleQuote> >(nStrikes_)),
floatingSwitchStrike_(switchStrike==Null<Rate>() ? true : false),
capFlooMatrixNotInitialized_(true),
switchStrike_(switchStrike),
accuracy_(accuracy), maxIter_(maxIter) {
capFloorPrices_ = Matrix(nOptionletTenors_, nStrikes_);
optionletPrices_ = Matrix(nOptionletTenors_, nStrikes_);
capFloorVols_ = Matrix(nOptionletTenors_, nStrikes_);
Real firstGuess = 0.14;
optionletStDevs_ = Matrix(nOptionletTenors_, nStrikes_, firstGuess);
capFloors_ = CapFloorMatrix(nOptionletTenors_);
}
void OptionletStripper1::performCalculations() const {
// update dates
const Date& referenceDate = termVolSurface_->referenceDate();
const DayCounter& dc = termVolSurface_->dayCounter();
shared_ptr<BlackCapFloorEngine> dummy(new
BlackCapFloorEngine(// discounting does not matter here
iborIndex_->forwardingTermStructure(),
0.20, dc));
for (Size i=0; i<nOptionletTenors_; ++i) {
CapFloor temp = MakeCapFloor(CapFloor::Cap,
capFloorLengths_[i],
iborIndex_,
0.04, // dummy strike
0*Days)
.withPricingEngine(dummy);
shared_ptr<FloatingRateCoupon> lFRC =
temp.lastFloatingRateCoupon();
optionletDates_[i] = lFRC->fixingDate();
optionletPaymentDates_[i] = lFRC->date();
optionletAccrualPeriods_[i] = lFRC->accrualPeriod();
optionletTimes_[i] = dc.yearFraction(referenceDate,
optionletDates_[i]);
atmOptionletRate_[i] = iborIndex_->fixing(optionletDates_[i]);
}
if (floatingSwitchStrike_ && capFlooMatrixNotInitialized_) {
Rate averageAtmOptionletRate = 0.0;
for (Size i=0; i<nOptionletTenors_; ++i) {
averageAtmOptionletRate += atmOptionletRate_[i];
}
switchStrike_ = averageAtmOptionletRate / nOptionletTenors_;
}
const Handle<YieldTermStructure>& discountCurve =
discount_.empty() ?
iborIndex_->forwardingTermStructure() :
discount_;
const std::vector<Rate>& strikes = termVolSurface_->strikes();
// initialize CapFloorMatrix
if (capFlooMatrixNotInitialized_) {
for (Size i=0; i<nOptionletTenors_; ++i)
capFloors_[i].resize(nStrikes_);
// construction might go here
for (Size j=0; j<nStrikes_; ++j) {
// using out-of-the-money options
CapFloor::Type capFloorType = strikes[j] < switchStrike_ ?
CapFloor::Floor : CapFloor::Cap;
for (Size i=0; i<nOptionletTenors_; ++i) {
volQuotes_[i][j] = shared_ptr<SimpleQuote>(new
SimpleQuote());
shared_ptr<BlackCapFloorEngine> engine(new
BlackCapFloorEngine(
discountCurve,
Handle<Quote>(volQuotes_[i][j]),
dc));
capFloors_[i][j] = MakeCapFloor(capFloorType,
capFloorLengths_[i], iborIndex_,
strikes[j], 0*Days)
.withPricingEngine(engine);
}
}
capFlooMatrixNotInitialized_ = false;
}
for (Size j=0; j<nStrikes_; ++j) {
Option::Type optionletType = strikes[j] < switchStrike_ ?
Option::Put : Option::Call;
Real previousCapFloorPrice = 0.0;
for (Size i=0; i<nOptionletTenors_; ++i) {
capFloorVols_[i][j] = termVolSurface_->volatility(
capFloorLengths_[i], strikes[j], true);
volQuotes_[i][j]->setValue(capFloorVols_[i][j]);
capFloorPrices_[i][j] = capFloors_[i][j]->NPV();
optionletPrices_[i][j] = capFloorPrices_[i][j] -
previousCapFloorPrice;
previousCapFloorPrice = capFloorPrices_[i][j];
DiscountFactor d =
discountCurve->discount(optionletPaymentDates_[i]);
DiscountFactor optionletAnnuity=optionletAccrualPeriods_[i]*d;
try {
optionletStDevs_[i][j] =
blackFormulaImpliedStdDev(optionletType,
strikes[j],
atmOptionletRate_[i],
optionletPrices_[i][j],
optionletAnnuity, 0.0,
optionletStDevs_[i][j],
accuracy_, maxIter_);
} catch (std::exception& e) {
QL_FAIL("could not bootstrap optionlet:"
"\n type: " << optionletType <<
"\n strike: " << io::rate(strikes[j]) <<
"\n atm: " << io::rate(atmOptionletRate_[i]) <<
"\n price: " << optionletPrices_[i][j] <<
"\n annuity: " << optionletAnnuity <<
"\n expiry: " << optionletDates_[i] <<
"\n error: " << e.what());
}
optionletVolatilities_[i][j] = optionletStDevs_[i][j] /
std::sqrt(optionletTimes_[i]);
}
}
}
const Matrix& OptionletStripper1::capFloorPrices() const {
calculate();
return capFloorPrices_;
}
const Matrix& OptionletStripper1::capFloorVolatilities() const {
calculate();
return capFloorVols_;
}
const Matrix& OptionletStripper1::optionletPrices() const {
calculate();
return optionletPrices_;
}
Rate OptionletStripper1::switchStrike() const {
if (floatingSwitchStrike_)
calculate();
return switchStrike_;
}
}
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