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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2007 Ferdinando Ametrano
Copyright (C) 2007 Marco Bianchetti
Copyright (C) 2006, 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/swaption/cmsmarket.hpp>
#include <ql/termstructures/yieldtermstructure.hpp>
#include <ql/cashflows/cashflows.hpp>
#include <ql/instruments/makecms.hpp>
#include <ql/quotes/simplequote.hpp>
#include <ql/indexes/swapindex.hpp>
#include <ql/instruments/swap.hpp>
using std::vector;
using boost::shared_ptr;
namespace QuantLib {
CmsMarket::CmsMarket(
const vector<Period>& swapLengths,
const vector<shared_ptr<SwapIndex> >& swapIndexes,
const shared_ptr<IborIndex>& iborIndex,
const vector<vector<Handle<Quote> > >& bidAskSpreads,
const vector<shared_ptr<HaganPricer> >& pricers,
const Handle<YieldTermStructure>& discountingTS)
: swapLengths_(swapLengths),
swapIndexes_(swapIndexes),
iborIndex_(iborIndex),
bidAskSpreads_(bidAskSpreads),
pricers_(pricers),
discTS_(discountingTS),
nExercise_(swapLengths_.size()),
nSwapIndexes_(swapIndexes_.size()),
swapTenors_(nSwapIndexes_),
spotFloatLegNPV_(nExercise_, nSwapIndexes_),
spotFloatLegBPS_(nExercise_, nSwapIndexes_),
mktBidSpreads_(nExercise_, nSwapIndexes_),
mktAskSpreads_(nExercise_, nSwapIndexes_),
mktSpreads_(nExercise_, nSwapIndexes_),
mdlSpreads_(nExercise_, nSwapIndexes_),
errSpreads_(nExercise_, nSwapIndexes_),
mktSpotCmsLegNPV_(nExercise_, nSwapIndexes_),
mdlSpotCmsLegNPV_(nExercise_, nSwapIndexes_),
errSpotCmsLegNPV_(nExercise_, nSwapIndexes_),
mktFwdCmsLegNPV_(nExercise_, nSwapIndexes_),
mdlFwdCmsLegNPV_(nExercise_, nSwapIndexes_),
errFwdCmsLegNPV_(nExercise_, nSwapIndexes_),
spotSwaps_(nExercise_, vector<shared_ptr<Swap> >(nSwapIndexes_)),
fwdSwaps_(nExercise_, vector<shared_ptr<Swap> >(nSwapIndexes_))
{
QL_REQUIRE(2*nSwapIndexes_==bidAskSpreads[0].size(),
"2*nSwapIndexes_!=bidAskSpreads columns()");
QL_REQUIRE(nExercise_==bidAskSpreads.size(),
"nExercise_==bidAskSpreads rows()");
for (Size j=0; j<nSwapIndexes_; ++j) {
swapTenors_[j] = swapIndexes_[j]->tenor();
// pricers
registerWith(pricers_[j]);
for (Size i=0; i<nExercise_; ++i) {
// market Spread
registerWith(bidAskSpreads_[i][j*2]);
registerWith(bidAskSpreads_[i][j*2+1]);
}
}
Period start(0, Years);
for (Size i=0; i<nExercise_; ++i) {
if (i>0) start = swapLengths_[i-1];
for (Size j=0; j<nSwapIndexes_; ++j) {
// never evaluate the spot swap, only its ibor floating leg
spotSwaps_[i][j] = MakeCms(swapLengths_[i],
swapIndexes_[j],
iborIndex_, 0.0,
Period())
.operator shared_ptr<Swap>();
fwdSwaps_[i][j] = MakeCms(swapLengths_[i]-start,
swapIndexes_[j],
iborIndex_, 0.0,
start)
.withCmsCouponPricer(pricers_[j])
.withDiscountingTermStructure(discTS_)
.operator shared_ptr<Swap>();
}
}
// probably useless
performCalculations();
}
void CmsMarket::performCalculations() const {
for (Size j=0; j<nSwapIndexes_; ++j) {
Real mktPrevPart = 0.0, mdlPrevPart = 0.0;
for (Size i=0; i<nExercise_; ++i) {
// **** market
mktBidSpreads_[i][j] = bidAskSpreads_[i][j*2]->value();
mktAskSpreads_[i][j] = bidAskSpreads_[i][j*2+1]->value();
mktSpreads_[i][j] = (mktBidSpreads_[i][j]+mktAskSpreads_[i][j])/2;
const Leg& spotFloatLeg = spotSwaps_[i][j]->leg(1);
spotFloatLegNPV_[i][j] = CashFlows::npv(spotFloatLeg,
**discTS_,
false, discTS_->referenceDate());
spotFloatLegBPS_[i][j] = CashFlows::bps(spotFloatLeg,
**discTS_,
false, discTS_->referenceDate());
// imply the spot CMS leg NPV from the spot ibor floating leg NPV
mktSpotCmsLegNPV_[i][j] = -(spotFloatLegNPV_[i][j] +
spotFloatLegBPS_[i][j]*mktSpreads_[i][j]/1e-4);
// fwd CMS legs can be computed as differences between spot legs
mktFwdCmsLegNPV_[i][j] = mktSpotCmsLegNPV_[i][j] - mktPrevPart;
mktPrevPart = mktSpotCmsLegNPV_[i][j];
// **** model
// calculate the forward swap (the time consuming part)
mdlFwdCmsLegNPV_[i][j] = fwdSwaps_[i][j]->legNPV(0);
errFwdCmsLegNPV_[i][j] = mdlFwdCmsLegNPV_[i][j] -
mktFwdCmsLegNPV_[i][j];
// spot CMS legs can be computed as incremental sum of forward legs
mdlSpotCmsLegNPV_[i][j] = mdlPrevPart + mdlFwdCmsLegNPV_[i][j];
mdlPrevPart = mdlSpotCmsLegNPV_[i][j];
errSpotCmsLegNPV_[i][j] = mdlSpotCmsLegNPV_[i][j] -
mktSpotCmsLegNPV_[i][j];
// equilibriums spread over ibor leg
Real npv = spotFloatLegNPV_[i][j] + mdlSpotCmsLegNPV_[i][j];
mdlSpreads_[i][j] = - npv/spotFloatLegBPS_[i][j]*1e-4;
errSpreads_[i][j] = mdlSpreads_[i][j] - mktSpreads_[i][j];
}
}
}
void CmsMarket::reprice(const Handle<SwaptionVolatilityStructure>& v,
Real meanReversion) {
Handle<Quote> meanReversionQuote(shared_ptr<Quote>(new
SimpleQuote(meanReversion)));
for (Size j=0; j<nSwapIndexes_; ++j) {
// ??
// set new volatility structure and new mean reversion
pricers_[j]->setSwaptionVolatility(v);
pricers_[j]->setMeanReversion(meanReversionQuote);
}
performCalculations();
}
Real CmsMarket::weightedFwdNpvError(const Matrix& w) {
performCalculations();
return weightedMean(errFwdCmsLegNPV_, w);
}
Real CmsMarket::weightedSpotNpvError(const Matrix& w) {
performCalculations();
return weightedMean(errSpotCmsLegNPV_, w);
}
Real CmsMarket::weightedSpreadError(const Matrix& w) {
performCalculations();
return weightedMean(errSpreads_, w);
}
// array of errors to be used by Levenberg-Marquardt optimization
Disposable<Array> CmsMarket::weightedFwdNpvErrors(const Matrix& w) {
performCalculations();
return weightedMeans(errFwdCmsLegNPV_, w);
}
Disposable<Array> CmsMarket::weightedSpotNpvErrors(const Matrix& w) {
performCalculations();
return weightedMeans(errSpotCmsLegNPV_, w);
}
Disposable<Array> CmsMarket::weightedSpreadErrors(const Matrix& w) {
performCalculations();
return weightedMeans(errSpreads_, w);
}
Real CmsMarket::weightedMean(const Matrix& var,
const Matrix& w) {
Real mean = 0.0;
for (Size i=0; i<nExercise_; ++i) {
for (Size j=0; j<nSwapIndexes_; ++j) {
mean += w[i][j]*var[i][j]*var[i][j];
}
}
mean = std::sqrt(mean/(nExercise_*nSwapIndexes_));
return mean;
}
Disposable<Array> CmsMarket::weightedMeans(const Matrix& var,
const Matrix& w) {
Array weightedVars(nExercise_*nSwapIndexes_);
for (Size i=0; i<nExercise_; ++i) {
for (Size j=0; j<nSwapIndexes_; ++j) {
weightedVars[i*nSwapIndexes_+j] = std::sqrt(w[i][j])*var[i][j];
}
}
return weightedVars;
}
Matrix CmsMarket::browse() const {
calculate();
//Matrix result(nExercise_*nSwapIndexes_, 15);
Matrix result(nExercise_*nSwapIndexes_, 14);
for (Size j=0; j<nSwapIndexes_; ++j) {
for (Size i=0; i<nExercise_; ++i) {
result[j*nSwapIndexes_+i][0] = swapTenors_[j].length();
result[j*nSwapIndexes_+i][1] = swapLengths_[i].length();
// Spreads
result[j*nSwapIndexes_+i][2] = mktBidSpreads_[i][j]*10000;
result[j*nSwapIndexes_+i][3] = mktAskSpreads_[i][j]*10000;
result[j*nSwapIndexes_+i][4] = mktSpreads_[i][j]*10000;
result[j*nSwapIndexes_+i][5] = mdlSpreads_[i][j]*10000;
result[j*nSwapIndexes_+i][6] = errSpreads_[i][j]*10000;
if (mdlSpreads_[i][j]>mktAskSpreads_[i][j])
result[j*nSwapIndexes_+i][7] = (mdlSpreads_[i][j] -
mktAskSpreads_[i][j])*10000;
else if (mdlSpreads_[i][j]<mktBidSpreads_[i][j])
result[j*nSwapIndexes_+i][7] = (mktBidSpreads_[i][j] -
mdlSpreads_[i][j])*10000;
else
result[j*nSwapIndexes_+i][7] = 0.0;
// spot CMS Leg NPVs
result[j*nSwapIndexes_+i][ 8] = mktSpotCmsLegNPV_[i][j];
result[j*nSwapIndexes_+i][ 9] = mdlSpotCmsLegNPV_[i][j];
result[j*nSwapIndexes_+i][10] = errSpotCmsLegNPV_[i][j];
// forward CMS Leg NPVs
result[j*nSwapIndexes_+i][11] = mktFwdCmsLegNPV_[i][j];
result[j*nSwapIndexes_+i][12] = mdlFwdCmsLegNPV_[i][j];
result[j*nSwapIndexes_+i][13] = errFwdCmsLegNPV_[i][j];
}
}
return result;
}
}
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