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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
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/cmsmarketcalibration.hpp>
#include <ql/termstructures/volatility/swaption/cmsmarket.hpp>
#include <ql/termstructures/volatility/swaption/swaptionvolcube1.hpp>
#include <ql/math/optimization/problem.hpp>
#include <ql/math/optimization/constraint.hpp>
namespace {
using namespace QuantLib;
class ParametersConstraint : public Constraint {
private:
class Impl : public Constraint::Impl {
Size nBeta_;
public:
Impl(Size nBeta) : Constraint::Impl(), nBeta_(nBeta) {}
bool test(const Array& params) const {
QL_REQUIRE(params.size()==nBeta_+1,
"params.size()!=nBeta_+1");
for (Size i=0; i<nBeta_; ++i)
if (params[i]<0.0 || params[i]>1.0)
return false;
return params[nBeta_]>0.0; // mean reversion
}
};
public:
ParametersConstraint(Size nBeta)
: Constraint(boost::shared_ptr<Constraint::Impl>(new Impl(nBeta))) {}
};
class ObjectiveFunction : public CostFunction {
public:
ObjectiveFunction(CmsMarketCalibration* smileAndCms)
: smileAndCms_(smileAndCms),
volCube_(smileAndCms->volCube_),
cmsMarket_(smileAndCms->cmsMarket_),
weights_(smileAndCms->weights_),
calibrationType_(smileAndCms->calibrationType_) {};
Real value(const Array& x) const;
Disposable<Array> values(const Array& x) const;
protected:
Real switchErrorFunctionOnCalibrationType() const;
Disposable<Array> switchErrorsFunctionOnCalibrationType() const;
CmsMarketCalibration* smileAndCms_;
Handle<SwaptionVolatilityStructure> volCube_;
boost::shared_ptr<CmsMarket> cmsMarket_;
Matrix weights_;
CmsMarketCalibration::CalibrationType calibrationType_;
private:
virtual void updateVolatilityCubeAndCmsMarket(const Array& x) const;
};
class ParametersConstraint2 : public Constraint {
private:
class Impl : public Constraint::Impl {
Size nBeta_;
public:
Impl(Size nBeta) : Constraint::Impl(), nBeta_(nBeta) {}
bool test(const Array& params) const {
QL_REQUIRE(params.size()==nBeta_,
"params.size()!=nBeta_");
for (Size i=0; i<nBeta_; ++i)
if (params[i]<0.0 || params[i]>1.0)
return false;
return true;
}
};
public:
ParametersConstraint2(Size nBeta)
: Constraint(boost::shared_ptr<Constraint::Impl>(new Impl(nBeta))) {}
};
class ObjectiveFunction2 : public ObjectiveFunction {
public:
ObjectiveFunction2(CmsMarketCalibration* smileAndCms,
Real fixedMeanReversion)
: ObjectiveFunction(smileAndCms),
fixedMeanReversion_(fixedMeanReversion){};
private:
virtual void updateVolatilityCubeAndCmsMarket(const Array& x) const;
Real fixedMeanReversion_;
};
//===========================================================================//
// ObjectiveFunction //
//===========================================================================//
Real ObjectiveFunction::value(const Array& x) const {
updateVolatilityCubeAndCmsMarket(x);
return switchErrorFunctionOnCalibrationType();
}
Disposable<Array> ObjectiveFunction::values(const Array& x) const {
updateVolatilityCubeAndCmsMarket(x);
return switchErrorsFunctionOnCalibrationType();
}
void
ObjectiveFunction::updateVolatilityCubeAndCmsMarket(const Array& x) const {
const std::vector<Period>& swapTenors = cmsMarket_->swapTenors();
Size nSwapTenors = swapTenors.size();
QL_REQUIRE(nSwapTenors+1 == x.size(),
"bad calibration guess nSwapTenors+1 != x.size()");
const boost::shared_ptr<SwaptionVolCube1> volCubeBySabr =
boost::dynamic_pointer_cast<SwaptionVolCube1>(*volCube_);
for (Size i=0; i<nSwapTenors; ++i)
volCubeBySabr->recalibration(x[i], swapTenors[i]);
Real meanReversion = x[nSwapTenors];
cmsMarket_->reprice(volCube_, meanReversion);
}
Real ObjectiveFunction::switchErrorFunctionOnCalibrationType() const {
switch (calibrationType_) {
case CmsMarketCalibration::OnSpread:
return cmsMarket_->weightedSpreadError(weights_);
case CmsMarketCalibration::OnPrice:
return cmsMarket_->weightedSpotNpvError(weights_);
case CmsMarketCalibration::OnForwardCmsPrice:
return cmsMarket_->weightedFwdNpvError(weights_);
default:
QL_FAIL("unknown/illegal calibration type");
}
}
Disposable<Array>
ObjectiveFunction::switchErrorsFunctionOnCalibrationType() const {
switch (calibrationType_) {
case CmsMarketCalibration::OnSpread:
return cmsMarket_->weightedSpreadErrors(weights_);
case CmsMarketCalibration::OnPrice:
return cmsMarket_->weightedSpotNpvErrors(weights_);
case CmsMarketCalibration::OnForwardCmsPrice:
return cmsMarket_->weightedFwdNpvErrors(weights_);
default:
QL_FAIL("unknown/illegal calibration type");
}
}
//===========================================================================//
// ObjectiveFunction2 //
//===========================================================================//
void
ObjectiveFunction2::updateVolatilityCubeAndCmsMarket(
const Array& x) const {
const std::vector<Period>& swapTenors = cmsMarket_->swapTenors();
Size nSwapTenors = swapTenors.size();
QL_REQUIRE(nSwapTenors == x.size(),
"bad calibration guess nSwapTenors != x.size()");
const boost::shared_ptr<SwaptionVolCube1> volCubeBySabr =
boost::dynamic_pointer_cast<SwaptionVolCube1>(*volCube_);
for (Size i=0; i<nSwapTenors; ++i)
volCubeBySabr->recalibration(x[i], swapTenors[i]);
cmsMarket_->reprice(volCube_, fixedMeanReversion_);
}
}
namespace QuantLib {
//===========================================================================//
// CmsMarketCalibration //
//===========================================================================//
CmsMarketCalibration::CmsMarketCalibration(
Handle<SwaptionVolatilityStructure>& volCube,
boost::shared_ptr<CmsMarket>& cmsMarket,
const Matrix& weights,
CalibrationType calibrationType)
: volCube_(volCube),
cmsMarket_(cmsMarket),
weights_(weights),
calibrationType_(calibrationType) {}
Array CmsMarketCalibration::compute(
const boost::shared_ptr<EndCriteria>& endCriteria,
const boost::shared_ptr<OptimizationMethod>& method,
const Array& guess,
bool isMeanReversionFixed) {
Array result;
if (isMeanReversionFixed) {
Size nBeta = guess.size()-1;
ParametersConstraint2 constraint(nBeta);
Real fixedMeanReversion = guess[nBeta];
Array betasGuess(nBeta);
for (Size i=0; i<nBeta; ++i)
betasGuess[i] = guess[i];
ObjectiveFunction2 costFunction(this, fixedMeanReversion);
Problem problem(costFunction, constraint, betasGuess);
endCriteria_ = method->minimize(problem, *endCriteria);
Array tmp = problem.currentValue();
result = Array(nBeta+1);
for (Size i=0; i<nBeta; ++i)
result[i] = tmp[i];
result[nBeta] = fixedMeanReversion;
error_ = costFunction.value(tmp);
} else {
ParametersConstraint constraint(guess.size()-1);
ObjectiveFunction costFunction(this);
Problem problem(costFunction, constraint, guess);
endCriteria_ = method->minimize(problem, *endCriteria);
result = problem.currentValue();
error_ = costFunction.value(result);
}
const boost::shared_ptr<SwaptionVolCube1> volCubeBySabr =
boost::dynamic_pointer_cast<SwaptionVolCube1>(*volCube_);
sparseSabrParameters_ = volCubeBySabr->sparseSabrParameters();
denseSabrParameters_ = volCubeBySabr->denseSabrParameters();
browseCmsMarket_ = cmsMarket_->browse();
return result;
}
}
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