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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 François du Vignaud
Copyright (C) 2007 Katiuscia Manzoni
Copyright (C) 2007 Giorgio Facchinetti
Copyright (C) 2015 Michael von den Driesch
Copyright (C) 2015 Peter Caspers
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
<https://www.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/pricingengine.hpp>
#include <ql/pricingengines/capfloor/bacheliercapfloorengine.hpp>
#include <ql/pricingengines/blackformula.hpp>
#include <ql/indexes/iborindex.hpp>
#include <ql/quotes/simplequote.hpp>
#include <ql/utilities/dataformatters.hpp>
namespace QuantLib {
OptionletStripper1::OptionletStripper1(
const ext::shared_ptr<CapFloorTermVolSurface>& termVolSurface,
const ext::shared_ptr<IborIndex>& index,
Rate switchStrike,
Real accuracy,
Natural maxIter,
const Handle<YieldTermStructure>& discount,
const VolatilityType type,
const Real displacement,
bool dontThrow,
ext::optional<Period> optionletFrequency)
: OptionletStripper(termVolSurface, index, discount, type, displacement, optionletFrequency),
floatingSwitchStrike_(switchStrike == Null<Rate>()), switchStrike_(switchStrike),
accuracy_(accuracy), maxIter_(maxIter), dontThrow_(dontThrow) {
capFloorPrices_ = Matrix(nOptionletTenors_, nStrikes_);
optionletPrices_ = Matrix(nOptionletTenors_, nStrikes_);
capletVols_ = Matrix(nOptionletTenors_, nStrikes_);
capFloorVols_ = Matrix(nOptionletTenors_, nStrikes_);
Real firstGuess = 0.14; // guess is only used for shifted lognormal vols
optionletStDevs_ = Matrix(nOptionletTenors_, nStrikes_, firstGuess);
}
void OptionletStripper1::performCalculations() const {
// update dates
const Date& referenceDate = termVolSurface_->referenceDate();
const DayCounter& dc = termVolSurface_->dayCounter();
ext::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);
ext::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] = lFRC->indexFixing();
}
if (floatingSwitchStrike_) {
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();
ext::shared_ptr<PricingEngine> capFloorEngine;
ext::shared_ptr<SimpleQuote> volQuote(new SimpleQuote);
if (volatilityType_ == ShiftedLognormal) {
capFloorEngine = ext::make_shared<BlackCapFloorEngine>(
discountCurve, Handle<Quote>(volQuote),
dc, displacement_);
} else if (volatilityType_ == Normal) {
capFloorEngine = ext::make_shared<BachelierCapFloorEngine>(
discountCurve, Handle<Quote>(volQuote),
dc);
} else {
QL_FAIL("unknown volatility type: " << volatilityType_);
}
for (Size j=0; j<nStrikes_; ++j) {
// using out-of-the-money options
CapFloor::Type capFloorType =
strikes[j] < switchStrike_ ? CapFloor::Floor : CapFloor::Cap;
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);
volQuote->setValue(capFloorVols_[i][j]);
ext::shared_ptr<CapFloor> capFloor =
MakeCapFloor(capFloorType, capFloorLengths_[i],
iborIndex_, strikes[j], -0 * Days)
.withPricingEngine(capFloorEngine);
capFloorPrices_[i][j] = capFloor->NPV();
optionletPrices_[i][j] = capFloorPrices_[i][j] -
previousCapFloorPrice;
previousCapFloorPrice = capFloorPrices_[i][j];
DiscountFactor d =
discountCurve->discount(optionletPaymentDates_[i]);
DiscountFactor optionletAnnuity=optionletAccrualPeriods_[i]*d;
try {
if (volatilityType_ == ShiftedLognormal) {
optionletStDevs_[i][j] = blackFormulaImpliedStdDev(
optionletType, strikes[j], atmOptionletRate_[i],
optionletPrices_[i][j], optionletAnnuity, displacement_,
optionletStDevs_[i][j], accuracy_, maxIter_);
} else if (volatilityType_ == Normal) {
optionletStDevs_[i][j] =
std::sqrt(optionletTimes_[i]) *
bachelierBlackFormulaImpliedVol(
optionletType, strikes[j], atmOptionletRate_[i],
optionletTimes_[i], optionletPrices_[i][j],
optionletAnnuity);
} else {
QL_FAIL("Unknown volatility type: " << volatilityType_);
}
}
catch (std::exception &e) {
if(dontThrow_)
optionletStDevs_[i][j]=0.0;
else
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::capletVols() const {
calculate();
return capletVols_;
}
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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