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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2023 Marcin Rybacki
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 "toplevelfixture.hpp"
#include "utilities.hpp"
#include <ql/instruments/equitytotalreturnswap.hpp>
#include <ql/currencies/america.hpp>
#include <ql/indexes/equityindex.hpp>
#include <ql/indexes/ibor/sofr.hpp>
#include <ql/indexes/ibor/usdlibor.hpp>
#include <ql/time/calendars/unitedstates.hpp>
#include <ql/quotes/simplequote.hpp>
#include <ql/pricingengines/swap/discountingswapengine.hpp>
#include <string>
using namespace QuantLib;
using namespace boost::unit_test_framework;
BOOST_FIXTURE_TEST_SUITE(QuantLibTests, TopLevelFixture)
BOOST_AUTO_TEST_SUITE(EquityTotalReturnSwapTests)
struct CommonVars {
Date today;
Calendar calendar;
DayCounter dayCount;
ext::shared_ptr<EquityIndex> equityIndex;
ext::shared_ptr<IborIndex> usdLibor;
ext::shared_ptr<OvernightIndex> sofr;
RelinkableHandle<YieldTermStructure> interestHandle;
RelinkableHandle<YieldTermStructure> dividendHandle;
ext::shared_ptr<Quote> spot;
RelinkableHandle<Quote> spotHandle;
ext::shared_ptr<PricingEngine> discountEngine;
// utilities
CommonVars() {
calendar = UnitedStates(UnitedStates::GovernmentBond);
dayCount = Actual365Fixed();
today = calendar.adjust(Date(27, January, 2023));
Settings::instance().evaluationDate() = today;
equityIndex = ext::make_shared<EquityIndex>("eqIndex", calendar, USDCurrency(), interestHandle,
dividendHandle, spotHandle);
equityIndex->addFixing(Date(5, January, 2023), 9010.0);
equityIndex->addFixing(today, 8690.0);
sofr = ext::make_shared<Sofr>(interestHandle);
sofr->addFixing(Date(3, January, 2023), 0.03);
sofr->addFixing(Date(4, January, 2023), 0.031);
sofr->addFixing(Date(5, January, 2023), 0.031);
sofr->addFixing(Date(6, January, 2023), 0.031);
sofr->addFixing(Date(9, January, 2023), 0.032);
sofr->addFixing(Date(10, January, 2023), 0.033);
sofr->addFixing(Date(11, January, 2023), 0.033);
sofr->addFixing(Date(12, January, 2023), 0.033);
sofr->addFixing(Date(13, January, 2023), 0.033);
sofr->addFixing(Date(17, January, 2023), 0.033);
sofr->addFixing(Date(18, January, 2023), 0.034);
sofr->addFixing(Date(19, January, 2023), 0.034);
sofr->addFixing(Date(20, January, 2023), 0.034);
sofr->addFixing(Date(23, January, 2023), 0.034);
sofr->addFixing(Date(24, January, 2023), 0.034);
sofr->addFixing(Date(25, January, 2023), 0.034);
sofr->addFixing(Date(26, January, 2023), 0.034);
usdLibor = ext::make_shared<USDLibor>(3 * Months, interestHandle);
usdLibor->addFixing(Date(3, January, 2023), 0.035);
interestHandle.linkTo(flatRate(0.0375, dayCount));
dividendHandle.linkTo(flatRate(0.005, dayCount));
discountEngine =
ext::shared_ptr<PricingEngine>(new DiscountingSwapEngine(interestHandle));
spot = ext::make_shared<SimpleQuote>(8700.0);
spotHandle.linkTo(spot);
}
ext::shared_ptr<EquityTotalReturnSwap> createTRS(Swap::Type type,
const Schedule& schedule,
bool useOvernightIndex,
Rate margin = 0.0,
Real nominal = 1.0e7,
Real gearing = 1.0,
Natural paymentDelay = 0) {
ext::shared_ptr<EquityTotalReturnSwap> swap;
if (useOvernightIndex) {
swap = ext::make_shared<EquityTotalReturnSwap>(
type, nominal, schedule, equityIndex, sofr, dayCount, margin, gearing,
schedule.calendar(), Following, paymentDelay);
} else {
swap = ext::make_shared<EquityTotalReturnSwap>(
type, nominal, schedule, equityIndex, usdLibor, dayCount, margin, gearing,
schedule.calendar(), Following, paymentDelay);
}
swap->setPricingEngine(discountEngine);
return swap;
}
ext::shared_ptr<EquityTotalReturnSwap> createTRS(Swap::Type type,
const Date& start,
const Date& end,
bool useOvernightIndex,
Rate margin = 0.0,
Real nominal = 1.0e7,
Real gearing = 1.0,
Natural paymentDelay = 0) {
Schedule schedule = MakeSchedule()
.from(start)
.to(end)
.withTenor(3 * Months)
.withCalendar(calendar)
.withConvention(Following)
.backwards();
return createTRS(type, schedule, useOvernightIndex, margin, nominal, gearing,
paymentDelay);
}
};
void checkFairMarginCalculation(Swap::Type type,
const Date& start,
const Date& end,
bool useOvernightIndex,
Rate margin = 0.0,
Real gearing = 1.0,
Natural paymentDelay = 0) {
CommonVars vars;
const Real tolerance = 1.0e-8;
const Real nominal = 1.0e7;
auto trs = vars.createTRS(type, start, end, useOvernightIndex, margin, nominal,
gearing, paymentDelay);
auto fairMargin = trs->fairMargin();
auto parTrs = vars.createTRS(type, start, end, useOvernightIndex, fairMargin,
nominal, gearing, paymentDelay);
if ((std::fabs(parTrs->NPV()) > tolerance))
BOOST_ERROR("unable to imply a fair margin\n"
<< " actual NPV: " << parTrs->NPV() << "\n"
<< " expected NPV: 0.0 \n"
<< " fair margin: " << fairMargin << "\n"
<< " IR index name: " << trs->interestRateIndex()->name() << "\n");
}
Real legNPV(const Leg& leg, const Handle<YieldTermStructure>& ts) {
Real npv = 0.0;
std::for_each(leg.begin(), leg.end(), [&](const ext::shared_ptr<CashFlow>& cf) {
npv += cf->amount() * ts->discount(cf->date());
});
return npv;
}
void checkNPVCalculation(Swap::Type type,
const Date& start,
const Date& end,
bool useOvernightIndex,
Rate margin = 0.0,
Real gearing = 1.0,
Natural paymentDelay = 0) {
CommonVars vars;
const Real tolerance = 1.0e-2;
const Real nominal = 1.0e7;
auto trs = vars.createTRS(type, start, end, useOvernightIndex, margin, nominal,
gearing, paymentDelay);
auto npv = trs->NPV();
Real scaling = type == Swap::Type::Receiver ? 1.0 : -1.0;
auto equityLegNPV = trs->equityLegNPV();
auto replicatedEquityLegNPV = scaling * legNPV(trs->equityLeg(), vars.interestHandle);
if ((std::fabs(equityLegNPV - replicatedEquityLegNPV) > tolerance))
BOOST_ERROR("incorrect NPV of the equity leg\n"
<< " actual NPV: " << equityLegNPV << "\n"
<< " expected NPV: " << replicatedEquityLegNPV << "\n");
auto interestLegNPV = trs->interestRateLegNPV();
auto replicatedInterestLegNPV = -scaling * legNPV(trs->interestRateLeg(), vars.interestHandle);
if ((std::fabs(interestLegNPV - replicatedInterestLegNPV) > tolerance))
BOOST_ERROR("incorrect NPV of the interest leg\n"
<< " actual NPV: " << interestLegNPV << "\n"
<< " expected NPV: " << replicatedInterestLegNPV << "\n");
if ((std::fabs(npv - (equityLegNPV + interestLegNPV)) > tolerance))
BOOST_ERROR("summing legs NPV does not replicate the instrument NPV\n"
<< " actual NPV: " << npv << "\n"
<< " NPV from summing legs: " << equityLegNPV + interestLegNPV << "\n");
}
BOOST_AUTO_TEST_CASE(testFairMargin) {
BOOST_TEST_MESSAGE("Testing fair margin...");
// Check TRS vs Libor-type index
checkFairMarginCalculation(Swap::Receiver, Date(5, January, 2023), Date(5, April, 2023), false);
checkFairMarginCalculation(Swap::Payer, Date(5, January, 2023), Date(5, April, 2023), false,
0.01);
checkFairMarginCalculation(Swap::Payer, Date(5, January, 2023), Date(5, April, 2023), false,
0.0, 0.0);
checkFairMarginCalculation(Swap::Receiver, Date(31, January, 2023), Date(30, April, 2023),
false, -0.005, 1.0, 2);
// Check TRS vs overnight index
checkFairMarginCalculation(Swap::Receiver, Date(5, January, 2023), Date(5, April, 2023), true);
checkFairMarginCalculation(Swap::Payer, Date(5, January, 2023), Date(5, April, 2023), true,
0.01);
checkFairMarginCalculation(Swap::Receiver, Date(31, January, 2023), Date(30, April, 2023), true,
-0.005, 1.0, 2);
}
BOOST_AUTO_TEST_CASE(testErrorWhenNegativeNominal) {
BOOST_TEST_MESSAGE("Testing error when negative nominal...");
CommonVars vars;
BOOST_CHECK_EXCEPTION(
vars.createTRS(Swap::Receiver, Date(5, January, 2023), Date(5, April, 2023), false, 0.0,
-1.e7),
Error,
ExpectedErrorMessage("Nominal cannot be negative"));
}
BOOST_AUTO_TEST_CASE(testErrorWhenNoPaymentCalendar) {
BOOST_TEST_MESSAGE("Testing error when payment calendar is missing...");
CommonVars vars;
auto sch = Schedule(Date(5, January, 2023), Date(5, April, 2023), 3 * Months, Calendar(),
Unadjusted, Unadjusted, DateGeneration::Rule::Backward, false);
BOOST_CHECK_EXCEPTION(
vars.createTRS(Swap::Receiver, sch, false), Error,
ExpectedErrorMessage("Calendar in schedule cannot be empty"));
}
BOOST_AUTO_TEST_CASE(testEquityLegNPV) {
BOOST_TEST_MESSAGE("Testing equity leg NPV replication...");
CommonVars vars;
const Real tolerance = 1.0e-8;
Date start(5, January, 2023);
Date end(5, April, 2023);
auto trs = vars.createTRS(Swap::Receiver, start, end, false);
auto actualEquityLegNPV = trs->equityLegNPV();
auto eqIdx = trs->equityIndex();
auto discount = vars.interestHandle->discount(end);
auto expectedEquityLegNPV =
(eqIdx->fixing(end) / eqIdx->fixing(start) - 1.0) * trs->nominal() * discount;
if ((std::fabs(actualEquityLegNPV - expectedEquityLegNPV) > tolerance))
BOOST_ERROR("unable to replicate equity leg NPV\n"
<< " actual NPV: " << actualEquityLegNPV << "\n"
<< " expected NPV: " << expectedEquityLegNPV << "\n");
}
BOOST_AUTO_TEST_CASE(testTRSNPV) {
BOOST_TEST_MESSAGE("Testing TRS NPV...");
CommonVars vars;
// Check TRS vs Libor-type index
checkNPVCalculation(Swap::Receiver, Date(5, January, 2023), Date(5, April, 2023), false);
checkNPVCalculation(Swap::Payer, Date(5, January, 2023), Date(5, April, 2023), false, 0.01);
checkNPVCalculation(Swap::Payer, Date(5, January, 2023), Date(5, April, 2023), false, 0.0, 0.0);
checkNPVCalculation(Swap::Receiver, Date(31, January, 2023), Date(30, April, 2023), false,
-0.005, 1.0, 2);
//// Check TRS vs overnight index
checkNPVCalculation(Swap::Receiver, Date(5, January, 2023), Date(5, April, 2023), true);
checkNPVCalculation(Swap::Payer, Date(5, January, 2023), Date(5, April, 2023), true, 0.01);
checkNPVCalculation(Swap::Receiver, Date(31, January, 2023), Date(30, April, 2023), true,
-0.005, 1.0, 2);
}
BOOST_AUTO_TEST_SUITE_END()
BOOST_AUTO_TEST_SUITE_END()
|
