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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2020 Lew Wei Hao
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/barrieroption.hpp>
#include <ql/models/equity/hestonmodel.hpp>
#include <ql/pricingengines/barrier/fdhestonbarrierengine.hpp>
#include <ql/pricingengines/vanilla/analyticeuropeanengine.hpp>
#include <ql/pricingengines/vanilla/fdblackscholesvanillaengine.hpp>
#include <ql/pricingengines/vanilla/fdcirvanillaengine.hpp>
#include <ql/processes/coxingersollrossprocess.hpp>
#include <ql/quotes/simplequote.hpp>
#include <ql/termstructures/volatility/equityfx/localconstantvol.hpp>
#include <ql/termstructures/yield/flatforward.hpp>
#include <ql/time/daycounters/actual365fixed.hpp>
using namespace QuantLib;
using boost::unit_test_framework::test_suite;
BOOST_FIXTURE_TEST_SUITE(QuantLibTests, TopLevelFixture)
BOOST_AUTO_TEST_SUITE(FdCIRTests)
BOOST_AUTO_TEST_CASE(testFdmCIRConvergence) {
BOOST_TEST_MESSAGE("Testing FDM CIR convergence...");
FdmSchemeDesc schemes[] = {
FdmSchemeDesc::Hundsdorfer(),
FdmSchemeDesc::ModifiedCraigSneyd(),
FdmSchemeDesc::ModifiedHundsdorfer(),
FdmSchemeDesc::CraigSneyd(),
FdmSchemeDesc::TrBDF2(),
FdmSchemeDesc::CrankNicolson(),
};
// set up dates
Date today = Date::todaysDate();
// our options
Option::Type type(Option::Put);
Real underlying = 36;
Real strike = 40;
Spread dividendYield = 0.00;
Rate riskFreeRate = 0.06;
Volatility volatility = 0.20;
Date maturity = today + 365;
DayCounter dayCounter = Actual365Fixed();
ext::shared_ptr<Exercise> europeanExercise(
new EuropeanExercise(maturity));
Handle<Quote> underlyingH(
ext::shared_ptr<Quote>(new SimpleQuote(underlying)));
Handle<YieldTermStructure> flatTermStructure(
ext::shared_ptr<YieldTermStructure>(flatRate(today, riskFreeRate, dayCounter)));
Handle<YieldTermStructure> flatDividendTS(
ext::shared_ptr<YieldTermStructure>(flatRate(today, dividendYield, dayCounter)));
Handle<BlackVolTermStructure> flatVolTS(
ext::shared_ptr<BlackVolTermStructure>(flatVol(today, volatility, dayCounter)));
ext::shared_ptr<StrikedTypePayoff> payoff(
new PlainVanillaPayoff(type, strike));
ext::shared_ptr<BlackScholesMertonProcess> bsmProcess(
new BlackScholesMertonProcess(underlyingH, flatDividendTS,
flatTermStructure, flatVolTS));
VanillaOption europeanOption(payoff, europeanExercise);
Real speed = 1.2188;
Real cirSigma = 0.02438;
Real level = 0.0183;
Real initialRate = 0.06;
Real rho = 0.00789;
Real lambda = -0.5726;
Real newSpeed = speed + (cirSigma*lambda); //1.0792
Real newLevel = (level * speed)/(speed + (cirSigma*lambda));//// 0.0240
ext::shared_ptr<CoxIngersollRossProcess> cirProcess(new CoxIngersollRossProcess(newSpeed, cirSigma, initialRate, newLevel));
Real expected = 4.275;
Real tolerance = 0.0003;
for (const auto& scheme : schemes) {
ext::shared_ptr<PricingEngine> fdcirengine =
MakeFdCIRVanillaEngine(cirProcess, bsmProcess, rho).withFdmSchemeDesc(scheme);
europeanOption.setPricingEngine(fdcirengine);
Real calculated = europeanOption.NPV();
if (std::fabs(expected - calculated) > tolerance) {
BOOST_ERROR("Failed to reproduce expected npv"
<< "\n calculated: " << calculated
<< "\n expected: " << expected
<< "\n tolerance: " << tolerance);
}
}
}
BOOST_AUTO_TEST_SUITE_END()
BOOST_AUTO_TEST_SUITE_END()
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