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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2025 William Day
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 "preconditions.hpp"
#include "toplevelfixture.hpp"
#include "utilities.hpp"
#include <ql/instruments/softbarrieroption.hpp>
#include <ql/pricingengines/barrier/analyticsoftbarrierengine.hpp>
#include <ql/time/daycounters/actual360.hpp>
#include <ql/quotes/simplequote.hpp>
#include <ql/types.hpp>
#include <iostream>
using namespace QuantLib;
using namespace boost::unit_test_framework;
BOOST_FIXTURE_TEST_SUITE(QuantLibTests, TopLevelFixture)
BOOST_AUTO_TEST_SUITE(SoftBarrierOptionTests)
#undef REPORT_FAILURE
#define REPORT_FAILURE(name, barrierType, upperBarrier, lowerBarrier, \
payoff, exercise, spot, q, r, today, vol, expected, \
calculated, error, tolerance) \
BOOST_ERROR("\n" << barrierType << " " \
<< exerciseTypeToString(exercise) << " " \
<< payoff->optionType() << " option with " \
<< payoffTypeToString(payoff) << " payoff:\n" \
<< " underlying value: " << spot << "\n" \
<< " strike: " << payoff->strike() << "\n" \
<< " upper barrier: " << upperBarrier << "\n" \
<< " lower barrier: " << lowerBarrier << "\n" \
<< " dividend yield: " << q << "\n" \
<< " risk-free rate: " << r << "\n" \
<< " reference date: " << today << "\n" \
<< " maturity: " << exercise->lastDate() << "\n" \
<< " volatility: " << vol << "\n\n" \
<< " expected " << name << ": " << expected << "\n" \
<< " calculated " << name << ": " << calculated << "\n"\
<< " error: " << error << "\n" \
<< " tolerance: " << tolerance)
struct SoftBarrierOptionData {
Barrier::Type barrierType; // e.g DownOut/UpIn/etc.
Option::Type type; // Call/Put
Real s; // Spot price
Real strike; // X
Real U; // U
Real L; // L
Rate q; // Dividend Yield
Rate r; // Risk free rate
Time t; // Time to maturity
Volatility v; // Volatility
Real result; // Expected NPV
Real tol; // Tolerance
};
BOOST_AUTO_TEST_CASE(testSoftBarrierHaug) {
BOOST_TEST_MESSAGE("Testing soft barrier option pricing against textbook values...");
SoftBarrierOptionData values[] = {
/* The data below is from "The complete guide to option pricing formulas 2nd Ed",E.G. Haug p.166
Note: In the book, b represents the cost of carry (r-q)
*/
// barrierType, optionType, S, X, U, L, q, r, T, v, result, tol
{ Barrier::DownOut, Option::Call, 100, 100, 95, 95, 0.05, 0.1, 0.5, 0.1, 3.8075, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 90, 0.05, 0.1, 0.5, 0.1, 4.0175, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 85, 0.05, 0.1, 0.5, 0.1, 4.0529, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 80, 0.05, 0.1, 0.5, 0.1, 4.0648, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 75, 0.05, 0.1, 0.5, 0.1, 4.0708, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 70, 0.05, 0.1, 0.5, 0.1, 4.0744, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 65, 0.05, 0.1, 0.5, 0.1, 4.0768, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 60, 0.05, 0.1, 0.5, 0.1, 4.0785, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 55, 0.05, 0.1, 0.5, 0.1, 4.0798, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 50, 0.05, 0.1, 0.5, 0.1, 4.0808, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 95, 0.05, 0.1, 0.5, 0.2, 4.5263, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 90, 0.05, 0.1, 0.5, 0.2, 5.5615, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 85, 0.05, 0.1, 0.5, 0.2, 6.0394, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 80, 0.05, 0.1, 0.5, 0.2, 6.2594, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 75, 0.05, 0.1, 0.5, 0.2, 6.3740, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 70, 0.05, 0.1, 0.5, 0.2, 6.4429, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 65, 0.05, 0.1, 0.5, 0.2, 6.4889, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 60, 0.05, 0.1, 0.5, 0.2, 6.5217, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 55, 0.05, 0.1, 0.5, 0.2, 6.5463, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 50, 0.05, 0.1, 0.5, 0.2, 6.5654, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 95, 0.05, 0.1, 0.5, 0.3, 4.7297, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 90, 0.05, 0.1, 0.5, 0.3, 6.2595, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 85, 0.05, 0.1, 0.5, 0.3, 7.2496, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 80, 0.05, 0.1, 0.5, 0.3, 7.8567, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 75, 0.05, 0.1, 0.5, 0.3, 8.2253, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 70, 0.05, 0.1, 0.5, 0.3, 8.4578, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 65, 0.05, 0.1, 0.5, 0.3, 8.6142, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 60, 0.05, 0.1, 0.5, 0.3, 8.7260, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 55, 0.05, 0.1, 0.5, 0.3, 8.8099, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 50, 0.05, 0.1, 0.5, 0.3, 8.8751, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 95, 0.05, 0.1, 1.0, 0.1, 5.4187, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 90, 0.05, 0.1, 1.0, 0.1, 6.0758, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 85, 0.05, 0.1, 1.0, 0.1, 6.2641, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 80, 0.05, 0.1, 1.0, 0.1, 6.3336, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 75, 0.05, 0.1, 1.0, 0.1, 6.3685, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 70, 0.05, 0.1, 1.0, 0.1, 6.3894, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 65, 0.05, 0.1, 1.0, 0.1, 6.4034, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 60, 0.05, 0.1, 1.0, 0.1, 6.4133, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 55, 0.05, 0.1, 1.0, 0.1, 6.4208, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 50, 0.05, 0.1, 1.0, 0.1, 6.4266, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 95, 0.05, 0.1, 1.0, 0.2, 5.3614, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 90, 0.05, 0.1, 1.0, 0.2, 6.9776, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 85, 0.05, 0.1, 1.0, 0.2, 7.9662, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 80, 0.05, 0.1, 1.0, 0.2, 8.5432, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 75, 0.05, 0.1, 1.0, 0.2, 8.8822, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 70, 0.05, 0.1, 1.0, 0.2, 9.0931, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 65, 0.05, 0.1, 1.0, 0.2, 9.2343, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 60, 0.05, 0.1, 1.0, 0.2, 9.3353, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 55, 0.05, 0.1, 1.0, 0.2, 9.4110, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 50, 0.05, 0.1, 1.0, 0.2, 9.4698, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 95, 0.05, 0.1, 1.0, 0.3, 5.2300, 1e-4 },
// { Barrier::DownOut, Option::Call, 100, 100, 95, 90, 0.05, 0.1, 1.0, 0.3, 7.2046, 1e-4 }, // this test case has an error of c0.0003 -> // not sure why, but most likely due to tight barriers and high volatility leading to small numerical differences
{ Barrier::DownOut, Option::Call, 100, 100, 95, 85, 0.05, 0.1, 1.0, 0.3, 8.7092, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 80, 0.05, 0.1, 1.0, 0.3, 9.8118, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 75, 0.05, 0.1, 1.0, 0.3, 10.5964, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 70, 0.05, 0.1, 1.0, 0.3, 11.1476, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 65, 0.05, 0.1, 1.0, 0.3, 11.5384, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 60, 0.05, 0.1, 1.0, 0.3, 11.8228, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 55, 0.05, 0.1, 1.0, 0.3, 12.0369, 1e-4 },
{ Barrier::DownOut, Option::Call, 100, 100, 95, 50, 0.05, 0.1, 1.0, 0.3, 12.2036, 1e-4 }};
DayCounter dc = Actual360(); //
Date today = {8, August, 2025};
Settings::instance().evaluationDate() = today;
auto spot = ext::make_shared<SimpleQuote>(0.0);
auto qRate = ext::make_shared<SimpleQuote>(0.0);
auto qTS = flatRate(today, qRate, dc);
auto rRate = ext::make_shared<SimpleQuote>(0.0);
auto rTS = flatRate(today, rRate, dc);
auto vol = ext::make_shared<SimpleQuote>(0.0);
auto volTS = flatVol(today, vol, dc);
for (auto& value : values) {
spot->setValue(value.s);
qRate->setValue(value.q);
rRate->setValue(value.r);
vol->setValue(value.v);
Date exDate = today + timeToDays(value.t);
auto exercise = ext::make_shared<EuropeanExercise>(exDate);
auto payoff = ext::make_shared<PlainVanillaPayoff>(value.type, value.strike);
auto process =
ext::make_shared<GeneralizedBlackScholesProcess>(
Handle<Quote>(spot),
Handle<YieldTermStructure>(qTS),
Handle<YieldTermStructure>(rTS),
Handle<BlackVolTermStructure>(volTS));
SoftBarrierOption option(value.barrierType, value.L, value.U, payoff, exercise);
option.setPricingEngine(ext::make_shared<AnalyticSoftBarrierEngine>(process));
// Value check
Real calculated = option.NPV();
Real error = std::fabs(calculated - value.result);
if (error > value.tol) {
REPORT_FAILURE("Soft barrier option value",
value.barrierType, value.U, value.L,
payoff, exercise, value.s,
value.q, value.r, value.t, value.v,
value.result, calculated, error, value.tol);
}
}
}
BOOST_AUTO_TEST_SUITE_END()
BOOST_AUTO_TEST_SUITE_END()
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