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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2014 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 "preconditions.hpp"
#include "toplevelfixture.hpp"
#include "utilities.hpp"
#include <ql/termstructures/volatility/sabrsmilesection.hpp>
#include <ql/experimental/volatility/zabrsmilesection.hpp>
using namespace QuantLib;
using namespace boost::unit_test_framework;
BOOST_FIXTURE_TEST_SUITE(QuantLibTests, TopLevelFixture)
BOOST_AUTO_TEST_SUITE(ZabrTests)
BOOST_AUTO_TEST_CASE(testConsistency, *precondition(if_speed(Slow))) {
BOOST_TEST_MESSAGE("Testing the consistency of ZABR interpolation...");
Real tol = 1E-4;
Real alpha = 0.08;
Real beta = 0.70;
Real nu = 0.20;
Real rho = -0.30;
Real tau = 5.0;
Real forward = 0.03;
SabrSmileSection sabr(tau, forward,
{alpha, beta, nu, rho});
ZabrSmileSection<ZabrShortMaturityLognormal> zabr0(tau, forward,
{alpha, beta, nu, rho, 1.0});
ZabrSmileSection<ZabrShortMaturityNormal> zabr1(tau, forward,
{alpha, beta, nu, rho, 1.0});
ZabrSmileSection<ZabrLocalVolatility> zabr2(tau, forward,
{alpha, beta, nu, rho, 1.0});
// for full finite prices reduce the number of intermediate points here
// below the recommended value to speed up the test
ZabrSmileSection<ZabrFullFd> zabr3(tau, forward,
{alpha, beta, nu, rho, 1.0},
std::vector<Real>(), 2);
Real k = 0.0001;
while (k <= 0.70) {
Real c0 = sabr.optionPrice(k);
Real z0 = zabr0.optionPrice(k);
Real z1 = zabr1.optionPrice(k);
Real z2 = zabr2.optionPrice(k);
Real z3 = zabr3.optionPrice(k);
if (std::fabs(z0 - c0) > tol)
BOOST_ERROR("Zabr short maturity lognormal expansion price "
"("
<< z0 << ") deviates from Sabr Hagan 2002 price "
"by " << (z0 - c0));
if (std::fabs(z1 - c0) > tol)
BOOST_ERROR("Zabr short maturity normal expansion price "
"("
<< z1 << ") deviates from Sabr Hagan 2002 price "
"by " << (z1 - c0));
if (std::fabs(z2 - c0) > tol)
BOOST_ERROR("Zabr local volatility price "
"("
<< z2 << ") deviates from Sabr Hagan 2002 price "
"by " << (z2 - c0));
if (std::fabs(z3 - c0) > tol)
BOOST_ERROR("Zabr full finite difference price "
"("
<< z3 << ") deviates from Sabr Hagan 2002 price "
"by " << (z3 - c0));
k += 0.0001;
}
}
BOOST_AUTO_TEST_SUITE_END()
BOOST_AUTO_TEST_SUITE_END()
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