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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2015 Thema Consulting SA
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/experimental/barrieroption/discretizeddoublebarrieroption.hpp>
#include <vector>
namespace QuantLib {
DiscretizedDoubleBarrierOption::DiscretizedDoubleBarrierOption(
const DoubleBarrierOption::arguments& args,
const StochasticProcess& process,
const TimeGrid& grid)
: arguments_(args), vanilla_(arguments_, process, grid) {
QL_REQUIRE(!args.exercise->dates().empty(), "specify at least one stopping date");
stoppingTimes_.resize(args.exercise->dates().size());
for (Size i=0; i<stoppingTimes_.size(); ++i) {
stoppingTimes_[i] =
process.time(args.exercise->date(i));
if (!grid.empty()) {
// adjust to the given grid
stoppingTimes_[i] = grid.closestTime(stoppingTimes_[i]);
}
}
}
void DiscretizedDoubleBarrierOption::reset(Size size) {
vanilla_.initialize(method(), time());
values_ = Array(size, 0.0);
adjustValues();
}
void DiscretizedDoubleBarrierOption::postAdjustValuesImpl() {
if (arguments_.barrierType!=DoubleBarrier::KnockOut) {
vanilla_.rollback(time());
}
Array grid = method()->grid(time());
checkBarrier(values_, grid);
}
void DiscretizedDoubleBarrierOption::checkBarrier(Array &optvalues, const Array &grid) const {
Time now = time();
bool endTime = isOnTime(stoppingTimes_.back());
bool stoppingTime = false;
switch (arguments_.exercise->type()) {
case Exercise::American:
if (now <= stoppingTimes_[1] &&
now >= stoppingTimes_[0])
stoppingTime = true;
break;
case Exercise::European:
if (isOnTime(stoppingTimes_[0]))
stoppingTime = true;
break;
case Exercise::Bermudan:
for (Real i : stoppingTimes_) {
if (isOnTime(i)) {
stoppingTime = true;
break;
}
}
break;
default:
QL_FAIL("invalid option type");
}
for (Size j=0; j<optvalues.size(); j++) {
switch (arguments_.barrierType) {
case DoubleBarrier::KnockIn:
if (grid[j] <= arguments_.barrier_lo) {
// knocked in dn
if (stoppingTime) {
optvalues[j] = std::max(vanilla()[j],
(*arguments_.payoff)(grid[j]));
}
else
optvalues[j] = vanilla()[j];
}
else if (grid[j] >= arguments_.barrier_hi) {
// knocked in up
if (stoppingTime) {
optvalues[j] = std::max(vanilla()[j],
(*arguments_.payoff)(grid[j]));
}
else
optvalues[j] = vanilla()[j];
}
else if (endTime)
optvalues[j] = arguments_.rebate;
break;
case DoubleBarrier::KnockOut:
if (grid[j] <= arguments_.barrier_lo)
optvalues[j] = arguments_.rebate; // knocked out lo
else if (grid[j] >= arguments_.barrier_hi)
optvalues[j] = arguments_.rebate; // knocked out hi
else if (stoppingTime)
optvalues[j] = std::max(optvalues[j],
(*arguments_.payoff)(grid[j]));
break;
case DoubleBarrier::KIKO:
// low barrier is KI, high is KO
if (grid[j] <= arguments_.barrier_lo) {
// knocked in dn
if (stoppingTime) {
optvalues[j] = std::max(vanilla()[j],
(*arguments_.payoff)(grid[j]));
}
else
optvalues[j] = vanilla()[j];
}
else if (grid[j] >= arguments_.barrier_hi)
optvalues[j] = arguments_.rebate; // knocked out hi
else if (endTime)
optvalues[j] = arguments_.rebate;
break;
case DoubleBarrier::KOKI:
// low barrier is KO, high is KI
if (grid[j] <= arguments_.barrier_lo)
optvalues[j] = arguments_.rebate; // knocked out lo
else if (grid[j] >= arguments_.barrier_hi) {
// knocked in up
if (stoppingTime) {
optvalues[j] = std::max(vanilla()[j],
(*arguments_.payoff)(grid[j]));
}
else
optvalues[j] = vanilla()[j];
}
else if (endTime)
optvalues[j] = arguments_.rebate;
break;
default:
QL_FAIL("invalid barrier type");
}
}
}
DiscretizedDermanKaniDoubleBarrierOption::DiscretizedDermanKaniDoubleBarrierOption(
const DoubleBarrierOption::arguments& args,
const StochasticProcess& process,
const TimeGrid& grid)
: unenhanced_(args, process, grid) {
}
void DiscretizedDermanKaniDoubleBarrierOption::reset(Size size) {
unenhanced_.initialize(method(), time());
values_ = Array(size, 0.0);
adjustValues();
}
void DiscretizedDermanKaniDoubleBarrierOption::postAdjustValuesImpl() {
unenhanced_.rollback(time());
Array grid = method()->grid(time());
unenhanced_.checkBarrier(values_, grid); // compute payoffs
adjustBarrier(values_, grid);
}
void DiscretizedDermanKaniDoubleBarrierOption::adjustBarrier(Array &optvalues, const Array &grid) {
Real barrier_lo = unenhanced_.arguments().barrier_lo;
Real barrier_hi = unenhanced_.arguments().barrier_hi;
Real rebate = unenhanced_.arguments().rebate;
switch (unenhanced_.arguments().barrierType) {
case DoubleBarrier::KnockIn:
for (Size j=0; j<optvalues.size()-1; ++j) {
if (grid[j]<=barrier_lo && grid[j+1] > barrier_lo) {
// grid[j+1] above barrier_lo, grid[j] under (in),
// interpolate optvalues[j+1]
Real ltob = (barrier_lo-grid[j]);
Real htob = (grid[j+1]-barrier_lo);
Real htol = (grid[j+1]-grid[j]);
Real u1 = unenhanced_.values()[j+1];
Real t1 = unenhanced_.vanilla()[j+1];
optvalues[j+1] = std::max(0.0, (ltob*t1+htob*u1)/htol); // derman std
}
else if (grid[j] < barrier_hi && grid[j+1] >= barrier_hi) {
// grid[j+1] above barrier_hi (in), grid[j] under,
// interpolate optvalues[j]
Real ltob = (barrier_hi-grid[j]);
Real htob = (grid[j+1]-barrier_hi);
Real htol = (grid[j+1]-grid[j]);
Real u = unenhanced_.values()[j];
Real t = unenhanced_.vanilla()[j];
optvalues[j] = std::max(0.0, (ltob*u+htob*t)/htol); // derman std
}
}
break;
case DoubleBarrier::KnockOut:
for (Size j=0; j<optvalues.size()-1; ++j) {
if (grid[j]<=barrier_lo && grid[j+1] > barrier_lo) {
// grid[j+1] above barrier_lo, grid[j] under (out),
// interpolate optvalues[j+1]
Real a = (barrier_lo-grid[j])*rebate;
Real b = (grid[j+1]-barrier_lo)*unenhanced_.values()[j+1];
Real c = (grid[j+1]-grid[j]);
optvalues[j+1] = std::max(0.0, (a+b)/c);
}
else if (grid[j] < barrier_hi && grid[j+1] >= barrier_hi) {
// grid[j+1] above barrier_hi (out), grid[j] under,
// interpolate optvalues[j]
Real a = (barrier_hi-grid[j])*unenhanced_.values()[j];
Real b = (grid[j+1]-barrier_hi)*rebate;
Real c = (grid[j+1]-grid[j]);
optvalues[j] = std::max(0.0, (a+b)/c);
}
}
break;
default:
QL_FAIL("unsupported barrier type");
break;
}
}
}
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