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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2008 Allen Kuo
Copyright (C) 2021, 2022 Ralf Konrad Eckel
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/callablebonds/discretizedcallablefixedratebond.hpp>
namespace QuantLib {
namespace {
bool withinNextWeek(Time t1, Time t2) {
static const Time dt = 1.0 / 52;
return t1 <= t2 && t2 <= t1 + dt;
}
}
DiscretizedCallableFixedRateBond::DiscretizedCallableFixedRateBond(
const CallableBond::arguments& args, const Handle<YieldTermStructure>& termStructure)
: arguments_(args), adjustedCallabilityPrices_(args.callabilityPrices) {
auto dayCounter = termStructure->dayCounter();
auto referenceDate = termStructure->referenceDate();
redemptionTime_ = dayCounter.yearFraction(referenceDate, args.redemptionDate);
/* By default the coupon adjustment should take place in
* DiscretizedCallableFixedRateBond::postAdjustValuesImpl(). */
couponAdjustments_ =
std::vector<CouponAdjustment>(args.couponDates.size(), CouponAdjustment::post);
couponTimes_.resize(args.couponDates.size());
for (Size i = 0; i < couponTimes_.size(); ++i) {
couponTimes_[i] = dayCounter.yearFraction(referenceDate, args.couponDates[i]);
}
callabilityTimes_.resize(args.callabilityDates.size());
for (Size i = 0; i < callabilityTimes_.size(); ++i) {
const Date callabilityDate = args.callabilityDates[i];
Time callabilityTime = dayCounter.yearFraction(referenceDate, args.callabilityDates[i]);
// To avoid mispricing, we snap exercise dates to the closest coupon date.
for (Size j = 0; j < couponTimes_.size(); j++) {
const Time couponTime = couponTimes_[j];
const Date couponDate = args.couponDates[j];
if (withinNextWeek(callabilityTime, couponTime) && callabilityDate < couponDate) {
// Snap the exercise date.
callabilityTime = couponTime;
/* The order of events must be changed here. In
* DiscretizedCallableFixedRateBond::postAdjustValuesImpl() the callability is
* done before adding of the coupon. However from the
* DiscretizedAsset::rollback(Time to) perspective the coupon must be added
* before the callability as it is later in time. */
couponAdjustments_[j] = CouponAdjustment::pre;
/* We snapped the callabilityTime so we need to take into account the missing
* discount factor including any possible spread e.g. set in the OAS
* calculation. */
auto spread = arguments_.spread;
auto calcDiscountFactorInclSpread = [&termStructure, spread](Date date) {
auto time = termStructure->timeFromReference(date);
auto zeroRateInclSpread =
termStructure->zeroRate(date, termStructure->dayCounter(), Continuous,
NoFrequency) +
spread;
auto df = std::exp(-zeroRateInclSpread * time);
return df;
};
auto dfTillCallDate = calcDiscountFactorInclSpread(callabilityDate);
auto dfTillCouponDate = calcDiscountFactorInclSpread(couponDate);
adjustedCallabilityPrices_[i] *= dfTillCallDate / dfTillCouponDate;
break;
}
}
adjustedCallabilityPrices_[i] *= arguments_.faceAmount / 100.0;
callabilityTimes_[i] = callabilityTime;
}
}
void DiscretizedCallableFixedRateBond::reset(Size size) {
values_ = Array(size, arguments_.redemption);
adjustValues();
}
std::vector<Time> DiscretizedCallableFixedRateBond::mandatoryTimes() const {
std::vector<Time> times;
Time t;
Size i;
t = redemptionTime_;
if (t >= 0.0) {
times.push_back(t);
}
for (i = 0; i < couponTimes_.size(); i++) {
t = couponTimes_[i];
if (t >= 0.0) {
times.push_back(t);
}
}
for (i = 0; i < callabilityTimes_.size(); i++) {
t = callabilityTimes_[i];
if (t >= 0.0) {
times.push_back(t);
}
}
return times;
}
void DiscretizedCallableFixedRateBond::preAdjustValuesImpl() {
for (Size i = 0; i < couponTimes_.size(); i++) {
if (couponAdjustments_[i] == CouponAdjustment::pre) {
Time t = couponTimes_[i];
if (t >= 0.0 && isOnTime(t)) {
addCoupon(i);
}
}
}
}
void DiscretizedCallableFixedRateBond::postAdjustValuesImpl() {
for (Size i = 0; i < callabilityTimes_.size(); i++) {
Time t = callabilityTimes_[i];
if (t >= 0.0 && isOnTime(t)) {
applyCallability(i);
}
}
for (Size i = 0; i < couponTimes_.size(); i++) {
if (couponAdjustments_[i] == CouponAdjustment::post) {
Time t = couponTimes_[i];
if (t >= 0.0 && isOnTime(t)) {
/* Exercise and coupon date matches. */
addCoupon(i);
}
}
}
}
void DiscretizedCallableFixedRateBond::applyCallability(Size i) {
Size j;
switch (arguments_.putCallSchedule[i]->type()) {
case Callability::Call:
for (j = 0; j < values_.size(); j++) {
values_[j] = std::min(adjustedCallabilityPrices_[i], values_[j]);
}
break;
case Callability::Put:
for (j = 0; j < values_.size(); j++) {
values_[j] = std::max(values_[j], adjustedCallabilityPrices_[i]);
}
break;
default:
QL_FAIL("unknown callability type");
}
}
void DiscretizedCallableFixedRateBond::addCoupon(Size i) {
values_ += arguments_.couponAmounts[i];
}
}
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