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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2015 Jose Aparicio
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/pricingengines/swap/cvaswapengine.hpp>
#include <ql/cashflows/fixedratecoupon.hpp>
#include <ql/cashflows/floatingratecoupon.hpp>
#include <ql/indexes/iborindex.hpp>
#include <ql/instruments/makevanillaswap.hpp>
#include <ql/exercise.hpp>
#include <ql/pricingengines/swap/discountingswapengine.hpp>
#include <ql/termstructures/credit/flathazardrate.hpp>
#include <ql/pricingengines/swaption/blackswaptionengine.hpp>
#include <ql/time/calendars/nullcalendar.hpp>
namespace QuantLib {
CounterpartyAdjSwapEngine::CounterpartyAdjSwapEngine(
const Handle<YieldTermStructure>& discountCurve,
const Handle<PricingEngine>& swaptionEngine,
const Handle<DefaultProbabilityTermStructure>& ctptyDTS,
Real ctptyRecoveryRate,
const Handle<DefaultProbabilityTermStructure>& invstDTS,
Real invstRecoveryRate)
: baseSwapEngine_(Handle<PricingEngine>(
ext::make_shared<DiscountingSwapEngine>(discountCurve))),
swaptionletEngine_(swaptionEngine),
discountCurve_(discountCurve),
defaultTS_(ctptyDTS),
ctptyRecoveryRate_(ctptyRecoveryRate),
invstDTS_(invstDTS.empty() ? Handle<DefaultProbabilityTermStructure>(
ext::make_shared<FlatHazardRate>(0, NullCalendar(), 1.e-12,
ctptyDTS->dayCounter()) ) : invstDTS ),
invstRecoveryRate_(invstRecoveryRate)
{
registerWith(discountCurve);
registerWith(ctptyDTS);
registerWith(invstDTS_);
registerWith(swaptionEngine);
}
CounterpartyAdjSwapEngine::CounterpartyAdjSwapEngine(
const Handle<YieldTermStructure>& discountCurve,
const Volatility blackVol,
const Handle<DefaultProbabilityTermStructure>& ctptyDTS,
Real ctptyRecoveryRate,
const Handle<DefaultProbabilityTermStructure>& invstDTS,
Real invstRecoveryRate)
: baseSwapEngine_(Handle<PricingEngine>(
ext::make_shared<DiscountingSwapEngine>(discountCurve))),
swaptionletEngine_(Handle<PricingEngine>(
ext::make_shared<BlackSwaptionEngine>(discountCurve,
blackVol))),
discountCurve_(discountCurve),
defaultTS_(ctptyDTS),
ctptyRecoveryRate_(ctptyRecoveryRate),
invstDTS_(invstDTS.empty() ? Handle<DefaultProbabilityTermStructure>(
ext::make_shared<FlatHazardRate>(0, NullCalendar(), 1.e-12,
ctptyDTS->dayCounter()) ) : invstDTS ),
invstRecoveryRate_(invstRecoveryRate)
{
registerWith(discountCurve);
registerWith(ctptyDTS);
registerWith(invstDTS_);
}
CounterpartyAdjSwapEngine::CounterpartyAdjSwapEngine(
const Handle<YieldTermStructure>& discountCurve,
const Handle<Quote>& blackVol,
const Handle<DefaultProbabilityTermStructure>& ctptyDTS,
Real ctptyRecoveryRate,
const Handle<DefaultProbabilityTermStructure>& invstDTS,
Real invstRecoveryRate)
: baseSwapEngine_(Handle<PricingEngine>(
ext::make_shared<DiscountingSwapEngine>(discountCurve))),
swaptionletEngine_(Handle<PricingEngine>(
ext::make_shared<BlackSwaptionEngine>(discountCurve,
blackVol))),
discountCurve_(discountCurve),
defaultTS_(ctptyDTS),
ctptyRecoveryRate_(ctptyRecoveryRate),
invstDTS_(invstDTS.empty() ? Handle<DefaultProbabilityTermStructure>(
ext::make_shared<FlatHazardRate>(0, NullCalendar(), 1.e-12,
ctptyDTS->dayCounter()) ) : invstDTS ),
invstRecoveryRate_(invstRecoveryRate)
{
registerWith(discountCurve);
registerWith(ctptyDTS);
registerWith(invstDTS_);
registerWith(blackVol);
}
void CounterpartyAdjSwapEngine::calculate() const {
/* both DTS, YTS ref dates and pricing date consistency
checks? settlement... */
QL_REQUIRE(!discountCurve_.empty(),
"no discount term structure set");
QL_REQUIRE(!defaultTS_.empty(),
"no ctpty default term structure set");
QL_REQUIRE(!swaptionletEngine_.empty(),
"no swap option engine set");
QL_REQUIRE(arguments_.nominal != Null<Real>(),
"non-constant nominals are not supported yet");
Date priceDate = defaultTS_->referenceDate();
Real cumOptVal = 0.,
cumPutVal = 0.;
// Vanilla swap so 0 leg is floater
auto nextFD =
arguments_.fixedPayDates.begin();
Date swapletStart = priceDate;
while (*nextFD < priceDate) ++nextFD;
// Compute fair spread for strike value:
// copy args into the non risky engine
auto* noCVAArgs = dynamic_cast<Swap::arguments*>(baseSwapEngine_->getArguments());
QL_REQUIRE(noCVAArgs != nullptr, "wrong argument type");
noCVAArgs->legs = this->arguments_.legs;
noCVAArgs->payer = this->arguments_.payer;
baseSwapEngine_->calculate();
ext::shared_ptr<FixedRateCoupon> coupon = ext::dynamic_pointer_cast<FixedRateCoupon>(arguments_.legs[0][0]);
QL_REQUIRE(coupon,"dynamic cast of fixed leg coupon failed.");
Rate baseSwapRate = coupon->rate();
const auto* vSResults = dynamic_cast<const Swap::results*>(baseSwapEngine_->getResults());
QL_REQUIRE(vSResults != nullptr, "wrong result type");
Rate baseSwapFairRate = -baseSwapRate * vSResults->legNPV[1] /
vSResults->legNPV[0];
Real baseSwapNPV = vSResults->value;
Swap::Type reversedType = arguments_.type == Swap::Payer ? Swap::Receiver : Swap::Payer;
// Swaplet options summatory:
while(nextFD != arguments_.fixedPayDates.end()) {
// iFD coupon not fixed, create swaptionlet:
ext::shared_ptr<FloatingRateCoupon> floatCoupon = ext::dynamic_pointer_cast<FloatingRateCoupon>(arguments_.legs[1][0]);
QL_REQUIRE(floatCoupon,"dynamic cast of floating leg coupon failed.");
ext::shared_ptr<IborIndex> swapIndex = ext::dynamic_pointer_cast<IborIndex>(floatCoupon->index());
QL_REQUIRE(swapIndex,"dynamic cast of floating leg index failed.");
// Alternatively one could cap this period to, say, 1M
// Period swapPeriod = ext::dynamic_pointer_cast<FloatingRateCoupon>(
// arguments_.legs[1][0])->index()->tenor();
Period baseSwapsTenor(arguments_.fixedPayDates.back().serialNumber()
- swapletStart.serialNumber(), Days);
ext::shared_ptr<VanillaSwap> swaplet = MakeVanillaSwap(
baseSwapsTenor,
swapIndex,
baseSwapFairRate // strike
)
.withType(arguments_.type)
.withNominal(arguments_.nominal)
//////// .withSettlementDays(2)
.withEffectiveDate(swapletStart)
.withTerminationDate(arguments_.fixedPayDates.back());
ext::shared_ptr<VanillaSwap> revSwaplet = MakeVanillaSwap(
baseSwapsTenor,
swapIndex,
baseSwapFairRate // strike
)
.withType(reversedType)
.withNominal(arguments_.nominal)
///////// .withSettlementDays(2)
.withEffectiveDate(swapletStart)
.withTerminationDate(arguments_.fixedPayDates.back());
Swaption swaptionlet(swaplet,
ext::make_shared<EuropeanExercise>(swapletStart));
Swaption putSwaplet(revSwaplet,
ext::make_shared<EuropeanExercise>(swapletStart));
swaptionlet.setPricingEngine(swaptionletEngine_.currentLink());
putSwaplet.setPricingEngine(swaptionletEngine_.currentLink());
// atm underlying swap means that the value of put = value
// call so this double pricing is not needed
cumOptVal += swaptionlet.NPV() * defaultTS_->defaultProbability(
swapletStart, *nextFD);
cumPutVal += putSwaplet.NPV() * invstDTS_->defaultProbability(
swapletStart, *nextFD);
swapletStart = *nextFD;
++nextFD;
}
results_.value = baseSwapNPV - (1.-ctptyRecoveryRate_) * cumOptVal
+ (1.-invstRecoveryRate_) * cumPutVal;
results_.fairRate = -baseSwapRate * (vSResults->legNPV[1]
- (1.-ctptyRecoveryRate_) * cumOptVal +
(1.-invstRecoveryRate_) * cumPutVal )
/ vSResults->legNPV[0];
}
}
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