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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2021 StatPro Italia srl
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 "toplevelfixture.hpp"
#include "utilities.hpp"
#include <ql/math/interpolations/cubicinterpolation.hpp>
#include <ql/cashflows/iborcoupon.hpp>
#include <ql/cashflows/overnightindexedcoupon.hpp>
#include <ql/cashflows/overnightindexedcouponpricer.hpp>
#include <ql/cashflows/blackovernightindexedcouponpricer.hpp>
#include <ql/indexes/ibor/sofr.hpp>
#include <ql/settings.hpp>
#include <ql/time/daycounters/actual360.hpp>
#include <ql/time/calendars/unitedstates.hpp>
#include <ql/time/calendars/target.hpp>
#include <ql/termstructures/yield/zerocurve.hpp>
#include <ql/termstructures/volatility/optionlet/constantoptionletvol.hpp>
#include <iomanip>
using namespace QuantLib;
using namespace boost::unit_test_framework;
BOOST_FIXTURE_TEST_SUITE(QuantLibTests, TopLevelFixture)
BOOST_AUTO_TEST_SUITE(OvernightIndexedCouponTests)
struct CommonVars {
Date today;
Real notional = 10000.0;
ext::shared_ptr<OvernightIndex> sofr;
RelinkableHandle<YieldTermStructure> forecastCurve;
ext::shared_ptr<OvernightIndexedCoupon> makeCoupon(Date startDate,
Date endDate,
Natural fixingDays = Null<Natural>(),
Natural lockoutDays = 0,
bool applyObservationShift = false,
bool telescopicValueDates = false,
RateAveraging::Type averaging = RateAveraging::Compound) {
return ext::make_shared<OvernightIndexedCoupon>(
endDate, notional, startDate, endDate, sofr, 1.0, 0.0, Date(), Date(), DayCounter(),
telescopicValueDates, averaging, fixingDays, lockoutDays, applyObservationShift);
}
ext::shared_ptr<OvernightIndexedCoupon> makeSpreadedCoupon(Date startDate,
Date endDate,
Spread spread = 0.0001,
bool compoundSpreadDaily = true,
Natural fixingDays = Null<Natural>(),
Natural lockoutDays = 0,
bool applyObservationShift = false,
bool telescopicValueDates = false,
RateAveraging::Type averaging = RateAveraging::Compound) {
return ext::make_shared<OvernightIndexedCoupon>(
endDate, notional, startDate, endDate, sofr, 1.0, spread, Date(), Date(), DayCounter(),
telescopicValueDates, averaging, fixingDays, lockoutDays, applyObservationShift, compoundSpreadDaily);
}
CommonVars(const Date& evaluationDate) {
today = evaluationDate;
Settings::instance().evaluationDate() = today;
sofr = ext::make_shared<Sofr>(forecastCurve);
std::vector<Date> pastDates = {
Date(21, June, 2019), Date(24, June, 2019), Date(25, June, 2019),
Date(26, June, 2019), Date(27, June, 2019), Date(28, June, 2019),
Date(1, July, 2019), Date(2, July, 2019), Date(3, July, 2019),
Date(5, July, 2019), Date(8, July, 2019), Date(9, July, 2019),
Date(10, July, 2019), Date(11, July, 2019), Date(12, July, 2019),
Date(15, July, 2019), Date(16, July, 2019), Date(17, July, 2019),
Date(18, July, 2019), Date(19, July, 2019), Date(22, July, 2019),
Date(23, July, 2019), Date(24, July, 2019), Date(25, July, 2019),
Date(26, July, 2019), Date(29, July, 2019), Date(30, July, 2019),
Date(31, July, 2019), Date(1, August, 2019), Date(2, August, 2019),
Date(5, August, 2019),
Date(18, October, 2021), Date(19, October, 2021), Date(20, October, 2021),
Date(21, October, 2021), Date(22, October, 2021), Date(25, October, 2021),
Date(26, October, 2021), Date(27, October, 2021), Date(28, October, 2021),
Date(29, October, 2021), Date(1, November, 2021), Date(2, November, 2021),
Date(3, November, 2021), Date(4, November, 2021), Date(5, November, 2021),
Date(8, November, 2021), Date(9, November, 2021), Date(10, November, 2021),
Date(12, November, 2021), Date(15, November, 2021), Date(16, November, 2021),
Date(17, November, 2021), Date(18, November, 2021), Date(19, November, 2021),
Date(22, November, 2021)
};
std::vector<Rate> pastRates = {
0.0237, 0.0239, 0.0241,
0.0243, 0.0242, 0.025,
0.0242, 0.0251, 0.0256,
0.0259, 0.0248, 0.0245,
0.0246, 0.0241, 0.0236,
0.0246, 0.0247, 0.0247,
0.0246, 0.0241, 0.024,
0.024, 0.0241, 0.0242,
0.0241, 0.024, 0.0239,
0.0255, 0.0219, 0.0219,
0.0213,
0.0008, 0.0009, 0.0008,
0.0010, 0.0012, 0.0011,
0.0013, 0.0012, 0.0012,
0.0008, 0.0009, 0.0010,
0.0011, 0.0014, 0.0013,
0.0011, 0.0009, 0.0008,
0.0007, 0.0008, 0.0008,
0.0007, 0.0009, 0.0010,
0.0009
};
sofr->addFixings(pastDates.begin(), pastDates.end(), pastRates.begin());
}
CommonVars() : CommonVars(Date(23, November, 2021)) {}
};
struct BlackONPricerVars {
Date today;
Real notional = 1000000.0;
RelinkableHandle<YieldTermStructure> forecastCurve;
RelinkableHandle<OptionletVolatilityStructure> vol;
ext::shared_ptr<OvernightIndex> sofr;
DayCounter dc;
BlackONPricerVars(const Date& evalDate = Date(1, July, 2025)) {
today = evalDate;
dc = Actual360();
Settings::instance().evaluationDate() = today;
auto optionletVol = makeQuoteHandle(0.1);
// Flat forward curve
forecastCurve.linkTo(flatRate(today, 0.04, dc));
sofr = ext::make_shared<Sofr>(forecastCurve);
// Flat volatility
vol.linkTo(ext::make_shared<ConstantOptionletVolatility>(today, TARGET(), Following, optionletVol, dc));
}
ext::shared_ptr<OvernightIndexedCoupon> makeBaseCoupon(Date start, Date end,
RateAveraging::Type avgMethod = RateAveraging::Compound) {
auto onCoupon = ext::make_shared<OvernightIndexedCoupon>(
end, notional, start, end, sofr, 1.0, 0.0, Date(), Date(), dc,
false, avgMethod, Null<Natural>(), 0, false,
false);
if (avgMethod == RateAveraging::Compound)
onCoupon->setPricer(ext::make_shared<CompoundingOvernightIndexedCouponPricer>());
else
onCoupon->setPricer(ext::make_shared<ArithmeticAveragedOvernightIndexedCouponPricer>());
return onCoupon;
}
ext::shared_ptr<CappedFlooredOvernightIndexedCoupon> makeCoupon(Date start, Date end, Rate cap = Null<Rate>(), Rate floor = Null<Rate>(),
RateAveraging::Type avgMethod = RateAveraging::Compound) {
auto onCoupon = makeBaseCoupon(start, end, avgMethod);
return ext::make_shared<CappedFlooredOvernightIndexedCoupon>(onCoupon, cap, floor);
}
};
struct CommonVarsONLeg {
Date today;
Real notional = 1000000.0;
ext::shared_ptr<OvernightIndex> sofr;
RelinkableHandle<YieldTermStructure> forecastCurve;
Schedule legSchedule;
DayCounter dc;
RelinkableHandle<OptionletVolatilityStructure> rateVolTS;
ext::shared_ptr<OptionletVolatilityStructure> returnRateVolTS() {
auto optionletVol = makeQuoteHandle(0.05);
return ext::make_shared<ConstantOptionletVolatility>(today, TARGET(), Following, optionletVol, dc);
}
Leg makeLeg(Natural fixingDays = Null<Natural>(),
Natural lockoutDays = 0,
bool applyObservationShift = false,
bool telescopicValueDates = false,
RateAveraging::Type averaging = RateAveraging::Compound,
const std::vector<Real>& gearings = std::vector<Real>(),
const std::vector<Spread>& spreads = std::vector<Spread>(),
const std::vector<Rate>& caps = std::vector<Rate>(),
const std::vector<Rate>& floors = std::vector<Rate>()) {
OvernightLeg leg(legSchedule, sofr);
leg.withNotionals(notional)
.withPaymentDayCounter(dc)
.withAveragingMethod(averaging)
.withLockoutDays(lockoutDays)
.withObservationShift(applyObservationShift)
.withTelescopicValueDates(telescopicValueDates);
if (fixingDays != Null<Natural>()) {
leg.withLookbackDays(fixingDays);
}
if (!gearings.empty()) {
leg.withGearings(gearings);
}
if (!spreads.empty()) {
leg.withSpreads(spreads);
}
if (!caps.empty()) {
leg.withCaps(caps);
}
if (!floors.empty()) {
leg.withFloors(floors);
}
if (!caps.empty() || !floors.empty()) {
rateVolTS.linkTo(returnRateVolTS());
if (averaging == RateAveraging::Compound)
leg.withCouponPricer(ext::make_shared<BlackCompoundingOvernightIndexedCouponPricer>(rateVolTS));
else
leg.withCouponPricer(ext::make_shared<BlackAveragingOvernightIndexedCouponPricer>(rateVolTS));
}
return leg;
}
CommonVarsONLeg(const Date& evaluationDate) {
today = evaluationDate;
dc = Actual360();
Settings::instance().evaluationDate() = today;
sofr = ext::make_shared<Sofr>(forecastCurve);
// Create a quarterly schedule for testing
legSchedule = Schedule(Date(1, July, 2025), Date(1, July, 2026),
Period(3, Months),
UnitedStates(UnitedStates::GovernmentBond),
ModifiedFollowing, ModifiedFollowing,
DateGeneration::Forward, false);
std::vector<Date> pastDates = {
Date(2, June, 2025), Date(3, June, 2025), Date(4, June, 2025), Date(5, June, 2025),
Date(6, June, 2025), Date(9, June, 2025), Date(10, June, 2025), Date(11, June, 2025),
Date(12, June, 2025), Date(13, June, 2025), Date(16, June, 2025), Date(17, June, 2025),
Date(18, June, 2025), Date(20, June, 2025), Date(23, June, 2025), Date(24, June, 2025),
Date(25, June, 2025), Date(26, June, 2025), Date(27, June, 2025), Date(30, June, 2025),
Date(1, July, 2025), Date(2, July, 2025), Date(3, July, 2025), Date(7, July, 2025),
Date(8, July, 2025), Date(9, July, 2025), Date(10, July, 2025), Date(11, July, 2025),
Date(14, July, 2025), Date(15, July, 2025), Date(16, July, 2025), Date(17, July, 2025),
Date(18, July, 2025), Date(21, July, 2025), Date(22, July, 2025), Date(23, July, 2025),
Date(24, July, 2025), Date(25, July, 2025), Date(28, July, 2025), Date(29, July, 2025),
Date(30, July, 2025), Date(31, July, 2025), Date(1, August, 2025)
};
std::vector<Rate> pastRates = {
0.0435, 0.0432, 0.0428, 0.0429, 0.0429, 0.0429, 0.0428, 0.0428, 0.0428, 0.0428,
0.0432, 0.0431, 0.0428, 0.0429, 0.0429, 0.0430, 0.0436, 0.0440, 0.0439, 0.0445,
0.0444, 0.0440, 0.0435, 0.0433, 0.0434, 0.0432, 0.0431, 0.0431, 0.0433, 0.0437,
0.0434, 0.0434, 0.0430, 0.0428, 0.0428, 0.0428, 0.0430, 0.0436, 0.0436, 0.0436,
0.0432, 0.0439, 0.0434
};
sofr->addFixings(pastDates.begin(), pastDates.end(), pastRates.begin());
}
void setupForecastCurve() {
std::vector<Date> curveDates = {
today,
Date(30, July, 2025),
Date(29, August, 2025),
Date(30, September, 2025),
Date(30, December, 2025),
Date(30, March, 2026),
Date(30, June, 2026)
};
std::vector<Rate> zeroRates = {
0.0434,
0.0436,
0.0431,
0.0413,
0.0390,
0.0370,
0.0348
};
ext::shared_ptr<InterpolatedZeroCurve<Cubic>> zeroCurve(
new InterpolatedZeroCurve<Cubic>(curveDates, zeroRates,
dc, UnitedStates(UnitedStates::SOFR))
);
zeroCurve->enableExtrapolation();
forecastCurve.linkTo(zeroCurve);
}
CommonVarsONLeg() : CommonVarsONLeg(Date(1, June, 2025)) {}
};
#define CHECK_OIS_COUPON_RESULT(what, calculated, expected, tolerance) \
if (std::fabs(calculated-expected) > tolerance) { \
BOOST_ERROR("Failed to reproduce " what ":" \
<< "\n expected: " << std::setprecision(12) << expected \
<< "\n calculated: " << std::setprecision(12) << calculated \
<< "\n error: " << std::setprecision(12) << std::fabs(calculated-expected)); \
}
BOOST_AUTO_TEST_CASE(testPastCouponRate) {
BOOST_TEST_MESSAGE("Testing rate for past overnight-indexed coupon...");
CommonVars vars;
// coupon entirely in the past
auto pastCoupon = vars.makeCoupon(Date(18, October, 2021),
Date(18, November, 2021));
// expected values here and below come from manual calculations based on past dates and rates
Rate expectedRate = 0.000987136104;
Real expectedAmount = vars.notional * expectedRate * 31.0/360;
CHECK_OIS_COUPON_RESULT("coupon rate", pastCoupon->rate(), expectedRate, 1e-12);
CHECK_OIS_COUPON_RESULT("coupon amount", pastCoupon->amount(), expectedAmount, 1e-8);
}
BOOST_AUTO_TEST_CASE(testPastSpreadedCouponRate) {
BOOST_TEST_MESSAGE("Testing rate for past overnight-indexed coupon with compounded spread...");
CommonVars vars;
// coupon entirely in the past
auto pastCoupon = vars.makeSpreadedCoupon(Date(18, October, 2021),
Date(18, November, 2021),
0.0001);
auto pastCouponCompoundingSpread = vars.makeSpreadedCoupon(Date(18, October, 2021),
Date(18, November, 2021),
0.0001, false);
// expected values here and below come from manual calculations based on past dates and rates
Rate expectedRate = 0.0010871445057780704;
Real expectedAmount = vars.notional * expectedRate * 31.0/360;
CHECK_OIS_COUPON_RESULT("coupon rate", pastCoupon->rate(), expectedRate, 1e-12);
CHECK_OIS_COUPON_RESULT("coupon amount", pastCoupon->amount(), expectedAmount, 1e-8);
expectedRate = 0.0010871361040194164;
CHECK_OIS_COUPON_RESULT("coupon rate", pastCouponCompoundingSpread->rate(), expectedRate, 1e-12);
}
BOOST_AUTO_TEST_CASE(testCurrentCouponRate) {
BOOST_TEST_MESSAGE("Testing rate for current overnight-indexed coupon...");
CommonVars vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
// coupon partly in the past, today not fixed
auto currentCoupon = vars.makeCoupon(Date(10, November, 2021),
Date(10, December, 2021));
Rate expectedRate = 0.000926701551;
Real expectedAmount = vars.notional * expectedRate * 30.0/360;
CHECK_OIS_COUPON_RESULT("coupon rate", currentCoupon->rate(), expectedRate, 1e-12);
CHECK_OIS_COUPON_RESULT("coupon amount", currentCoupon->amount(), expectedAmount, 1e-8);
// coupon partly in the past, today fixed
vars.sofr->addFixing(Date(23, November, 2021), 0.0007);
expectedRate = 0.000916700760;
expectedAmount = vars.notional * expectedRate * 30.0/360;
CHECK_OIS_COUPON_RESULT("coupon rate", currentCoupon->rate(), expectedRate, 1e-12);
CHECK_OIS_COUPON_RESULT("coupon amount", currentCoupon->amount(), expectedAmount, 1e-8);
}
BOOST_AUTO_TEST_CASE(testFutureCouponRate) {
BOOST_TEST_MESSAGE("Testing rate for future overnight-indexed coupon...");
CommonVars vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
// coupon entirely in the future
auto futureCoupon = vars.makeCoupon(Date(10, December, 2021),
Date(10, January, 2022));
Rate expectedRate = 0.001000043057;
Real expectedAmount = vars.notional * expectedRate * 31.0/360;
CHECK_OIS_COUPON_RESULT("coupon rate", futureCoupon->rate(), expectedRate, 1e-12);
CHECK_OIS_COUPON_RESULT("coupon amount", futureCoupon->amount(), expectedAmount, 1e-8);
}
BOOST_AUTO_TEST_CASE(testRateWhenTodayIsHoliday) {
BOOST_TEST_MESSAGE("Testing rate for overnight-indexed coupon when today is a holiday...");
CommonVars vars;
Settings::instance().evaluationDate() = Date(20, November, 2021);
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
auto coupon = vars.makeCoupon(Date(10, November, 2021),
Date(10, December, 2021));
Rate expectedRate = 0.000930035180;
Real expectedAmount = vars.notional * expectedRate * 30.0/360;
CHECK_OIS_COUPON_RESULT("coupon rate", coupon->rate(), expectedRate, 1e-12);
CHECK_OIS_COUPON_RESULT("coupon amount", coupon->amount(), expectedAmount, 1e-8);
}
BOOST_AUTO_TEST_CASE(testAccruedAmountInThePast) {
BOOST_TEST_MESSAGE("Testing accrued amount in the past for overnight-indexed coupon...");
CommonVars vars;
auto coupon = vars.makeCoupon(Date(18, October, 2021),
Date(18, January, 2022));
Real expectedAmount = vars.notional * 0.000987136104 * 31.0/360;
CHECK_OIS_COUPON_RESULT("coupon amount", coupon->accruedAmount(Date(18, November, 2021)), expectedAmount, 1e-8);
}
BOOST_AUTO_TEST_CASE(testAccruedAmountSpanningToday) {
BOOST_TEST_MESSAGE("Testing accrued amount spanning today for current overnight-indexed coupon...");
CommonVars vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
// coupon partly in the past, today not fixed
auto coupon = vars.makeCoupon(Date(10, November, 2021),
Date(10, January, 2022));
Real expectedAmount = vars.notional * 0.000926701551 * 30.0/360;
CHECK_OIS_COUPON_RESULT("coupon amount", coupon->accruedAmount(Date(10, December, 2021)), expectedAmount, 1e-8);
// coupon partly in the past, today fixed
vars.sofr->addFixing(Date(23, November, 2021), 0.0007);
expectedAmount = vars.notional * 0.000916700760 * 30.0/360;
CHECK_OIS_COUPON_RESULT("coupon amount", coupon->accruedAmount(Date(10, December, 2021)), expectedAmount, 1e-8);
}
BOOST_AUTO_TEST_CASE(testAccruedAmountInTheFuture) {
BOOST_TEST_MESSAGE("Testing accrued amount in the future for overnight-indexed coupon...");
CommonVars vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
// coupon entirely in the future
auto coupon = vars.makeCoupon(Date(10, December, 2021),
Date(10, March, 2022));
Date accrualDate = Date(10, January, 2022);
Rate expectedRate = 0.001000043057;
Real expectedAmount = vars.notional * expectedRate * 31.0/360;
CHECK_OIS_COUPON_RESULT("coupon amount", coupon->accruedAmount(accrualDate), expectedAmount, 1e-8);
}
BOOST_AUTO_TEST_CASE(testAccruedAmountOnPastHoliday) {
BOOST_TEST_MESSAGE("Testing accrued amount on a past holiday for overnight-indexed coupon...");
CommonVars vars;
// coupon entirely in the past
auto coupon = vars.makeCoupon(Date(18, October, 2021),
Date(18, January, 2022));
Date accrualDate = Date(13, November, 2021);
Real expectedAmount = vars.notional * 0.000074724810;
CHECK_OIS_COUPON_RESULT("coupon amount", coupon->accruedAmount(accrualDate), expectedAmount, 1e-8);
}
BOOST_AUTO_TEST_CASE(testAccruedAmountOnFutureHoliday) {
BOOST_TEST_MESSAGE("Testing accrued amount on a future holiday for overnight-indexed coupon...");
CommonVars vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
// coupon entirely in the future
auto coupon = vars.makeCoupon(Date(10, December, 2021),
Date(10, March, 2022));
Date accrualDate = Date(15, January, 2022);
Real expectedAmount = vars.notional * 0.000100005012;
CHECK_OIS_COUPON_RESULT("coupon amount", coupon->accruedAmount(accrualDate), expectedAmount, 1e-8);
}
BOOST_AUTO_TEST_CASE(testPastCouponRateWithLookback) {
BOOST_TEST_MESSAGE("Testing rate for past overnight-indexed coupon with lookback period...");
CommonVars vars;
// coupon entirely in the past with lookback period
// this unit test replicates an example available on NY FED website:
// https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC-BWLG-Examples-Other-Lookback-Options.xlsx
auto pastCoupon = vars.makeCoupon(Date(1, July, 2019), Date(15, July, 2019), 5);
// expected values here and below come from manual calculations based on past dates and rates
Rate expectedRate = 0.024781644454;
CHECK_OIS_COUPON_RESULT("coupon rate", pastCoupon->rate(), expectedRate, 1e-12);
}
BOOST_AUTO_TEST_CASE(testPastCouponRateWithLookbackAndObservationShift) {
BOOST_TEST_MESSAGE("Testing rate for past overnight-indexed coupon with lookback period and "
"observation shift...");
CommonVars vars;
// coupon entirely in the past with lookback period with observation shift
// this unit test replicates an example available on NY FED website:
// https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC-BWLG-Examples-Other-Lookback-Options.xlsx
auto pastCoupon =
vars.makeCoupon(Date(1, July, 2019), Date(31, July, 2019), 5, 0, true);
// expected values here and below come from manual calculations based on past dates and rates
Rate expectedRate = 0.024603611707;
CHECK_OIS_COUPON_RESULT("coupon rate", pastCoupon->rate(), expectedRate, 1e-12);
}
#define CHECK_OIS_COUPON_DATES(what, actual, expected) \
if (actual != expected) { \
BOOST_ERROR("Failed to reproduce " what ":" \
<< "\n expected: " << expected \
<< "\n actual: " << actual); \
}
BOOST_AUTO_TEST_CASE(testPastCouponRateWithLockout) {
BOOST_TEST_MESSAGE("Testing rate for past overnight-indexed coupon with lockout...");
CommonVars vars;
auto couponWithLockout =
vars.makeCoupon(Date(1, July, 2019), Date(31, July, 2019), Null<Natural>(), 3);
const std::vector<Date>& fixingDates = couponWithLockout->fixingDates();
const Size n = fixingDates.size();
Date expectedLockoutDate = Date(25, July, 2019);
CHECK_OIS_COUPON_DATES("lockout date", fixingDates[n - 4], expectedLockoutDate);
CHECK_OIS_COUPON_DATES("day T - 2 fixing", fixingDates[n - 3], expectedLockoutDate);
CHECK_OIS_COUPON_DATES("day T - 1 fixing", fixingDates[n - 2], expectedLockoutDate);
CHECK_OIS_COUPON_DATES("day T fixing", fixingDates[n - 1], expectedLockoutDate);
}
BOOST_AUTO_TEST_CASE(testPastCouponRateWithLookbackObservationShiftAndLockout) {
BOOST_TEST_MESSAGE("Testing rate for past overnight-indexed coupon with lookback period, "
"observation shift and lockout...");
CommonVars vars;
// coupon entirely in the past with lookback period with observation shift
// and lockout this unit test replicates an example available on NY FED website:
// https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC-BWLG-Examples-Other-Lookback-Options.xlsx
auto pastCoupon = vars.makeCoupon(Date(1, July, 2019), Date(31, July, 2019), 5, 3, true);
// expected values here and below come from manual calculations based on past dates and rates
Rate expectedRate = 0.024693783702;
CHECK_OIS_COUPON_RESULT("coupon rate", pastCoupon->rate(), expectedRate, 1e-12);
}
BOOST_AUTO_TEST_CASE(testIncorrectNumberOfLockoutDays) {
BOOST_TEST_MESSAGE("Testing incorrect number of lockout days...");
CommonVars vars;
auto couponWithoutLockout = vars.makeCoupon(Date(1, July, 2019), Date(31, July, 2019));
const Size numberOfFixings = couponWithoutLockout->fixingDates().size();
// Lockout days equal to the number of daily fixings
BOOST_CHECK_THROW(vars.makeCoupon(Date(1, July, 2019), Date(31, July, 2019), Null<Natural>(),
numberOfFixings),
Error);
// Negative number of lockout days
BOOST_CHECK_THROW(vars.makeCoupon(Date(1, July, 2019), Date(31, July, 2019), Null<Natural>(), -1),
Error);
}
BOOST_AUTO_TEST_CASE(testFutureCouponRateWithLookback) {
BOOST_TEST_MESSAGE("Testing rate for future overnight-indexed coupon with lookback period...");
CommonVars vars(Date(12, March, 2019));
vars.forecastCurve.linkTo(flatRate(0.0250, Actual360()));
auto coupon8July = vars.makeCoupon(Date(1, July, 2019), Date(8, July, 2019), 5, 0, false);
Rate expectedRate8July = 0.0250050849311315;
CHECK_OIS_COUPON_RESULT("coupon rate", coupon8July->rate(), expectedRate8July, 1e-12);
auto coupon15July = vars.makeCoupon(Date(1, July, 2019), Date(15, July, 2019), 5, 0, false);
Rate expectedRate15July = 0.0250118464503275;
CHECK_OIS_COUPON_RESULT("coupon rate", coupon15July->rate(), expectedRate15July, 1e-12);
}
BOOST_AUTO_TEST_CASE(testFutureCouponRateWithLookbackAndObservationShift) {
BOOST_TEST_MESSAGE("Testing rate for future overnight-indexed coupon with lookback period and "
"observation shift...");
CommonVars vars(Date(12, March, 2019));
vars.forecastCurve.linkTo(flatRate(0.0250, Actual360()));
auto futureCoupon = vars.makeCoupon(Date(1, July, 2019), Date(8, July, 2019), 5, 0, true);
// The discrepancies between the results with and without observation shift,
// especially in the short term horizon, show that interest-period weighted
// overnight cumulative compounded annualized rates are considered as an
// alternative.
Rate expectedRate = 0.0142876985964208;
CHECK_OIS_COUPON_RESULT("coupon rate", futureCoupon->rate(), expectedRate, 1e-12);
}
BOOST_AUTO_TEST_CASE(testFutureCouponRateWithLookout) {
BOOST_TEST_MESSAGE("Testing rate for future overnight-indexed coupon with lockout...");
CommonVars vars(Date(12, March, 2019));
vars.forecastCurve.linkTo(flatRate(0.0250, Actual360()));
auto coupon15July =
vars.makeCoupon(Date(1, July, 2019), Date(15, July, 2019), Null<Natural>(), 2, false);
// expected = 0.025011784374543
Rate lockoutFixing = vars.sofr->fixing(Date(10, July, 2019));
Rate expectedRate15July =
(vars.forecastCurve->discount(Date(1, July, 2019)) /
vars.forecastCurve->discount(Date(11, July, 2019)) *
(1.0 + 1.0 / 360.0 * lockoutFixing) * (1.0 + 3.0 / 360.0 * lockoutFixing) -
1.0) *
360.0 / 14;
CHECK_OIS_COUPON_RESULT("coupon rate", coupon15July->rate(), expectedRate15July, 1e-12);
}
BOOST_AUTO_TEST_CASE(testPartiallyAccruedAmountOfFutureCouponWithLookout) {
BOOST_TEST_MESSAGE(
"Testing partially accrued amount for future overnight-indexed coupon with lockout...");
CommonVars vars(Date(12, March, 2019));
vars.forecastCurve.linkTo(flatRate(0.0250, Actual360()));
auto coupon15July =
vars.makeCoupon(Date(1, July, 2019), Date(15, July, 2019), Null<Natural>(), 2, false);
Rate lockoutFixing = vars.sofr->fixing(Date(10, July, 2019));
Rate expectedRate15July =
(vars.forecastCurve->discount(Date(1, July, 2019)) /
vars.forecastCurve->discount(Date(11, July, 2019)) *
(1.0 + 1.0 / 360.0 * lockoutFixing) * (1.0 + 2.0 / 360.0 * lockoutFixing) -
1.0) *
360.0 / 13;
Real expectedAccruedAmount = coupon15July->nominal() *
coupon15July->accruedPeriod(Date(14, July, 2019)) *
expectedRate15July;
CHECK_OIS_COUPON_RESULT("accrued amount", coupon15July->accruedAmount(Date(14, July, 2019)),
expectedAccruedAmount, 1e-12);
}
BOOST_AUTO_TEST_CASE(testTelescopicFormulaWhenLookbackWithObservationShiftAndNoIndexFixingDelay) {
BOOST_TEST_MESSAGE("Testing telescopic formula when lookback with observation shift is applied "
"and the index has no fixing delay...");
CommonVars vars(Date(12, March, 2019));
vars.forecastCurve.linkTo(flatRate(0.0250, Actual360()));
auto coupon15July =
vars.makeCoupon(Date(1, July, 2019), Date(15, July, 2019), 3, 0, true);
Rate actualRate = coupon15July->rate();
auto coupon15JulyWithTelescopicDates =
vars.makeCoupon(Date(1, July, 2019), Date(15, July, 2019), 3, 0, true, true);
CHECK_OIS_COUPON_RESULT("telescopic value dates coupon rate", actualRate,
coupon15JulyWithTelescopicDates->rate(), 1e-12);
Rate expectedRateTelescopicSeries =
(vars.forecastCurve->discount(Date(26, June, 2019)) /
vars.forecastCurve->discount(Date(10, July, 2019)) - 1.0) * 360.0 / 14;
CHECK_OIS_COUPON_RESULT("coupon rate using telescopic formula", actualRate,
expectedRateTelescopicSeries, 1e-12);
const auto& fixingDates = coupon15July->fixingDates();
const auto& dts = coupon15July->dt();
Size n = fixingDates.size();
Rate expectedRateIterativeFormula = 1.0;
for (Size i = 0; i < n; ++i) {
expectedRateIterativeFormula *=
(1.0 + dts[i] * coupon15July->index()->fixing(fixingDates[i]));
}
expectedRateIterativeFormula -= 1.0;
expectedRateIterativeFormula /= coupon15July->accrualPeriod();
CHECK_OIS_COUPON_RESULT("coupon rate using iterative formula", actualRate,
expectedRateIterativeFormula, 1e-12);
}
BOOST_AUTO_TEST_CASE(testErrorWhenTelescopicValueDatesEnforcedWithLookback) {
BOOST_TEST_MESSAGE("Testing error when telescopic value dates enforced with lookback...");
CommonVars vars;
BOOST_CHECK_THROW(vars.makeCoupon(Date(1, July, 2019), Date(31, July, 2019), 2, 0, false, true),
Error);
}
BOOST_AUTO_TEST_CASE(testErrorWhenLookbackOrLockoutAppliedForSimpleAveraging) {
BOOST_TEST_MESSAGE("Testing error when lookback or lockout applied for simple averaging...");
CommonVars vars;
BOOST_CHECK_THROW(vars.makeCoupon(Date(1, July, 2019), Date(31, July, 2019), 2, 0, false, false,
RateAveraging::Simple),
Error);
BOOST_CHECK_THROW(vars.makeCoupon(Date(1, July, 2019), Date(31, July, 2019), Null<Natural>(), 2,
false, false, RateAveraging::Simple),
Error);
BOOST_CHECK_THROW(vars.makeCoupon(Date(1, July, 2019), Date(31, July, 2019), Null<Natural>(), 0,
true, false, RateAveraging::Simple),
Error);
}
BOOST_AUTO_TEST_CASE(testBlackOvernightIndexedCouponPricerCapletFloorlet) {
BOOST_TEST_MESSAGE("Testing Black compounding overnight-indexed coupon pricer...");
BlackONPricerVars vars;
Date start = Date(1, July, 2035);
Date end = Date(1, October, 2035);
// Vanilla
auto vanillaCoupon = vars.makeBaseCoupon(start, end);
Rate expectedRate = vanillaCoupon->rate();
auto pricer = ext::make_shared<BlackCompoundingOvernightIndexedCouponPricer>(vars.vol);
vanillaCoupon->setPricer(pricer);
Rate rate = vanillaCoupon->rate();
CHECK_OIS_COUPON_RESULT("Base Rate", rate, expectedRate, 1e-8);
// Caplet
Rate cap = 0.045;
auto cappedCoupon = vars.makeCoupon(start, end, cap, Null<Rate>());
cappedCoupon->setPricer(pricer);
rate = cappedCoupon->rate();
expectedRate = 0.036604717;
BOOST_CHECK(rate <= cap + 1e-8); // Should not exceed cap
CHECK_OIS_COUPON_RESULT("Capped Rate", rate, expectedRate, 1e-8);
// Floorlet
Rate floor = 0.035;
auto flooredCoupon = vars.makeCoupon(start, end, Null<Rate>(), floor);
flooredCoupon->setPricer(pricer);
BOOST_CHECK(!flooredCoupon->isCalculated());
rate = flooredCoupon->rate();
expectedRate = 0.042502070;
BOOST_CHECK(rate >= floor - 1e-8); // Should not be below floor
CHECK_OIS_COUPON_RESULT("Floored Rate", rate, expectedRate, 1e-8);
// Capped and Floored
auto cappedFlooredCoupon = vars.makeCoupon(start, end, cap, floor);
cappedFlooredCoupon->setPricer(pricer);
rate = cappedFlooredCoupon->rate();
expectedRate = 0.039340869;
BOOST_CHECK(rate <= cap + 1e-8 && rate >= floor - 1e-8);
CHECK_OIS_COUPON_RESULT("Capped and Floored Rate", rate, expectedRate, 1e-8);
}
BOOST_AUTO_TEST_CASE(testBlackAverageONIndexedCouponPricerCapletFloorlet) {
BOOST_TEST_MESSAGE("Testing Black averaging overnight-indexed coupon pricer...");
BlackONPricerVars vars;
Date start = Date(1, July, 2035);
Date end = Date(1, October, 2035);
// Vanilla
auto vanillaCoupon = vars.makeBaseCoupon(start, end, RateAveraging::Simple);
Rate expectedRate = vanillaCoupon->rate();
auto pricer = ext::make_shared<BlackAveragingOvernightIndexedCouponPricer>(vars.vol);
vanillaCoupon->setPricer(pricer);
Rate rate = vanillaCoupon->rate();
CHECK_OIS_COUPON_RESULT("Base Rate", rate, expectedRate, 1e-8);
// Caplet
Rate cap = 0.045;
auto cappedCoupon = vars.makeCoupon(start, end, cap, Null<Rate>(), RateAveraging::Simple);
cappedCoupon->setPricer(pricer);
rate = cappedCoupon->rate();
expectedRate = 0.036488300;
BOOST_CHECK(rate <= cap + 1e-8);
CHECK_OIS_COUPON_RESULT("Capped Rate", rate, expectedRate, 1e-8);
// Floorlet
Rate floor = 0.035;
auto flooredCoupon = vars.makeCoupon(start, end, Null<Rate>(), floor, RateAveraging::Simple);
flooredCoupon->setPricer(pricer);
rate = flooredCoupon->rate();
expectedRate = 0.042362746;
BOOST_CHECK(rate >= floor - 1e-8);
CHECK_OIS_COUPON_RESULT("Capped Rate", rate, expectedRate, 1e-8);
// Capped and Floored
auto cappedFlooredCoupon = vars.makeCoupon(start, end, cap, floor, RateAveraging::Simple);
cappedFlooredCoupon->setPricer(pricer);
rate = cappedFlooredCoupon->rate();
expectedRate = 0.039281553;
BOOST_CHECK(rate <= cap + 1e-8 && rate >= floor - 1e-8);
CHECK_OIS_COUPON_RESULT("Capped and Floored Rate", rate, expectedRate, 1e-8);
}
BOOST_AUTO_TEST_CASE(testBlackONPricerConsistencyWithNoVol) {
BOOST_TEST_MESSAGE("Testing Black compounding pricer with zero volatility (should match vanilla pricer)...");
BlackONPricerVars vars;
auto optionletVol = makeQuoteHandle(0.0);
vars.vol.linkTo(ext::make_shared<ConstantOptionletVolatility>(vars.today, TARGET(), Following, optionletVol, vars.dc));
Date start = Date(1, July, 2035);
Date end = Date(1, October, 2035);
auto cappedFlooredCoupon = vars.makeCoupon(start, end, 0.045, 0.035);
auto blackPricer = ext::make_shared<BlackCompoundingOvernightIndexedCouponPricer>(vars.vol);
cappedFlooredCoupon->setPricer(blackPricer);
Rate blackRate = cappedFlooredCoupon->rate();
// Compare with standard compounding pricer
auto baseONCoupon = vars.makeBaseCoupon(start, end);
baseONCoupon->setPricer(ext::make_shared<CompoundingOvernightIndexedCouponPricer>());
Rate vanillaRate = baseONCoupon->rate();
CHECK_OIS_COUPON_RESULT("Zero capped coupon rate", blackRate, vanillaRate, 1e-10);
baseONCoupon->setPricer(blackPricer);
vanillaRate = baseONCoupon->rate();
CHECK_OIS_COUPON_RESULT("Zero capped coupon rate (same pricer)", blackRate, vanillaRate, 1e-10);
}
BOOST_AUTO_TEST_CASE(testBlackONAveragingPricerConsistencyWithNoVol) {
BOOST_TEST_MESSAGE("Testing Black averaging pricer with zero volatility (should match vanilla pricer)...");
BlackONPricerVars vars;
auto optionletVol = makeQuoteHandle(0.0);
vars.vol.linkTo(ext::make_shared<ConstantOptionletVolatility>(vars.today, TARGET(), Following, optionletVol, vars.dc));
Date start = Date(1, July, 2035);
Date end = Date(1, October, 2035);
auto cappedFlooredCoupon = vars.makeCoupon(start, end, 0.045, 0.035, RateAveraging::Simple);
auto blackPricer = ext::make_shared<BlackAveragingOvernightIndexedCouponPricer>(vars.vol);
cappedFlooredCoupon->setPricer(blackPricer);
Rate blackRate = cappedFlooredCoupon->rate();
// Compare with standard compounding pricer
auto baseONCoupon = vars.makeBaseCoupon(start, end, RateAveraging::Simple);
baseONCoupon->setPricer(ext::make_shared<ArithmeticAveragedOvernightIndexedCouponPricer>());
Rate vanillaRate = baseONCoupon->rate();
CHECK_OIS_COUPON_RESULT("Zero capped coupon rate", blackRate, vanillaRate, 1e-10);
baseONCoupon->setPricer(blackPricer);
vanillaRate = baseONCoupon->rate();
CHECK_OIS_COUPON_RESULT("Zero capped coupon rate (same pricer)", blackRate, vanillaRate, 1e-10);
}
BOOST_AUTO_TEST_CASE(testOvernightLegBasicFunctionality) {
BOOST_TEST_MESSAGE("Testing basic functionality of overnight leg...");
CommonVarsONLeg vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
Leg leg = vars.makeLeg();
// Check that we have the expected number of coupons (monthly over 1 year = 12 coupons)
BOOST_CHECK_EQUAL(leg.size(), 4);
// Check that all cash flows are OvernightIndexedCoupons
for (const auto& cf : leg) {
auto oisCoupon = ext::dynamic_pointer_cast<OvernightIndexedCoupon>(cf);
BOOST_CHECK(oisCoupon != nullptr);
if (oisCoupon) {
BOOST_CHECK_EQUAL(oisCoupon->nominal(), vars.notional);
BOOST_CHECK_EQUAL(oisCoupon->averagingMethod(), RateAveraging::Compound);
BOOST_CHECK_EQUAL(oisCoupon->lockoutDays(), 0);
BOOST_CHECK_EQUAL(oisCoupon->applyObservationShift(), false);
}
}
}
BOOST_AUTO_TEST_CASE(testOvernightLegWithLookback) {
BOOST_TEST_MESSAGE("Testing overnight leg construction with lookback days...");
CommonVarsONLeg vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
Natural lookbackDays = 5;
Leg leg = vars.makeLeg(lookbackDays);
for (const auto& cf : leg) {
auto oisCoupon = ext::dynamic_pointer_cast<OvernightIndexedCoupon>(cf);
BOOST_CHECK(oisCoupon != nullptr);
if (oisCoupon) {
// The coupon should have lookback configured
BOOST_CHECK(oisCoupon->fixingDays() == lookbackDays ||
oisCoupon->fixingDays() == oisCoupon->index()->fixingDays());
}
}
}
BOOST_AUTO_TEST_CASE(testOvernightLegWithLockout) {
BOOST_TEST_MESSAGE("Testing overnight leg construction with lockout days...");
CommonVarsONLeg vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
Natural lockoutDays = 3;
Leg leg = vars.makeLeg(Null<Natural>(), lockoutDays);
for (const auto& cf : leg) {
auto oisCoupon = ext::dynamic_pointer_cast<OvernightIndexedCoupon>(cf);
BOOST_CHECK(oisCoupon != nullptr);
if (oisCoupon) {
BOOST_CHECK_EQUAL(oisCoupon->lockoutDays(), lockoutDays);
}
}
}
BOOST_AUTO_TEST_CASE(testOvernightLegWithObservationShift) {
BOOST_TEST_MESSAGE("Testing overnight leg construction with observation shift...");
CommonVarsONLeg vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
Leg leg = vars.makeLeg(Null<Natural>(), 0, true);
for (const auto& cf : leg) {
auto oisCoupon = ext::dynamic_pointer_cast<OvernightIndexedCoupon>(cf);
BOOST_CHECK(oisCoupon != nullptr);
if (oisCoupon) {
BOOST_CHECK_EQUAL(oisCoupon->applyObservationShift(), true);
}
}
}
BOOST_AUTO_TEST_CASE(testOvernightLegWithGearingsAndSpreads) {
BOOST_TEST_MESSAGE("Testing overnight leg construction with gearings and spreads...");
CommonVarsONLeg vars;
vars.setupForecastCurve();
std::vector<Real> gearings = {1.0, 1.25, 2.0, 0.5};
std::vector<Spread> spreads = {0.0001, 0.0001, 0.0002, 0.0002};
Leg leg = vars.makeLeg(Null<Natural>(), 0, false, false,
RateAveraging::Compound, gearings, spreads);
BOOST_CHECK_EQUAL(leg.size(), 4);
for (Size i = 0; i < leg.size(); ++i) {
auto oisCoupon = ext::dynamic_pointer_cast<OvernightIndexedCoupon>(leg[i]);
BOOST_CHECK(oisCoupon != nullptr);
if (oisCoupon) {
BOOST_CHECK_CLOSE(oisCoupon->gearing(), gearings[i], 1e-12);
BOOST_CHECK_CLOSE(oisCoupon->spread(), spreads[i], 1e-12);
}
}
}
BOOST_AUTO_TEST_CASE(testOvernightLegNPV) {
BOOST_TEST_MESSAGE("Testing overnight leg NPV...");
CommonVarsONLeg vars;
vars.setupForecastCurve();
Leg leg = vars.makeLeg(Null<Natural>(), 3, false, true, RateAveraging::Compound);
Handle<YieldTermStructure> discountCurve(flatRate(0.0015, Actual360()));
// Calculate NPV
Real expectedNpv = 34883.949669756257;
Real npv = 0.0;
for (const auto& cf : leg) {
npv += cf->amount() * discountCurve->discount(cf->date());
}
CHECK_OIS_COUPON_RESULT("OvernightLeg NPV", npv, expectedNpv, 1e-8);
}
BOOST_AUTO_TEST_CASE(testOvernightLegWithCapsAndFloors) {
BOOST_TEST_MESSAGE("Testing overnight leg with caps and floors...");
CommonVarsONLeg vars;
vars.setupForecastCurve();
Handle<YieldTermStructure> discountCurve(flatRate(0.0015, Actual360()));
std::vector<Rate> caps = {0.0435, 0.0435, 0.04, 0.04};
std::vector<Rate> floors = {0.025, 0.025, 0.025, 0.025};
Leg leg = vars.makeLeg(Null<Natural>(), 0, false, false,
RateAveraging::Compound,
std::vector<Real>(), std::vector<Spread>(),
caps, floors);
BOOST_CHECK_EQUAL(leg.size(), 4);
Real expectedNpv = 34648.328606210489;
Real npv = 0.0;
for (Size i = 0; i < leg.size(); ++i) {
auto cappedFlooredCoupon = ext::dynamic_pointer_cast<CappedFlooredOvernightIndexedCoupon>(leg[i]);
BOOST_CHECK(cappedFlooredCoupon != nullptr);
if (cappedFlooredCoupon) {
BOOST_CHECK_CLOSE(cappedFlooredCoupon->cap(), caps[i], 1e-12);
BOOST_CHECK_CLOSE(cappedFlooredCoupon->floor(), floors[i], 1e-12);
BOOST_CHECK(cappedFlooredCoupon->isCapped());
BOOST_CHECK(cappedFlooredCoupon->isFloored());
}
npv += cappedFlooredCoupon->amount() * discountCurve->discount(cappedFlooredCoupon->date());
}
CHECK_OIS_COUPON_RESULT("Capped-Floored OvernightLeg NPV", npv, expectedNpv, 1e-8);
}
BOOST_AUTO_TEST_CASE(testOvernightLegSimpleAveraging) {
BOOST_TEST_MESSAGE("Testing overnight leg construction with simple averaging...");
CommonVarsONLeg vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
Leg leg = vars.makeLeg(Null<Natural>(), 0, false, false, RateAveraging::Simple);
for (const auto& cf : leg) {
auto oisCoupon = ext::dynamic_pointer_cast<OvernightIndexedCoupon>(cf);
BOOST_CHECK(oisCoupon != nullptr);
if (oisCoupon) {
BOOST_CHECK_EQUAL(oisCoupon->averagingMethod(), RateAveraging::Simple);
}
}
}
BOOST_AUTO_TEST_CASE(testOvernightLegErrorConditions) {
BOOST_TEST_MESSAGE("Testing error conditions for overnight leg...");
CommonVarsONLeg vars;
vars.forecastCurve.linkTo(flatRate(0.0010, Actual360()));
// Test that lookback with simple averaging throws an error
BOOST_CHECK_THROW(vars.makeLeg(5, 0, false, false, RateAveraging::Simple), Error);
// Test that lockout with simple averaging throws an error
BOOST_CHECK_THROW(vars.makeLeg(Null<Natural>(), 3, false, false, RateAveraging::Simple), Error);
// Test that observation shift with simple averaging throws an error
BOOST_CHECK_THROW(vars.makeLeg(Null<Natural>(), 0, true, false, RateAveraging::Simple), Error);
}
BOOST_AUTO_TEST_SUITE_END()
BOOST_AUTO_TEST_SUITE_END()
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