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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
/*
Copyright (C) 2014 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/pricingengines/barrier/discretizedbarrieroption.hpp>
#include <vector>
namespace QuantLib {
DiscretizedBarrierOption::DiscretizedBarrierOption(
const BarrierOption::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 DiscretizedBarrierOption::reset(Size size) {
vanilla_.initialize(method(), time());
values_ = Array(size, 0.0);
adjustValues();
}
void DiscretizedBarrierOption::postAdjustValuesImpl() {
if (arguments_.barrierType==Barrier::DownIn ||
arguments_.barrierType==Barrier::UpIn) {
vanilla_.rollback(time());
}
Array grid = method()->grid(time());
checkBarrier(values_, grid);
}
void DiscretizedBarrierOption::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 Barrier::DownIn:
if (grid[j] <= arguments_.barrier) {
// knocked in
if (stoppingTime) {
optvalues[j] = std::max(vanilla_.values()[j],
(*arguments_.payoff)(grid[j]));
}
else
optvalues[j] = vanilla_.values()[j];
}
else if (endTime)
optvalues[j] = arguments_.rebate;
break;
case Barrier::DownOut:
if (grid[j] <= arguments_.barrier)
optvalues[j] = arguments_.rebate; // knocked out
else if (stoppingTime) {
optvalues[j] = std::max(optvalues[j],
(*arguments_.payoff)(grid[j]));
}
break;
case Barrier::UpIn:
if (grid[j] >= arguments_.barrier) {
// knocked in
if (stoppingTime) {
optvalues[j] = std::max(vanilla_.values()[j],
(*arguments_.payoff)(grid[j]));
}
else
optvalues[j] = vanilla_.values()[j];
}
else if (endTime)
optvalues[j] = arguments_.rebate;
break;
case Barrier::UpOut:
if (grid[j] >= arguments_.barrier)
optvalues[j] = arguments_.rebate; // knocked out
else if (stoppingTime)
optvalues[j] = std::max(optvalues[j],
(*arguments_.payoff)(grid[j]));
break;
default:
QL_FAIL("invalid barrier type");
}
}
}
DiscretizedDermanKaniBarrierOption::DiscretizedDermanKaniBarrierOption(
const BarrierOption::arguments& args,
const StochasticProcess& process,
const TimeGrid& grid)
: unenhanced_(args, process, grid) {
}
void DiscretizedDermanKaniBarrierOption::reset(Size size) {
unenhanced_.initialize(method(), time());
values_ = Array(size, 0.0);
adjustValues();
}
void DiscretizedDermanKaniBarrierOption::postAdjustValuesImpl() {
unenhanced_.rollback(time());
Array grid = method()->grid(time());
adjustBarrier(values_, grid);
unenhanced_.checkBarrier(values_, grid); // compute payoffs
}
void DiscretizedDermanKaniBarrierOption::adjustBarrier(Array &optvalues, const Array &grid) {
Real barrier = unenhanced_.arguments().barrier;
Real rebate = unenhanced_.arguments().rebate;
switch (unenhanced_.arguments().barrierType) {
case Barrier::DownIn:
for (Size j=0; j<optvalues.size()-1; ++j) {
if (grid[j]<=barrier && grid[j+1] > barrier) {
// grid[j+1] above barrier, grid[j] under (in),
// interpolate optvalues[j+1]
Real ltob = (barrier-grid[j]);
Real htob = (grid[j+1]-barrier);
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);
}
}
break;
case Barrier::DownOut:
for (Size j=0; j<optvalues.size()-1; ++j) {
if (grid[j]<=barrier && grid[j+1] > barrier) {
// grid[j+1] above barrier, grid[j] under (out),
// interpolate optvalues[j+1]
Real a = (barrier-grid[j])*rebate;
Real b = (grid[j+1]-barrier)*unenhanced_.values()[j+1];
Real c = (grid[j+1]-grid[j]);
optvalues[j+1] = std::max(0.0, (a+b)/c);
}
}
break;
case Barrier::UpIn:
for (Size j=0; j<optvalues.size()-1; ++j) {
if (grid[j] < barrier && grid[j+1] >= barrier) {
// grid[j+1] above barrier (in), grid[j] under,
// interpolate optvalues[j]
Real ltob = (barrier-grid[j]);
Real htob = (grid[j+1]-barrier);
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 Barrier::UpOut:
for (Size j=0; j<optvalues.size()-1; ++j) {
if (grid[j] < barrier && grid[j+1] >= barrier) {
// grid[j+1] above barrier (out), grid[j] under,
// interpolate optvalues[j]
Real a = (barrier-grid[j])*unenhanced_.values()[j];
Real b = (grid[j+1]-barrier)*rebate;
Real c = (grid[j+1]-grid[j]);
optvalues[j] = std::max(0.0, (a+b)/c);
}
}
break;
}
}
}
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