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## RQuantLib function AffineSwaption
##
## Copyright (C) 2005 Dominick Samperi
## Copyright (C) 2007 - 2014 Dirk Eddelbuettel
## Copyright (C) 2016 - 2022 Terry Leitch and Dirk Eddelbuettel
##
## This file is part of RQuantLib.
##
## RQuantLib is free software: you can redistribute it and/or modify
## it under the terms of the GNU General Public License as published by
## the Free Software Foundation, either version 2 of the License, or
## (at your option) any later version.
##
## RQuantLib 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
## GNU General Public License for more details.
##
## You should have received a copy of the GNU General Public License
## along with RQuantLib. If not, see <http://www.gnu.org/licenses/>.
AffineSwaption <- function(params,
ts, swaptionMaturities,
swapTenors, volMatrix,
legparams=list(dayCounter="Thirty360",
fixFreq="Annual",
floatFreq="Semiannual")) {
UseMethod("AffineSwaption")
}
AffineSwaption.default <- function(params,
ts, swaptionMaturities,
swapTenors, volMatrix,
legparams=list(dayCounter="Thirty360",
fixFreq="Annual",
floatFreq="Semiannual")) {
# Check that params list names
if (!is.list(params) || length(params) == 0) {
stop("The params parameter must be a non-empty list", call.=FALSE)
}
if(is.null(params$startDate)){
params$startDate=advance("UnitedStates",params$tradeDate, 1, 3)
warning("swaption start date not set, defaulting to 1 year from trade date using US calendar")
}
if(is.null(params$maturity)){
params$maturity=advance("UnitedStates",params$startDate, 5, 3)
warning("swaption maturity not set, defaulting to 5 years from startDate using US calendar")
}
if(is.null(params$european)){
params$european=TRUE
warning("affine swaption european flag not set defaulting to european")
}
if(is.null(params$payFix)){
params$payFix=TRUE
warning("affine swaption payFix flag not set defaulting to pay fix swap")
}
matYears=as.numeric(params$maturity-params$tradeDate)/365
expYears=as.numeric(params$startDate-params$tradeDate)/365
increment=min(matYears/6,1.0)
numObs=floor(matYears/increment)+1
optStart=as.numeric(params$startDate-params$tradeDate)/365
# find closest option to our target to ensure it is in calibration
tenor=expiry=vol=vector(length=numObs,mode="numeric")
expiryIDX=findInterval(expYears,swaptionMaturities)
tenorIDX=findInterval(matYears-expYears,swapTenors)
if(tenorIDX >0 & expiryIDX>0){
vol[1]=volMatrix[expiryIDX,tenorIDX]
expiry[1]=swaptionMaturities[expiryIDX]
tenor[1]=swapTenors[tenorIDX]
} else {
vol[1]=expiry[1]=tenor[1]=0
}
for(i in 2:numObs){
expiryIDX=findInterval(i*increment,swaptionMaturities)
tenorIDX=findInterval(matYears-(i-1)*increment,swapTenors)
if(tenorIDX >0 & expiryIDX>0){
vol[i]=volMatrix[expiryIDX,tenorIDX]
expiry[i]=swaptionMaturities[expiryIDX]
tenor[i]=swapTenors[tenorIDX]
} else {
vol[i]=volMatrix[expiryIDX,tenorIDX+1]
expiry[i]=swaptionMaturities[expiryIDX]
tenor[i]=swapTenors[tenorIDX+1]
}
}
# remove if search was out of bounds
expiry=expiry[expiry>0];tenor=tenor[tenor>0];vol=vol[vol>0]
if(length(expiry)<5){
warning("Insufficent vols to fit affine model")
return(NULL)
}
#Take 1st 5 which includes closest to initial date
expiry=expiry[1:5];tenor=tenor[1:5];vol=vol[1:5]
# Finally ready to make the call...
# We could coerce types here and pass as.integer(round(swapTenors)),
# temp <- as.double(volMatrix), dim(temp) < dim(a) [and pass temp instead
# of volMatrix]. But this is taken care of in the C/C++ code.
if (inherits(ts, "DiscountCurve")) {
matchlegs<-matchParams(legparams)
val <- affineWithRebuiltCurveEngine(params, matchlegs, c(ts$table$date), ts$table$zeroRates,
expiry,tenor,vol)
} else{
stop("DiscountCurve class term structure required", call.=FALSE)
}
class(val) <- paste(params$method, "AffineSwaption",sep="")
summary(val)
val
}
summary.G2AnalyticAffineSwaption <- function(object,...) {
cat('\n\tSummary of pricing results for Affine Swaption\n')
cat('\nPrice (in bp) of Affine swaption is ', object$NPV)
cat('\nStike is ', format(object$strike,digits=6))
cat(' (ATM strike is ', format(object$ATMStrike,digits=6), ')')
cat('\nModel used is: G2/Jamshidian using analytic formulas')
cat('\nCalibrated model parameters are:')
cat('\na = ', format(object$a,digits=4))
cat('\nb = ', format(object$b,digits=4))
cat('\nsigma = ', format(object$sigma,digits=4))
cat('\neta = ', format(object$eta,digits=4))
cat('\nrho = ', format(object$rho,digits=4))
cat('\n\n')
}
summary.HWAnalyticAffineSwaption <- function(object,...) {
cat('\n\tSummary of pricing results for Affine Swaption\n')
cat('\nPrice (in bp) of Affine swaption is ', object$NPV)
cat('\nStike is ', format(object$params$strike,digits=6))
cat(' (ATM strike is ', format(object$ATMStrike,digits=6), ')')
cat('\nModel used is: Hull-White using analytic formulas')
cat('\nCalibrated model parameters are:')
cat('\na = ', format(object$a,digits=4))
cat('\nsigma = ', format(object$sigma,digits=4))
cat('\n\n')
}
summary.HWTreeAffineSwaption <- function(object,...) {
cat('\n\tSummary of pricing results for Affine Swaption\n')
cat('\nPrice (in bp) of Affine swaption is ', object$NPV)
cat('\nStike is ', format(object$params$strike,digits=6))
cat(' (ATM strike is ', format(object$ATMStrike,digits=6), ')')
cat('\nModel used is: Hull-White using a tree')
cat('\nCalibrated model parameters are:')
cat('\na = ', format(object$a,digits=4))
cat('\nsigma = ', format(object$sigma,digits=4))
cat('\n\n')
}
summary.BKTreeAffineSwaption <- function(object,...) {
cat('\n\tSummary of pricing results for Affine Swaption\n')
cat('\nPrice (in bp) of Affine swaption is ', object$NPV)
cat('\nStike is ', format(object$params$strike,digits=6))
cat(' (ATM strike is ', format(object$ATMStrike,digits=6), ')')
cat('\nModel used is: Black-Karasinski using a tree')
cat('\nCalibrated model parameters are:')
cat('\na = ', format(object$a,digits=4))
cat('\nsigma = ', format(object$sigma,digits=4))
cat('\n\n')
}
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