/usr/include/ql/experimental/inflation/interpolatedyoyoptionletstripper.hpp is in libquantlib0-dev 1.7.1-1.
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/*
Copyright (C) 2009 Chris Kenyon
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
<http://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.
*/
/*! \file interpolatedyoyoptionletstripper.hpp
\brief interpolated yoy inflation-cap stripping
*/
#ifndef quantlib_interpolated_yoy_optionlet_stripper_hpp
#define quantlib_interpolated_yoy_optionlet_stripper_hpp
#include <ql/instruments/makeyoyinflationcapfloor.hpp>
#include <ql/math/solvers1d/brent.hpp>
#include <ql/experimental/inflation/yoyoptionletstripper.hpp>
#include <ql/experimental/inflation/piecewiseyoyoptionletvolatility.hpp>
#include <ql/experimental/inflation/yoyoptionlethelpers.hpp>
#include <ql/experimental/inflation/genericindexes.hpp>
namespace QuantLib {
/*! The interpolated version interpolates along each K (as opposed
to fitting a model, say).
\bug Tests currently fail.
*/
template <class Interpolator1D>
class InterpolatedYoYOptionletStripper : public YoYOptionletStripper {
public:
//! YoYOptionletStripper interface
//@{
virtual void initialize(
const boost::shared_ptr<YoYCapFloorTermPriceSurface> &,
const boost::shared_ptr<YoYInflationCapFloorEngine> &,
const Real slope) const;
virtual Rate minStrike() const {
return YoYCapFloorTermPriceSurface_->strikes().front();
}
virtual Rate maxStrike() const {
return YoYCapFloorTermPriceSurface_->strikes().back();
}
virtual std::vector<Rate> strikes() const {
return YoYCapFloorTermPriceSurface_->strikes();
}
virtual std::pair<std::vector<Rate>, std::vector<Volatility> >
slice(const Date &d) const;
//@}
protected:
mutable std::vector<boost::shared_ptr<YoYOptionletVolatilitySurface> >
volCurves_;
// used to set up the first point on each vol curve
// using assumptions on unobserved vols at start
class ObjectiveFunction {
public:
ObjectiveFunction(
YoYInflationCapFloor::Type type,
Real slope, Rate K,
Period &lag,
Natural fixingDays,
boost::shared_ptr<YoYInflationIndex> anIndex,
const boost::shared_ptr<YoYCapFloorTermPriceSurface> &,
const boost::shared_ptr<YoYInflationCapFloorEngine> &p,
Real priceToMatch);
Real operator()(Volatility guess) const;
protected:
Real slope_;
Rate K_;
Frequency frequency_;
bool indexIsInterpolated_;
std::vector<Time> tvec_;
std::vector<Date> dvec_;
mutable std::vector<Volatility> vvec_;
YoYInflationCapFloor capfloor_;
Real priceToMatch_;
boost::shared_ptr<YoYCapFloorTermPriceSurface> surf_;
Period lag_;
boost::shared_ptr<YoYInflationCapFloorEngine> p_;
};
};
// template definitions
template <class Interpolator1D>
InterpolatedYoYOptionletStripper<Interpolator1D>::
ObjectiveFunction::ObjectiveFunction(
YoYInflationCapFloor::Type type,
Real slope,
Rate K,
Period &lag,
Natural fixingDays,
boost::shared_ptr<YoYInflationIndex> anIndex,
const boost::shared_ptr<YoYCapFloorTermPriceSurface> &surf,
const boost::shared_ptr<YoYInflationCapFloorEngine> &p,
Real priceToMatch)
: slope_(slope), K_(K), frequency_(anIndex->frequency()),
indexIsInterpolated_(anIndex->interpolated()),
capfloor_(MakeYoYInflationCapFloor(type,
(Size)std::floor(0.5+surf->timeFromReference(surf->minMaturity())),
surf->calendar(), anIndex, lag, K)
.withNominal(10000.0) ),
priceToMatch_(priceToMatch), surf_(surf), p_(p) {
tvec_ = std::vector<Time>(2);
vvec_ = std::vector<Volatility>(2);
dvec_ = std::vector<Date>(2);
lag_ = surf_->observationLag();
capfloor_ =
MakeYoYInflationCapFloor(type,
(Size)std::floor(0.5+surf->timeFromReference(surf->minMaturity())),
surf->calendar(), anIndex, lag, K)
.withNominal(10000.0) ;
// shortest time available from price surface
dvec_[0] = surf_->baseDate();
dvec_[1] = surf_->minMaturity() +
Period(7, Days);
tvec_[0] = surf_->dayCounter().yearFraction(surf_->referenceDate(),
dvec_[0] );
tvec_[1] = surf_->dayCounter().yearFraction(surf_->referenceDate(),
dvec_[1]);
Size n = (Size)std::floor(0.5 + surf->timeFromReference(surf_->minMaturity()));
QL_REQUIRE( n > 0,
"first maturity in price surface not > 0: "
<< n);
capfloor_.setPricingEngine(p_);
// pricer already setup just need to do the volatility surface each time
}
template <class Interpolator1D>
Real InterpolatedYoYOptionletStripper<Interpolator1D>::
ObjectiveFunction::operator()(Volatility guess) const {
vvec_[1] = guess;
vvec_[0] = guess - slope_ * (tvec_[1] - tvec_[0]) * guess;
// could have Interpolator1D instead of Linear
boost::shared_ptr<InterpolatedYoYOptionletVolatilityCurve<Linear> >
vCurve(
new InterpolatedYoYOptionletVolatilityCurve<Linear>(
0, TARGET(), ModifiedFollowing,
Actual365Fixed(), lag_,
frequency_, indexIsInterpolated_,
dvec_, vvec_,
-1.0, 3.0) ); // strike limits
Handle<YoYOptionletVolatilitySurface> hCurve(vCurve);
p_->setVolatility(hCurve);
// hopefully this gets to the pricer ... then
return priceToMatch_ - capfloor_.NPV();
}
template <class Interpolator1D>
void InterpolatedYoYOptionletStripper<Interpolator1D>::
initialize(const boost::shared_ptr<YoYCapFloorTermPriceSurface> &s,
const boost::shared_ptr<YoYInflationCapFloorEngine> &p,
const Real slope) const {
YoYCapFloorTermPriceSurface_ = s;
p_ = p;
lag_ = YoYCapFloorTermPriceSurface_->observationLag();
frequency_ = YoYCapFloorTermPriceSurface_->frequency();
indexIsInterpolated_ = YoYCapFloorTermPriceSurface_->indexIsInterpolated();
Natural fixingDays_ = YoYCapFloorTermPriceSurface_->fixingDays();
Natural settlementDays = 0; // always
Calendar cal = YoYCapFloorTermPriceSurface_->calendar();
BusinessDayConvention bdc =
YoYCapFloorTermPriceSurface_->businessDayConvention();
DayCounter dc = YoYCapFloorTermPriceSurface_->dayCounter();
// switch from caps to floors when out of floors
Rate maxFloor = YoYCapFloorTermPriceSurface_->floorStrikes().back();
YoYInflationCapFloor::Type useType = YoYInflationCapFloor::Floor;
Period TPmin = YoYCapFloorTermPriceSurface_->maturities().front();
// create a "fake index" based on Generic, this should work
// provided that the lag and frequency are correct
RelinkableHandle<YoYInflationTermStructure> hYoY(
YoYCapFloorTermPriceSurface_->YoYTS());
boost::shared_ptr<YoYInflationIndex> anIndex(
new YYGenericCPI(frequency_, false,
false, lag_,
Currency(), hYoY));
// strip each K separatly
for (Size i=0; i<YoYCapFloorTermPriceSurface_->strikes().size(); i++) {
Rate K = YoYCapFloorTermPriceSurface_->strikes()[i];
if (K > maxFloor) useType = YoYInflationCapFloor::Cap;
// solve for the initial point on the vol curve
Brent solver;
Real solverTolerance_ = 1e-7;
// these are VOLATILITY guesses (always +)
Real lo = 0.00001, hi = 0.08;
Real guess = (hi+lo)/2.0;
Real found;
Real priceToMatch =
(useType == YoYInflationCapFloor::Cap ?
YoYCapFloorTermPriceSurface_->capPrice(TPmin, K) :
YoYCapFloorTermPriceSurface_->floorPrice(TPmin, K));
try{
found = solver.solve(
ObjectiveFunction(useType, slope, K, lag_, fixingDays_,
anIndex, YoYCapFloorTermPriceSurface_,
p_, priceToMatch),
solverTolerance_, guess, lo, hi );
} catch( std::exception &e) {
QL_FAIL("failed to find solution here because: " << e.what());
}
// ***create helpers***
Real notional = 10000; // work in bps
std::vector<boost::shared_ptr<BootstrapHelper<YoYOptionletVolatilitySurface> > > helperInstruments;
std::vector<boost::shared_ptr<YoYOptionletHelper> > helpers;
for (Size j = 0; j < YoYCapFloorTermPriceSurface_->maturities().size(); j++){
Period Tp = YoYCapFloorTermPriceSurface_->maturities()[j];
Real nextPrice =
(useType == YoYInflationCapFloor::Cap ?
YoYCapFloorTermPriceSurface_->capPrice(Tp, K) :
YoYCapFloorTermPriceSurface_->floorPrice(Tp, K));
Handle<Quote> quote1(boost::shared_ptr<Quote>(
new SimpleQuote( nextPrice )));
// helper should be an integer number of periods away,
// this is enforced by rounding
Size nT = (Size)floor(s->timeFromReference(s->yoyOptionDateFromTenor(Tp))+0.5);
helpers.push_back(boost::shared_ptr<YoYOptionletHelper>(
new YoYOptionletHelper(quote1, notional, useType,
lag_,
dc, cal,
fixingDays_,
anIndex, K, nT, p_)));
boost::shared_ptr<ConstantYoYOptionletVolatility> yoyVolBLACK(
new ConstantYoYOptionletVolatility(found, settlementDays,
cal, bdc, dc,
lag_, frequency_,
false,
// -100% to +300%
-1.0,3.0));
helpers[j]->setTermStructure(
// gets underlying pointer & removes const
const_cast<ConstantYoYOptionletVolatility*>(
yoyVolBLACK.get()));
helperInstruments.push_back(helpers[j]);
}
// ***bootstrap***
// this is the artificial vol at zero so that first section works
Real Tmin = s->timeFromReference(s->yoyOptionDateFromTenor(TPmin));
Volatility baseYoYVolatility = found - slope * Tmin * found;
Rate eps = std::max(K, 0.02) / 1000.0;
Rate minStrike = K-eps;
Rate maxStrike = K+eps;
boost::shared_ptr<
PiecewiseYoYOptionletVolatilityCurve<Interpolator1D> > testPW(
new PiecewiseYoYOptionletVolatilityCurve<Interpolator1D>(
settlementDays, cal, bdc, dc, lag_,
frequency_, indexIsInterpolated_,
minStrike, maxStrike,
baseYoYVolatility,
helperInstruments) );
testPW->recalculate();
volCurves_.push_back(testPW);
}
}
template <class Interpolator1D>
std::pair<std::vector<Rate>, std::vector<Volatility> >
InterpolatedYoYOptionletStripper<Interpolator1D>::slice(
const Date &d) const {
const std::vector<Real>& Ks = strikes();
const Size nK = Ks.size();
std::pair<std::vector<Rate>, std::vector<Volatility> > result =
std::make_pair(std::vector<Rate>(nK), std::vector<Volatility>(nK));
for (Size i = 0; i < nK; i++) {
Rate K = Ks[i];
Volatility v = volCurves_[i]->volatility(d, K);
result.first[i] = K;
result.second[i] = v;
}
return result;
}
}
#endif
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