Package com.opengamma.analytics.financial.model.option.pricing.analytic.formula

Examples of com.opengamma.analytics.financial.model.option.pricing.analytic.formula.NormalPriceFunction

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    final double cmsSpreadPrice = method.presentValue(CMS_CAP_SPREAD, SABR_BUNDLE).getAmount();
    final double discountFactorPayment = CURVES.getCurve(FUNDING_CURVE_NAME).getDiscountFactor(PAYMENT_TIME);
    final CouponCMSSABRReplicationMethod methodCms = CouponCMSSABRReplicationMethod.getInstance();
    final CapFloorCMSSABRReplicationMethod methodCmsCap = CapFloorCMSSABRReplicationMethod.getDefaultInstance();
    final NormalImpliedVolatilityFormula impliedVolatility = new NormalImpliedVolatilityFormula();
    final NormalPriceFunction normalPrice = new NormalPriceFunction();
    final ParRateCalculator parRate = ParRateCalculator.getInstance();
    final CouponCMS cmsCoupon1 = CouponCMS.from(CMS_CAP_SPREAD, SWAP_1, SETTLEMENT_TIME);
    final CouponCMS cmsCoupon2 = CouponCMS.from(CMS_CAP_SPREAD, SWAP_2, SETTLEMENT_TIME);
    final double cmsCoupon1Price = methodCms.presentValue(cmsCoupon1, SABR_BUNDLE).getAmount();
    final double cmsCoupon2Price = methodCms.presentValue(cmsCoupon2, SABR_BUNDLE).getAmount();
    final double expectedRate1 = cmsCoupon1Price / discountFactorPayment / cmsCoupon1.getNotional() / cmsCoupon1.getPaymentYearFraction();
    final double expectedRate2 = cmsCoupon2Price / discountFactorPayment / cmsCoupon2.getNotional() / cmsCoupon2.getPaymentYearFraction();
    final double forward1 = SWAP_1.accept(parRate, CURVES);
    final double forward2 = SWAP_2.accept(parRate, CURVES);
    final CapFloorCMS cmsCap1 = CapFloorCMS.from(cmsCoupon1, forward1, true);
    final CapFloorCMS cmsCap2 = CapFloorCMS.from(cmsCoupon2, forward2, true);
    final double cmsCap1Price = methodCmsCap.presentValue(cmsCap1, SABR_BUNDLE).getAmount();
    final double cmsCap2Price = methodCmsCap.presentValue(cmsCap2, SABR_BUNDLE).getAmount();
    final EuropeanVanillaOption optionCap1 = new EuropeanVanillaOption(forward1, FIXING_TIME, true);
    final NormalFunctionData dataCap1 = new NormalFunctionData(expectedRate1, 1.0, 0.0);
    final double cmsCap1IV = impliedVolatility.getImpliedVolatility(dataCap1, optionCap1, cmsCap1Price / discountFactorPayment / cmsCoupon1.getNotional() / cmsCoupon1.getPaymentYearFraction());
    final EuropeanVanillaOption optionCap2 = new EuropeanVanillaOption(forward2, FIXING_TIME, true);
    final NormalFunctionData dataCap2 = new NormalFunctionData(expectedRate2, 1.0, 0.0);
    final double cmsCap2IV = impliedVolatility.getImpliedVolatility(dataCap2, optionCap2, cmsCap2Price / discountFactorPayment / cmsCoupon2.getNotional() / cmsCoupon2.getPaymentYearFraction());
    double spreadVol = cmsCap1IV * cmsCap1IV - 2 * correlation * cmsCap1IV * cmsCap2IV + cmsCap2IV * cmsCap2IV;
    spreadVol = Math.sqrt(spreadVol);
    final EuropeanVanillaOption optionSpread = new EuropeanVanillaOption(STRIKE, FIXING_TIME, IS_CAP);
    final NormalFunctionData dataSpread = new NormalFunctionData(expectedRate1 - expectedRate2, 1.0, spreadVol);
    final Function1D<NormalFunctionData, Double> priceFunction = normalPrice.getPriceFunction(optionSpread);
    final double cmsSpreadPriceExpected = discountFactorPayment * priceFunction.evaluate(dataSpread) * CMS_CAP_SPREAD.getNotional() * CMS_CAP_SPREAD.getPaymentYearFraction();
    assertEquals("CMS spread: price with constant correlation", cmsSpreadPriceExpected, cmsSpreadPrice, TOLERANCE_PRICE);
  }
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    final double cmsSpreadPrice = method.presentValue(CMS_CAP_SPREAD, SABR_MULTICURVES).getAmount(EUR);
    final double discountFactorPayment = MULTICURVES.getDiscountFactor(EUR, PAYMENT_TIME);
    final CouponCMSSABRReplicationMethod methodCms = CouponCMSSABRReplicationMethod.getInstance();
    final CapFloorCMSSABRReplicationMethod methodCmsCap = CapFloorCMSSABRReplicationMethod.getDefaultInstance();
    final NormalImpliedVolatilityFormula impliedVolatility = new NormalImpliedVolatilityFormula();
    final NormalPriceFunction normalPrice = new NormalPriceFunction();
    final CouponCMS cmsCoupon1 = CouponCMS.from(CMS_CAP_SPREAD, SWAP_1, SETTLEMENT_TIME);
    final CouponCMS cmsCoupon2 = CouponCMS.from(CMS_CAP_SPREAD, SWAP_2, SETTLEMENT_TIME);
    final double cmsCoupon1Price = methodCms.presentValue(cmsCoupon1, SABR_MULTICURVES).getAmount(EUR);
    final double cmsCoupon2Price = methodCms.presentValue(cmsCoupon2, SABR_MULTICURVES).getAmount(EUR);
    final double expectedRate1 = cmsCoupon1Price / discountFactorPayment / cmsCoupon1.getNotional() / cmsCoupon1.getPaymentYearFraction();
    final double expectedRate2 = cmsCoupon2Price / discountFactorPayment / cmsCoupon2.getNotional() / cmsCoupon2.getPaymentYearFraction();
    final double forward1 = SWAP_1.accept(PRDC, MULTICURVES);
    final double forward2 = SWAP_2.accept(PRDC, MULTICURVES);
    final CapFloorCMS cmsCap1 = CapFloorCMS.from(cmsCoupon1, forward1, true);
    final CapFloorCMS cmsCap2 = CapFloorCMS.from(cmsCoupon2, forward2, true);
    final double cmsCap1Price = methodCmsCap.presentValue(cmsCap1, SABR_MULTICURVES).getAmount(EUR);
    final double cmsCap2Price = methodCmsCap.presentValue(cmsCap2, SABR_MULTICURVES).getAmount(EUR);
    final EuropeanVanillaOption optionCap1 = new EuropeanVanillaOption(forward1, FIXING_TIME, true);
    final NormalFunctionData dataCap1 = new NormalFunctionData(expectedRate1, 1.0, 0.0);
    final double cmsCap1IV = impliedVolatility.getImpliedVolatility(dataCap1, optionCap1, cmsCap1Price / discountFactorPayment / cmsCoupon1.getNotional() / cmsCoupon1.getPaymentYearFraction());
    final EuropeanVanillaOption optionCap2 = new EuropeanVanillaOption(forward2, FIXING_TIME, true);
    final NormalFunctionData dataCap2 = new NormalFunctionData(expectedRate2, 1.0, 0.0);
    final double cmsCap2IV = impliedVolatility.getImpliedVolatility(dataCap2, optionCap2, cmsCap2Price / discountFactorPayment / cmsCoupon2.getNotional() / cmsCoupon2.getPaymentYearFraction());
    double spreadVol = cmsCap1IV * cmsCap1IV - 2 * correlation * cmsCap1IV * cmsCap2IV + cmsCap2IV * cmsCap2IV;
    spreadVol = Math.sqrt(spreadVol);
    final EuropeanVanillaOption optionSpread = new EuropeanVanillaOption(STRIKE, FIXING_TIME, IS_CAP);
    final NormalFunctionData dataSpread = new NormalFunctionData(expectedRate1 - expectedRate2, 1.0, spreadVol);
    final Function1D<NormalFunctionData, Double> priceFunction = normalPrice.getPriceFunction(optionSpread);
    final double cmsSpreadPriceExpected = discountFactorPayment * priceFunction.evaluate(dataSpread) * CMS_CAP_SPREAD.getNotional() * CMS_CAP_SPREAD.getPaymentYearFraction();
    assertEquals("CMS spread: price with constant correlation", cmsSpreadPriceExpected, cmsSpreadPrice, TOLERANCE_PV);
  }
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