/**
* Copyright (C) 2011 - present by OpenGamma Inc. and the OpenGamma group of companies
*
* Please see distribution for license.
*/
package com.opengamma.analytics.financial.interestrate.swaption.method;
import com.opengamma.analytics.financial.interestrate.CashFlowEquivalentCalculator;
import com.opengamma.analytics.financial.interestrate.InstrumentDerivative;
import com.opengamma.analytics.financial.interestrate.YieldCurveBundle;
import com.opengamma.analytics.financial.interestrate.annuity.derivative.AnnuityPaymentFixed;
import com.opengamma.analytics.financial.interestrate.method.PricingMethod;
import com.opengamma.analytics.financial.interestrate.swaption.derivative.SwaptionPhysicalFixedIbor;
import com.opengamma.analytics.financial.model.interestrate.G2ppPiecewiseConstantModel;
import com.opengamma.analytics.financial.model.interestrate.curve.YieldAndDiscountCurve;
import com.opengamma.analytics.financial.model.interestrate.definition.G2ppPiecewiseConstantDataBundle;
import com.opengamma.analytics.math.function.Function2D;
import com.opengamma.analytics.math.integration.IntegratorRepeated2D;
import com.opengamma.analytics.math.integration.RungeKuttaIntegrator1D;
import com.opengamma.util.ArgumentChecker;
import com.opengamma.util.money.CurrencyAmount;
/**
* Method to compute the present value of physical delivery European swaptions with the G2++ model by numerical integration.
* @deprecated Use {@link com.opengamma.analytics.financial.interestrate.swaption.provider.SwaptionPhysicalFixedIborG2ppNumericalIntegrationMethod}
*/
@Deprecated
public class SwaptionPhysicalFixedIborG2ppNumericalIntegrationMethod implements PricingMethod {
/**
* The model used in computations.
*/
private static final G2ppPiecewiseConstantModel MODEL_G2PP = new G2ppPiecewiseConstantModel();
/**
* The cash flow equivalent calculator used in computations.
*/
private static final CashFlowEquivalentCalculator CFEC = CashFlowEquivalentCalculator.getInstance();
/**
* Minimal number of integration steps in the integration.
*/
private static final int NB_INTEGRATION = 50;
/**
* Computes the present value of the Physical delivery swaption through approximation..
* @param swaption The swaption.
* @param g2Data The G2++ parameters and the curves.
* @return The present value.
*/
public CurrencyAmount presentValue(final SwaptionPhysicalFixedIbor swaption, final G2ppPiecewiseConstantDataBundle g2Data) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(g2Data, "G2++ data");
final YieldAndDiscountCurve dsc = g2Data.getCurve(swaption.getUnderlyingSwap().getFixedLeg().getDiscountCurve());
final AnnuityPaymentFixed cfe = swaption.getUnderlyingSwap().accept(CFEC, g2Data);
final double theta = swaption.getTimeToExpiry();
final int nbCf = cfe.getNumberOfPayments();
final double[] t = new double[nbCf];
final double[] df = new double[nbCf];
final double[] discountedCashFlow = new double[nbCf];
for (int loopcf = 0; loopcf < nbCf; loopcf++) {
t[loopcf] = cfe.getNthPayment(loopcf).getPaymentTime();
df[loopcf] = dsc.getDiscountFactor(cfe.getNthPayment(loopcf).getPaymentTime());
discountedCashFlow[loopcf] = df[loopcf] * cfe.getNthPayment(loopcf).getAmount();
}
final double rhog2pp = g2Data.getG2ppParameter().getCorrelation();
final double[][] htheta = MODEL_G2PP.volatilityMaturityPart(g2Data.getG2ppParameter(), theta, t);
final double[][] gamma = MODEL_G2PP.gamma(g2Data.getG2ppParameter(), 0, theta);
final double[][] alpha = new double[2][nbCf];
final double[] tau2 = new double[nbCf];
for (int loopcf = 0; loopcf < nbCf; loopcf++) {
alpha[0][loopcf] = Math.sqrt(gamma[0][0]) * htheta[0][loopcf];
alpha[1][loopcf] = Math.sqrt(gamma[1][1]) * htheta[1][loopcf];
tau2[loopcf] = alpha[0][loopcf] * alpha[0][loopcf] + alpha[1][loopcf] * alpha[1][loopcf] + 2 * rhog2pp * gamma[0][1] * htheta[0][loopcf] * htheta[1][loopcf];
}
final double rhobar = rhog2pp * gamma[0][1] / Math.sqrt(gamma[0][0] * gamma[1][1]);
final SwaptionIntegrant integrant = new SwaptionIntegrant(discountedCashFlow, alpha, tau2, rhobar);
final double limit = 12.0;
final double absoluteTolerance = 1.0E-1;
final double relativeTolerance = 1.0E-6;
final RungeKuttaIntegrator1D integrator1D = new RungeKuttaIntegrator1D(absoluteTolerance, relativeTolerance, NB_INTEGRATION);
final IntegratorRepeated2D integrator2D = new IntegratorRepeated2D(integrator1D);
double pv = 0.0;
try {
pv = 1.0 / (2.0 * Math.PI * Math.sqrt(1 - rhobar * rhobar)) * integrator2D.integrate(integrant, new Double[] {-limit, -limit }, new Double[] {limit, limit });
} catch (final Exception e) {
throw new RuntimeException(e);
}
return CurrencyAmount.of(swaption.getCurrency(), pv * (swaption.isLong() ? 1.0 : -1.0));
}
@Override
public CurrencyAmount presentValue(final InstrumentDerivative instrument, final YieldCurveBundle curves) {
ArgumentChecker.isTrue(instrument instanceof SwaptionPhysicalFixedIbor, "Physical delivery swaption");
ArgumentChecker.isTrue(curves instanceof G2ppPiecewiseConstantDataBundle, "Bundle should contain G2++ data");
return presentValue((SwaptionPhysicalFixedIbor) instrument, (G2ppPiecewiseConstantDataBundle) curves);
}
/**
* Inner class to implement the integration used in price replication.
*/
private static final class SwaptionIntegrant extends Function2D<Double, Double> {
private final double[] _discountedCashFlow;
private final double[][] _alpha;
private final double[] _tau2;
private final double _rhobar;
/**
* Constructor to the integrant function.
* @param discountedCashFlow The discounted cash flows.
* @param alpha The bond volatilities.
*/
public SwaptionIntegrant(final double[] discountedCashFlow, final double[][] alpha, final double[] tau2, final double rhobar) {
_discountedCashFlow = discountedCashFlow;
_alpha = alpha;
_tau2 = tau2;
_rhobar = rhobar;
}
@Override
public Double evaluate(final Double x0, final Double x1) {
double result = 0.0;
final double densityPart = -(x0 * x0 + x1 * x1 - 2 * _rhobar * x0 * x1) / (2.0 * (1 - _rhobar * _rhobar));
for (int loopcf = 0; loopcf < _discountedCashFlow.length; loopcf++) {
result += _discountedCashFlow[loopcf] * Math.exp(-_alpha[0][loopcf] * x0 - _alpha[1][loopcf] * x1 - _tau2[loopcf] / 2.0 + densityPart);
}
return Math.max(result, 0.0);
}
}
}