/**
* 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.curve.YieldAndDiscountCurve;
import com.opengamma.analytics.financial.model.interestrate.definition.HullWhiteOneFactorPiecewiseConstantDataBundle;
import com.opengamma.analytics.financial.model.option.pricing.analytic.formula.BlackFunctionData;
import com.opengamma.analytics.financial.model.option.pricing.analytic.formula.BlackPriceFunction;
import com.opengamma.analytics.financial.model.option.pricing.analytic.formula.EuropeanVanillaOption;
import com.opengamma.analytics.math.function.Function1D;
import com.opengamma.util.ArgumentChecker;
import com.opengamma.util.money.CurrencyAmount;
/**
* Method to computes the present value and sensitivities of physical delivery European swaptions with the Hull-White one factor model through efficient approximation.
* The method does not require the solution of a non-linear equation.
* Reference: Henrard, M. Efficient swaptions price in Hull-White one factor model. arXiv, 2009. http://arxiv.org/abs/0901.1776
* @deprecated Use {@link com.opengamma.analytics.financial.interestrate.swaption.provider.SwaptionPhysicalFixedIborHullWhiteApproximationMethod}
*/
@Deprecated
public class SwaptionPhysicalFixedIborHullWhiteApproximationMethod implements PricingMethod {
/**
* The cash flow equivalent calculator used in computations.
*/
private static final CashFlowEquivalentCalculator CFEC = CashFlowEquivalentCalculator.getInstance();
/**
* Computes the present value of the Physical delivery swaption through approximation..
* @param swaption The swaption.
* @param hwData The Hull-White parameters and the curves.
* @return The present value.
*/
public CurrencyAmount presentValue(final SwaptionPhysicalFixedIbor swaption, final HullWhiteOneFactorPiecewiseConstantDataBundle hwData) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(hwData, "Hull-White data");
final YieldAndDiscountCurve dsc = hwData.getCurve(swaption.getUnderlyingSwap().getFixedLeg().getDiscountCurve());
final double expiry = swaption.getTimeToExpiry();
final AnnuityPaymentFixed cfe = swaption.getUnderlyingSwap().accept(CFEC, hwData);
final int nbCf = cfe.getNumberOfPayments();
final double a = hwData.getHullWhiteParameter().getMeanReversion();
final double[] sigma = hwData.getHullWhiteParameter().getVolatility();
final double[] s = hwData.getHullWhiteParameter().getVolatilityTime();
final double[] cfa = new double[nbCf];
final double[] t = new double[nbCf + 1];
final double[] expt = new double[nbCf + 1];
final double[] dfswap = new double[nbCf];
final double[] p0 = new double[nbCf];
final double[] cP = new double[nbCf];
t[0] = expiry;
expt[0] = Math.exp(-a * t[0]);
for (int loopcf = 0; loopcf < nbCf; loopcf++) {
t[loopcf + 1] = cfe.getNthPayment(loopcf).getPaymentTime();
cfa[loopcf] = -Math.signum(cfe.getNthPayment(0).getAmount()) * cfe.getNthPayment(loopcf).getAmount();
expt[loopcf + 1] = Math.exp(-a * t[loopcf + 1]);
dfswap[loopcf] = dsc.getDiscountFactor(t[loopcf + 1]);
p0[loopcf] = dfswap[loopcf] / dfswap[0];
cP[loopcf] = cfa[loopcf] * p0[loopcf];
}
final double k = -cfa[0];
double b0 = 0.0;
final double[] alpha0 = new double[nbCf - 1];
for (int loopcf = 1; loopcf < nbCf; loopcf++) {
b0 += cP[loopcf];
}
for (int loopcf = 1; loopcf < nbCf; loopcf++) {
alpha0[loopcf - 1] = cfa[loopcf] * p0[loopcf] / b0;
}
double eta2 = 0.0;
int j = 0;
while (expiry > s[j + 1]) {
eta2 += sigma[j] * sigma[j] * (Math.exp(2.0 * a * s[j + 1]) - Math.exp(2.0 * a * s[j]));
j++;
}
eta2 += sigma[j] * sigma[j] * (Math.exp(2.0 * a * expiry) - Math.exp(2.0 * a * s[j]));
eta2 /= 2.0 * a;
final double eta = Math.sqrt(eta2);
final double[] factor2 = new double[nbCf];
final double[] tau = new double[nbCf];
double xbarnum = 0.0;
double xbarde = 0.0;
final double[] pK = new double[nbCf];
for (int loopcf = 0; loopcf < nbCf; loopcf++) {
factor2[loopcf] = (expt[1] - expt[loopcf + 1]) / a;
tau[loopcf] = factor2[loopcf] * eta;
xbarnum += cP[loopcf] - cP[loopcf] * tau[loopcf] * tau[loopcf] / 2.0;
xbarde += cP[loopcf] * tau[loopcf];
}
final double xbar = xbarnum / xbarde;
for (int loopcf = 0; loopcf < nbCf; loopcf++) {
pK[loopcf] = p0[loopcf] * (1.0 - tau[loopcf] * xbar - tau[loopcf] * tau[loopcf] / 2.0);
}
final double[] alphaK = new double[nbCf - 1];
double sigmaK = 0.0;
for (int loopcf = 0; loopcf < nbCf - 1; loopcf++) {
alphaK[loopcf] = cfa[loopcf + 1] * pK[loopcf + 1] / k;
sigmaK += eta * (alpha0[loopcf] + alphaK[loopcf]) * factor2[loopcf + 1] / 2.0;
}
final EuropeanVanillaOption option = new EuropeanVanillaOption(k, 1, !swaption.isCall());
final BlackPriceFunction blackFunction = new BlackPriceFunction();
final BlackFunctionData dataBlack = new BlackFunctionData(b0, dfswap[0], sigmaK);
final Function1D<BlackFunctionData, Double> func = blackFunction.getPriceFunction(option);
final double pv = func.evaluate(dataBlack);
return CurrencyAmount.of(swaption.getUnderlyingSwap().getFirstLeg().getCurrency(), pv * (swaption.isLong() ? 1.0 : -1.0));
}
@Override
public CurrencyAmount presentValue(final InstrumentDerivative instrument, final YieldCurveBundle curves) {
return null;
}
}