/**
* 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.provider;
import com.opengamma.analytics.financial.interestrate.annuity.derivative.AnnuityPaymentFixed;
import com.opengamma.analytics.financial.interestrate.swaption.derivative.SwaptionPhysicalFixedIbor;
import com.opengamma.analytics.financial.model.interestrate.HullWhiteOneFactorPiecewiseConstantInterestRateModel;
import com.opengamma.analytics.financial.provider.calculator.discounting.CashFlowEquivalentCalculator;
import com.opengamma.analytics.financial.provider.description.interestrate.HullWhiteOneFactorProviderInterface;
import com.opengamma.analytics.math.function.Function1D;
import com.opengamma.analytics.math.integration.RungeKuttaIntegrator1D;
import com.opengamma.util.ArgumentChecker;
import com.opengamma.util.money.Currency;
import com.opengamma.util.money.MultipleCurrencyAmount;
/**
* Method to compute the present value of physical delivery European swaptions with the Hull-White one factor model by numerical integration.
*/
public final class SwaptionPhysicalFixedIborHullWhiteNumericalIntegrationMethod {
/**
* The method unique instance.
*/
private static final SwaptionPhysicalFixedIborHullWhiteNumericalIntegrationMethod INSTANCE = new SwaptionPhysicalFixedIborHullWhiteNumericalIntegrationMethod();
/**
* Return the unique instance of the class.
* @return The instance.
*/
public static SwaptionPhysicalFixedIborHullWhiteNumericalIntegrationMethod getInstance() {
return INSTANCE;
}
/**
* Private constructor.
*/
private SwaptionPhysicalFixedIborHullWhiteNumericalIntegrationMethod() {
}
/**
* The model used in computations.
*/
private static final HullWhiteOneFactorPiecewiseConstantInterestRateModel MODEL = new HullWhiteOneFactorPiecewiseConstantInterestRateModel();
/**
* The cash flow equivalent calculator used in computations.
*/
private static final CashFlowEquivalentCalculator CFEC = CashFlowEquivalentCalculator.getInstance();
/**
* Minimal number of integration steps in the replication.
*/
private static final int NB_INTEGRATION = 6;
/**
* Computes the present value of the Physical delivery swaption.
* @param swaption The swaption.
* @param hullWhite The Hull-White parameters and the curves.
* @return The present value.
*/
public MultipleCurrencyAmount presentValue(final SwaptionPhysicalFixedIbor swaption, final HullWhiteOneFactorProviderInterface hullWhite) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(hullWhite, "Hull-White provider");
final Currency ccy = swaption.getCurrency();
final double expiryTime = swaption.getTimeToExpiry();
final AnnuityPaymentFixed cfe = swaption.getUnderlyingSwap().accept(CFEC, hullWhite.getMulticurveProvider());
final double[] alpha = new double[cfe.getNumberOfPayments()];
final double[] df = new double[cfe.getNumberOfPayments()];
final double[] discountedCashFlow = new double[cfe.getNumberOfPayments()];
for (int loopcf = 0; loopcf < cfe.getNumberOfPayments(); loopcf++) {
alpha[loopcf] = MODEL.alpha(hullWhite.getHullWhiteParameters(), 0.0, expiryTime, expiryTime, cfe.getNthPayment(loopcf).getPaymentTime());
df[loopcf] = hullWhite.getMulticurveProvider().getDiscountFactor(ccy, cfe.getNthPayment(loopcf).getPaymentTime());
discountedCashFlow[loopcf] = df[loopcf] * cfe.getNthPayment(loopcf).getAmount();
}
// Integration
final SwaptionIntegrant integrant = new SwaptionIntegrant(discountedCashFlow, alpha);
final double limit = 10.0;
final double absoluteTolerance = 1.0E-2;
final double relativeTolerance = 1.0E-6;
final RungeKuttaIntegrator1D integrator = new RungeKuttaIntegrator1D(absoluteTolerance, relativeTolerance, NB_INTEGRATION);
double pv = 0.0;
try {
pv = 1.0 / Math.sqrt(2.0 * Math.PI) * integrator.integrate(integrant, -limit, limit) * (swaption.isLong() ? 1.0 : -1.0);
} catch (final Exception e) {
throw new RuntimeException(e);
}
return MultipleCurrencyAmount.of(swaption.getCurrency(), pv);
}
/**
* Inner class to implement the integration used in price replication.
*/
private static final class SwaptionIntegrant extends Function1D<Double, Double> {
private final double[] _discountedCashFlow;
private final double[] _alpha;
/**
* Constructor to the integrant function.
* @param discountedCashFlow The discounted cash flows.
* @param alpha The bond volatilities.
*/
public SwaptionIntegrant(final double[] discountedCashFlow, final double[] alpha) {
_discountedCashFlow = discountedCashFlow;
_alpha = alpha;
}
@Override
public Double evaluate(final Double x) {
double result = 0.0;
for (int loopcf = 0; loopcf < _discountedCashFlow.length; loopcf++) {
result += _discountedCashFlow[loopcf] * Math.exp(-(x + _alpha[loopcf]) * (x + _alpha[loopcf]) / 2.0);
}
return Math.max(result, 0.0);
}
}
}