/**
* 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.PresentValueSABRSensitivityDataBundle;
import com.opengamma.analytics.financial.interestrate.swap.provider.SwapFixedCouponDiscountingMethod;
import com.opengamma.analytics.financial.interestrate.swaption.derivative.SwaptionPhysicalFixedIbor;
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.financial.model.option.pricing.analytic.formula.SABRExtrapolationRightFunction;
import com.opengamma.analytics.financial.model.volatility.smile.function.SABRFormulaData;
import com.opengamma.analytics.financial.provider.calculator.discounting.ParRateCurveSensitivityDiscountingCalculator;
import com.opengamma.analytics.financial.provider.calculator.discounting.ParRateDiscountingCalculator;
import com.opengamma.analytics.financial.provider.description.interestrate.MulticurveProviderInterface;
import com.opengamma.analytics.financial.provider.description.interestrate.SABRSwaptionProviderInterface;
import com.opengamma.analytics.financial.provider.sensitivity.multicurve.MulticurveSensitivity;
import com.opengamma.analytics.financial.provider.sensitivity.multicurve.MultipleCurrencyMulticurveSensitivity;
import com.opengamma.analytics.math.function.Function1D;
import com.opengamma.financial.convention.daycount.DayCount;
import com.opengamma.util.ArgumentChecker;
import com.opengamma.util.money.Currency;
import com.opengamma.util.money.MultipleCurrencyAmount;
import com.opengamma.util.tuple.DoublesPair;
/**
* Class used to compute the price and sensitivity of a physical delivery swaption with SABR model and extrapolation to the right.
* Implemented only for the SABRHaganVolatilityFunction.
* OpenGamma implementation note for the extrapolation: Smile extrapolation, version 1.2, May 2011.
*/
public class SwaptionPhysicalFixedIborSABRExtrapolationRightMethod {
/**
* The cut-off strike. The smile is extrapolated above that level.
*/
private final double _cutOffStrike;
/**
* The tail thickness parameter.
*/
private final double _mu;
/**
* The calculator and methods.
*/
private static final SwapFixedCouponDiscountingMethod METHOD_SWAP = SwapFixedCouponDiscountingMethod.getInstance();
private static final ParRateDiscountingCalculator PRDC = ParRateDiscountingCalculator.getInstance();
private static final ParRateCurveSensitivityDiscountingCalculator PRCSDC = ParRateCurveSensitivityDiscountingCalculator.getInstance();
/**
* Constructor from cut-off strike and tail parameter.
* @param cutOffStrike The cut-off strike.
* @param mu The tail thickness parameter.
*/
public SwaptionPhysicalFixedIborSABRExtrapolationRightMethod(final double cutOffStrike, final double mu) {
_cutOffStrike = cutOffStrike;
_mu = mu;
}
/**
* Computes the present value of a physical delivery European swaption in the SABR model with extrapolation to the right.
* @param swaption The swaption.
* @param sabrData The SABR data.
* @return The present value.
*/
public MultipleCurrencyAmount presentValue(final SwaptionPhysicalFixedIbor swaption, final SABRSwaptionProviderInterface sabrData) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(sabrData, "SABR swaption provider");
final DayCount dayCountModification = sabrData.getSABRGenerator().getFixedLegDayCount();
final MulticurveProviderInterface multicurves = sabrData.getMulticurveProvider();
final Currency ccy = swaption.getCurrency();
final double pvbpModified = METHOD_SWAP.presentValueBasisPoint(swaption.getUnderlyingSwap(), dayCountModification, multicurves);
final double forwardModified = PRDC.visitFixedCouponSwap(swaption.getUnderlyingSwap(), dayCountModification, multicurves);
final double strikeModified = METHOD_SWAP.couponEquivalent(swaption.getUnderlyingSwap(), pvbpModified, multicurves);
final double maturity = swaption.getMaturityTime();
final EuropeanVanillaOption option = new EuropeanVanillaOption(strikeModified, swaption.getTimeToExpiry(), swaption.isCall());
// Implementation note: option required to pass the strike (in case the swap has non-constant coupon).
if (strikeModified <= _cutOffStrike) { // No extrapolation
final BlackPriceFunction blackFunction = new BlackPriceFunction();
final double volatility = sabrData.getSABRParameter().getVolatility(swaption.getTimeToExpiry(), maturity, strikeModified, forwardModified);
final BlackFunctionData dataBlack = new BlackFunctionData(forwardModified, pvbpModified, volatility);
final Function1D<BlackFunctionData, Double> func = blackFunction.getPriceFunction(option);
return MultipleCurrencyAmount.of(ccy, func.evaluate(dataBlack) * (swaption.isLong() ? 1.0 : -1.0));
}
// With extrapolation
final DoublesPair expiryMaturity = new DoublesPair(swaption.getTimeToExpiry(), maturity);
final double alpha = sabrData.getSABRParameter().getAlpha(expiryMaturity);
final double beta = sabrData.getSABRParameter().getBeta(expiryMaturity);
final double rho = sabrData.getSABRParameter().getRho(expiryMaturity);
final double nu = sabrData.getSABRParameter().getNu(expiryMaturity);
final SABRFormulaData sabrParam = new SABRFormulaData(alpha, beta, rho, nu);
final SABRExtrapolationRightFunction sabrExtrapolation = new SABRExtrapolationRightFunction(forwardModified, sabrParam, _cutOffStrike, swaption.getTimeToExpiry(), _mu);
return MultipleCurrencyAmount.of(ccy, pvbpModified * sabrExtrapolation.price(option) * (swaption.isLong() ? 1.0 : -1.0));
}
/**
* Computes the present value rate sensitivity to rates of a physical delivery European swaption in the SABR model with extrapolation to the right.
* @param swaption The swaption.
* @param sabrData The SABR data. The SABR function need to be the Hagan function.
* @return The present value curve sensitivity.
*/
public MultipleCurrencyMulticurveSensitivity presentValueCurveSensitivity(final SwaptionPhysicalFixedIbor swaption, final SABRSwaptionProviderInterface sabrData) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(sabrData, "SABR swaption provider");
final DayCount dayCountModification = sabrData.getSABRGenerator().getFixedLegDayCount();
final MulticurveProviderInterface multicurves = sabrData.getMulticurveProvider();
final Currency ccy = swaption.getCurrency();
final double pvbpModified = METHOD_SWAP.presentValueBasisPoint(swaption.getUnderlyingSwap(), dayCountModification, multicurves);
final double forwardModified = PRDC.visitFixedCouponSwap(swaption.getUnderlyingSwap(), dayCountModification, multicurves);
final double strikeModified = METHOD_SWAP.couponEquivalent(swaption.getUnderlyingSwap(), pvbpModified, multicurves);
final double maturity = swaption.getMaturityTime();
// Derivative of the forward and pvbp with respect to the rates.
final MulticurveSensitivity pvbpModifiedDr = METHOD_SWAP.presentValueBasisPointCurveSensitivity(swaption.getUnderlyingSwap(), dayCountModification, multicurves);
final MulticurveSensitivity forwardModifiedDr = PRCSDC.visitFixedCouponSwap(swaption.getUnderlyingSwap(), dayCountModification, multicurves);
// Implementation note: option required to pass the strike (in case the swap has non-constant coupon).
final EuropeanVanillaOption option = new EuropeanVanillaOption(strikeModified, swaption.getTimeToExpiry(), swaption.isCall());
// With extrapolation
final DoublesPair expiryMaturity = new DoublesPair(swaption.getTimeToExpiry(), maturity);
final double alpha = sabrData.getSABRParameter().getAlpha(expiryMaturity);
final double beta = sabrData.getSABRParameter().getBeta(expiryMaturity);
final double rho = sabrData.getSABRParameter().getRho(expiryMaturity);
final double nu = sabrData.getSABRParameter().getNu(expiryMaturity);
final SABRFormulaData sabrParam = new SABRFormulaData(alpha, beta, rho, nu);
final SABRExtrapolationRightFunction sabrExtrapolation = new SABRExtrapolationRightFunction(forwardModified, sabrParam, _cutOffStrike, swaption.getTimeToExpiry(), _mu);
MulticurveSensitivity result = pvbpModifiedDr.multipliedBy(sabrExtrapolation.price(option));
final double priceDF = sabrExtrapolation.priceDerivativeForward(option);
result = result.plus(forwardModifiedDr.multipliedBy(pvbpModified * priceDF));
if (!swaption.isLong()) {
result = result.multipliedBy(-1);
}
return MultipleCurrencyMulticurveSensitivity.of(ccy, result);
}
/**
* Computes the present value SABR sensitivity of a physical delivery European swaption in the SABR model with extrapolation to the right.
* @param swaption The swaption.
* @param sabrData The SABR data. The SABR function need to be the Hagan function.
* @return The present value SABR sensitivity.
*/
public PresentValueSABRSensitivityDataBundle presentValueSABRSensitivity(final SwaptionPhysicalFixedIbor swaption, final SABRSwaptionProviderInterface sabrData) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(sabrData, "SABR swaption provider");
final DayCount dayCountModification = sabrData.getSABRGenerator().getFixedLegDayCount();
final MulticurveProviderInterface multicurves = sabrData.getMulticurveProvider();
final double pvbpModified = METHOD_SWAP.presentValueBasisPoint(swaption.getUnderlyingSwap(), dayCountModification, multicurves);
final double forwardModified = PRDC.visitFixedCouponSwap(swaption.getUnderlyingSwap(), dayCountModification, multicurves);
final double strikeModified = METHOD_SWAP.couponEquivalent(swaption.getUnderlyingSwap(), pvbpModified, multicurves);
final double maturity = swaption.getMaturityTime();
final PresentValueSABRSensitivityDataBundle sensi = new PresentValueSABRSensitivityDataBundle();
final DoublesPair expiryMaturity = new DoublesPair(swaption.getTimeToExpiry(), maturity);
// Implementation note: option required to pass the strike (in case the swap has non-constant coupon).
final EuropeanVanillaOption option = new EuropeanVanillaOption(strikeModified, swaption.getTimeToExpiry(), swaption.isCall());
final double alpha = sabrData.getSABRParameter().getAlpha(expiryMaturity);
final double beta = sabrData.getSABRParameter().getBeta(expiryMaturity);
final double rho = sabrData.getSABRParameter().getRho(expiryMaturity);
final double nu = sabrData.getSABRParameter().getNu(expiryMaturity);
final SABRFormulaData sabrParam = new SABRFormulaData(alpha, beta, rho, nu);
final SABRExtrapolationRightFunction sabrExtrapolation = new SABRExtrapolationRightFunction(forwardModified, sabrParam, _cutOffStrike, swaption.getTimeToExpiry(), _mu);
final double[] priceDSabr = new double[4];
sabrExtrapolation.priceAdjointSABR(option, priceDSabr);
final double omega = (swaption.isLong() ? 1.0 : -1.0);
sensi.addAlpha(expiryMaturity, omega * pvbpModified * priceDSabr[0]);
sensi.addBeta(expiryMaturity, omega * pvbpModified * priceDSabr[1]);
sensi.addRho(expiryMaturity, omega * pvbpModified * priceDSabr[2]);
sensi.addNu(expiryMaturity, omega * pvbpModified * priceDSabr[3]);
return sensi;
}
}