/**
* Copyright (C) 2012 - present by OpenGamma Inc. and the OpenGamma group of companies
*
* Please see distribution for license.
*/
package com.opengamma.analytics.financial.interestrate.annuity.provider;
import static org.testng.AssertJUnit.assertEquals;
import org.testng.annotations.Test;
import org.threeten.bp.Period;
import org.threeten.bp.ZonedDateTime;
import cern.jet.random.engine.MersenneTwister;
import com.opengamma.analytics.financial.instrument.annuity.AnnuityCapFloorIborDefinition;
import com.opengamma.analytics.financial.instrument.annuity.AnnuityCouponFixedDefinition;
import com.opengamma.analytics.financial.instrument.annuity.AnnuityCouponIborDefinition;
import com.opengamma.analytics.financial.instrument.annuity.AnnuityCouponIborRatchetDefinition;
import com.opengamma.analytics.financial.instrument.index.IborIndex;
import com.opengamma.analytics.financial.interestrate.annuity.derivative.Annuity;
import com.opengamma.analytics.financial.interestrate.annuity.derivative.AnnuityCouponFixed;
import com.opengamma.analytics.financial.interestrate.annuity.derivative.AnnuityCouponIborRatchet;
import com.opengamma.analytics.financial.interestrate.payments.derivative.CapFloorIbor;
import com.opengamma.analytics.financial.interestrate.payments.derivative.Coupon;
import com.opengamma.analytics.financial.interestrate.payments.derivative.Payment;
import com.opengamma.analytics.financial.interestrate.payments.provider.CapFloorIborLMMDDMethod;
import com.opengamma.analytics.financial.model.interestrate.TestsDataSetLiborMarketModelDisplacedDiffusion;
import com.opengamma.analytics.financial.model.interestrate.definition.LiborMarketModelDisplacedDiffusionParameters;
import com.opengamma.analytics.financial.montecarlo.provider.LiborMarketModelMonteCarloMethod;
import com.opengamma.analytics.financial.provider.calculator.discounting.PresentValueDiscountingCalculator;
import com.opengamma.analytics.financial.provider.description.MulticurveProviderDiscountDataSets;
import com.opengamma.analytics.financial.provider.description.interestrate.LiborMarketModelDisplacedDiffusionProviderDiscount;
import com.opengamma.analytics.financial.provider.description.interestrate.MulticurveProviderDiscount;
import com.opengamma.analytics.math.random.NormalRandomNumberGenerator;
import com.opengamma.financial.convention.calendar.Calendar;
import com.opengamma.timeseries.DoubleTimeSeries;
import com.opengamma.timeseries.precise.zdt.ImmutableZonedDateTimeDoubleTimeSeries;
import com.opengamma.util.money.Currency;
import com.opengamma.util.money.MultipleCurrencyAmount;
import com.opengamma.util.time.DateUtils;
/**
* Tests the Libor Market Model method for Annuity on Ibor Ratchet.
*/
public class AnnuityCouponIborRatchetLMMMethodTest {
private static final MulticurveProviderDiscount MULTICURVES = MulticurveProviderDiscountDataSets.createMulticurveEurUsd();
private static final IborIndex EURIBOR3M = MulticurveProviderDiscountDataSets.getIndexesIborMulticurveEurUsd()[0];
private static final Currency EUR = EURIBOR3M.getCurrency();
private static final Calendar TARGET = MulticurveProviderDiscountDataSets.getEURCalendar();
private static final ZonedDateTime REFERENCE_DATE = DateUtils.getUTCDate(2011, 9, 5);
// Annuity description
private static final ZonedDateTime SETTLEMENT_DATE = DateUtils.getUTCDate(2011, 9, 7);
private static final int ANNUITY_TENOR_YEAR = 2;
private static final Period ANNUITY_TENOR = Period.ofYears(ANNUITY_TENOR_YEAR);
private static final boolean IS_PAYER = false;
private static final double NOTIONAL = 100000000; // 100m
private static final double[] MAIN_COEF = new double[] {0.20, 0.80, 0.0010};
private static final double[] FLOOR_COEF = new double[] {0.50, 0.00, 0.0200};
private static final double[] CAP_COEF = new double[] {1.00, 0.00, 0.0300};
private static final double FIRST_CPN_RATE = 0.04;
private static final AnnuityCouponIborRatchetDefinition ANNUITY_RATCHET_FIXED_DEFINITION = AnnuityCouponIborRatchetDefinition.withFirstCouponFixed(SETTLEMENT_DATE, ANNUITY_TENOR, NOTIONAL,
EURIBOR3M, IS_PAYER, FIRST_CPN_RATE, MAIN_COEF, FLOOR_COEF, CAP_COEF, TARGET);
private static final AnnuityCouponIborRatchetDefinition ANNUITY_RATCHET_IBOR_DEFINITION = AnnuityCouponIborRatchetDefinition.withFirstCouponIborGearing(SETTLEMENT_DATE, ANNUITY_TENOR, NOTIONAL,
EURIBOR3M, IS_PAYER, MAIN_COEF, FLOOR_COEF, CAP_COEF, TARGET);
// Curves and derivatives
private static final DoubleTimeSeries<ZonedDateTime> FIXING_TS = ImmutableZonedDateTimeDoubleTimeSeries.ofUTC(new ZonedDateTime[] {REFERENCE_DATE}, new double[] {FIRST_CPN_RATE});
private static final AnnuityCouponIborRatchet ANNUITY_RATCHET_FIXED = ANNUITY_RATCHET_FIXED_DEFINITION.toDerivative(REFERENCE_DATE, FIXING_TS);
// Methods and calculators
private static final int NB_PATH = 12500;
private static final LiborMarketModelDisplacedDiffusionParameters PARAMETERS_LMM = TestsDataSetLiborMarketModelDisplacedDiffusion.createLMMParameters(REFERENCE_DATE,
ANNUITY_RATCHET_FIXED_DEFINITION);
private static final LiborMarketModelDisplacedDiffusionProviderDiscount LMM_MULTICURVES = new LiborMarketModelDisplacedDiffusionProviderDiscount(MULTICURVES, PARAMETERS_LMM, EUR);
private static final PresentValueDiscountingCalculator PVDC = PresentValueDiscountingCalculator.getInstance();
private static final double TOLERANCE_PV = 1.0E-2;
private static final double TOLERANCE_PV_MC = 5.0E+3;
@Test
/**
* Test the Ratchet present value in the case where the first coupon is fixed. Tested against a previous run number.
*/
public void presentValueFixed() {
LiborMarketModelMonteCarloMethod methodMC;
methodMC = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), NB_PATH);
// Seed fixed to the DEFAULT_SEED for testing purposes.
final MultipleCurrencyAmount pvMC = methodMC.presentValue(ANNUITY_RATCHET_FIXED, EUR, LMM_MULTICURVES);
final double pvMCPreviousRun = 8030175.607;
assertEquals("Annuity Ratchet Ibor - LMM - Monte Carlo", pvMCPreviousRun, pvMC.getAmount(EUR), TOLERANCE_PV);
}
@Test
public void presentValueIbor() {
final ZonedDateTime referenceDate = DateUtils.getUTCDate(2011, 8, 18);
final AnnuityCouponIborRatchet annuityRatchetIbor = ANNUITY_RATCHET_IBOR_DEFINITION.toDerivative(referenceDate, FIXING_TS);
final LiborMarketModelDisplacedDiffusionParameters parameterLMM = TestsDataSetLiborMarketModelDisplacedDiffusion.createLMMParameters(referenceDate, ANNUITY_RATCHET_FIXED_DEFINITION);
final LiborMarketModelDisplacedDiffusionProviderDiscount bundleLMM = new LiborMarketModelDisplacedDiffusionProviderDiscount(MULTICURVES, parameterLMM, EUR);
final LiborMarketModelMonteCarloMethod methodMC = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), NB_PATH);
// Seed fixed to the DEFAULT_SEED for testing purposes.
final MultipleCurrencyAmount pvMC = methodMC.presentValue(annuityRatchetIbor, EUR, bundleLMM);
final double pvMCPreviousRun = 7675269.115;
assertEquals("Annuity Ratchet Ibor - LMM - Monte Carlo", pvMCPreviousRun, pvMC.getAmount(EUR), TOLERANCE_PV);
}
@Test
/**
* Test the Ratchet present value in the degenerate case where the coupon are fixed (floor=cap).
*/
public void presentValueFixedLeg() {
final int nbPath = 12500;
final LiborMarketModelMonteCarloMethod methodMC = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), nbPath);
final double[] mainFixed = new double[] {0.0, 0.0, 0.0};
final double[] floorFixed = new double[] {0.0, 0.0, FIRST_CPN_RATE};
final double[] capFixed = new double[] {0.0, 0.0, FIRST_CPN_RATE};
final AnnuityCouponIborRatchetDefinition ratchetFixedDefinition = AnnuityCouponIborRatchetDefinition.withFirstCouponFixed(SETTLEMENT_DATE, ANNUITY_TENOR, NOTIONAL, EURIBOR3M, IS_PAYER,
FIRST_CPN_RATE, mainFixed, floorFixed, capFixed, TARGET);
final AnnuityCouponIborRatchet ratchetFixed = ratchetFixedDefinition.toDerivative(REFERENCE_DATE, FIXING_TS);
final AnnuityCouponFixedDefinition fixedDefinition = AnnuityCouponFixedDefinition.from(EUR, SETTLEMENT_DATE, ANNUITY_TENOR, EURIBOR3M.getTenor(), TARGET, EURIBOR3M.getDayCount(),
EURIBOR3M.getBusinessDayConvention(), EURIBOR3M.isEndOfMonth(), NOTIONAL, FIRST_CPN_RATE, IS_PAYER);
final AnnuityCouponFixed fixed = fixedDefinition.toDerivative(REFERENCE_DATE);
final MultipleCurrencyAmount pvFixedExpected = fixed.accept(PVDC, MULTICURVES);
final MultipleCurrencyAmount pvFixedMC = methodMC.presentValue(ratchetFixed, EUR, LMM_MULTICURVES);
assertEquals("Annuity Ratchet Ibor - LMM - Monte Carlo - Degenerate in Fixed leg", pvFixedExpected.getAmount(EUR), pvFixedMC.getAmount(EUR), TOLERANCE_PV_MC);
// For 500,000 path the difference is xxx
}
@Test(enabled = true)
/**
* Test the Ratchet present value in the degenerate case where the coupon are ibor (no cap/floor, ibor factor=1.0).
*/
public void presentValueIborLeg() {
final int nbPath = 12500;
final double[] mainIbor = new double[] {0.0, 1.0, 0.0};
final double[] floorIbor = new double[] {0.0, 0.0, -10.0};
final double[] capIbor = new double[] {0.0, 0.0, +50.0};
final AnnuityCouponIborRatchetDefinition ratchetFixedDefinition = AnnuityCouponIborRatchetDefinition.withFirstCouponFixed(SETTLEMENT_DATE, ANNUITY_TENOR, NOTIONAL, EURIBOR3M, IS_PAYER,
FIRST_CPN_RATE, mainIbor, floorIbor, capIbor, TARGET);
final AnnuityCouponIborRatchet ratchetFixed = ratchetFixedDefinition.toDerivative(REFERENCE_DATE, FIXING_TS);
final AnnuityCouponIborDefinition iborDefinition = AnnuityCouponIborDefinition.from(SETTLEMENT_DATE, ANNUITY_TENOR, NOTIONAL, EURIBOR3M, IS_PAYER, TARGET);
final Annuity<? extends Coupon> ibor = iborDefinition.toDerivative(REFERENCE_DATE, FIXING_TS);
final Coupon[] iborFirstFixed = new Coupon[ibor.getNumberOfPayments()];
iborFirstFixed[0] = ratchetFixed.getNthPayment(0);
for (int loopcpn = 1; loopcpn < ibor.getNumberOfPayments(); loopcpn++) {
iborFirstFixed[loopcpn] = ibor.getNthPayment(loopcpn);
}
final LiborMarketModelDisplacedDiffusionParameters parameterLMM = TestsDataSetLiborMarketModelDisplacedDiffusion.createLMMParameters(REFERENCE_DATE, ratchetFixedDefinition);
final LiborMarketModelDisplacedDiffusionProviderDiscount bundleLMM = new LiborMarketModelDisplacedDiffusionProviderDiscount(MULTICURVES, parameterLMM, EUR);
final LiborMarketModelMonteCarloMethod methodMC = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), nbPath);
final MultipleCurrencyAmount pvIborMC = methodMC.presentValue(ratchetFixed, EUR, bundleLMM);
final MultipleCurrencyAmount pvIborExpected = new Annuity<Payment>(iborFirstFixed).accept(PVDC, MULTICURVES);
assertEquals("Annuity Ratchet Ibor - Hull-White - Monte Carlo - Degenerate in Ibor leg", pvIborExpected.getAmount(EUR), pvIborMC.getAmount(EUR), TOLERANCE_PV_MC);
// For 500,000 path the difference is xxx
}
@Test(enabled = true)
/**
* Test the Ratchet present value in the degenerate case where the coupon are 0.65*Ibor floored.
*/
public void presentValueFloorFixed() {
final int nbPath = 12500;
final double strike = 0.04;
final double factor = 0.65;
final double[] mainIbor = new double[] {0.0, factor, 0.0};
final double[] floorIbor = new double[] {0.0, 0.0, factor * strike};
final double[] capIbor = new double[] {0.0, 0.0, +50.0};
final AnnuityCouponIborRatchetDefinition ratchetFixedDefinition = AnnuityCouponIborRatchetDefinition.withFirstCouponFixed(SETTLEMENT_DATE, ANNUITY_TENOR, NOTIONAL, EURIBOR3M, IS_PAYER,
FIRST_CPN_RATE, mainIbor, floorIbor, capIbor, TARGET);
final AnnuityCouponIborRatchet ratchetFixed = ratchetFixedDefinition.toDerivative(REFERENCE_DATE, FIXING_TS);
final AnnuityCapFloorIborDefinition capDefinition = AnnuityCapFloorIborDefinition.from(SETTLEMENT_DATE, SETTLEMENT_DATE.plus(ANNUITY_TENOR), NOTIONAL, EURIBOR3M, IS_PAYER, strike, true, TARGET);
final Annuity<? extends Payment> cap = capDefinition.toDerivative(REFERENCE_DATE, FIXING_TS);
final LiborMarketModelMonteCarloMethod methodMC = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), nbPath);
final CapFloorIborLMMDDMethod methodCapLMM = CapFloorIborLMMDDMethod.getInstance();
final AnnuityCouponFixedDefinition fixedDefinition = AnnuityCouponFixedDefinition.from(EUR, SETTLEMENT_DATE, ANNUITY_TENOR, EURIBOR3M.getTenor(), TARGET, EURIBOR3M.getDayCount(),
EURIBOR3M.getBusinessDayConvention(), EURIBOR3M.isEndOfMonth(), NOTIONAL, strike, IS_PAYER);
final AnnuityCouponFixed fixed = fixedDefinition.toDerivative(REFERENCE_DATE);
MultipleCurrencyAmount pvFlooredExpected = MultipleCurrencyAmount.of(EUR, 0.0);
pvFlooredExpected = pvFlooredExpected.plus(ratchetFixed.getNthPayment(0).accept(PVDC, MULTICURVES));
for (int loopcpn = 1; loopcpn < cap.getNumberOfPayments(); loopcpn++) {
pvFlooredExpected = pvFlooredExpected.plus(methodCapLMM.presentValue((CapFloorIbor) cap.getNthPayment(loopcpn), LMM_MULTICURVES).multipliedBy(factor));
pvFlooredExpected = pvFlooredExpected.plus(fixed.getNthPayment(loopcpn).accept(PVDC, MULTICURVES).multipliedBy(factor));
}
final MultipleCurrencyAmount pvFloorMC = methodMC.presentValue(ratchetFixed, EUR, LMM_MULTICURVES);
assertEquals("Annuity Ratchet Ibor - Hull-White - LMM - Degenerate in floor leg", pvFlooredExpected.getAmount(EUR), pvFloorMC.getAmount(EUR), TOLERANCE_PV_MC);
// For 500,000 path the difference is xxx
}
@Test(enabled = false)
/**
* Tests of performance for the price and curve sensitivity by Monte Carlo. "enabled = false" for the standard testing.
*/
public void performance() {
long startTime, endTime;
final int nbTest = 5;
final int nbPath = 12500;
final AnnuityCouponIborRatchetDefinition annuityRatchetIbor20Definition = AnnuityCouponIborRatchetDefinition.withFirstCouponIborGearing(SETTLEMENT_DATE, Period.ofYears(5), NOTIONAL, EURIBOR3M,
IS_PAYER, MAIN_COEF, FLOOR_COEF, CAP_COEF, TARGET);
final ZonedDateTime referenceDate = DateUtils.getUTCDate(2011, 8, 18);
final LiborMarketModelDisplacedDiffusionParameters parameterLMM = TestsDataSetLiborMarketModelDisplacedDiffusion.createLMMParameters(referenceDate, annuityRatchetIbor20Definition);
final LiborMarketModelDisplacedDiffusionProviderDiscount LMMmulticurves = new LiborMarketModelDisplacedDiffusionProviderDiscount(MULTICURVES, parameterLMM, EUR);
final AnnuityCouponIborRatchet annuityRatchetIbor20 = annuityRatchetIbor20Definition.toDerivative(referenceDate, FIXING_TS);
final LiborMarketModelMonteCarloMethod methodMC = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), nbPath);
final MultipleCurrencyAmount[] pvMC = new MultipleCurrencyAmount[nbTest];
// InterestRateCurveSensitivity[] pvcsMC = new InterestRateCurveSensitivity[nbTest];
startTime = System.currentTimeMillis();
for (int looptest = 0; looptest < nbTest; looptest++) {
pvMC[looptest] = methodMC.presentValue(annuityRatchetIbor20, EUR, LMMmulticurves);
}
endTime = System.currentTimeMillis();
System.out.println(nbTest + " pv Ratchet Ibor LMM MC method (provider): " + (endTime - startTime) + " ms");
// Performance note: HW MC price (12500 paths): 18-Dec-2012: On Mac Pro 3.2 GHz Quad-Core Intel Xeon: 5900 ms for 5 Ratchet (20 coupons each). ???
}
}