/**
* Copyright (C) 2011 - present by OpenGamma Inc. and the OpenGamma group of companies
*
* Please see distribution for license.
*/
package com.opengamma.analytics.financial.interestrate.payments.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.index.GeneratorSwapFixedIbor;
import com.opengamma.analytics.financial.instrument.index.IborIndex;
import com.opengamma.analytics.financial.instrument.index.IndexSwap;
import com.opengamma.analytics.financial.instrument.swap.SwapFixedIborDefinition;
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.CouponFixed;
import com.opengamma.analytics.financial.interestrate.payments.derivative.CouponIbor;
import com.opengamma.analytics.financial.interestrate.swap.derivative.SwapFixedCoupon;
import com.opengamma.analytics.financial.model.interestrate.TestsDataSetLiborMarketModelDisplacedDiffusion;
import com.opengamma.analytics.financial.model.interestrate.definition.LiborMarketModelDisplacedDiffusionParameters;
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.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.financial.schedule.ScheduleCalculator;
import com.opengamma.analytics.math.function.Function1D;
import com.opengamma.analytics.math.random.NormalRandomNumberGenerator;
import com.opengamma.financial.convention.calendar.Calendar;
import com.opengamma.util.money.Currency;
import com.opengamma.util.money.MultipleCurrencyAmount;
import com.opengamma.util.time.DateUtils;
/**
* Tests related to the pricing of physical delivery swaption in LMM displaced diffusion.
*/
public class CapFloorIborLMMDDMethodTest {
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 CALENDAR = MulticurveProviderDiscountDataSets.getEURCalendar();
private static final ZonedDateTime REFERENCE_DATE = DateUtils.getUTCDate(2011, 7, 7);
// Swaption 5Yx5Y
private static final int SWAP_TENOR_YEAR = 4;
private static final Period SWAP_TENOR = Period.ofYears(SWAP_TENOR_YEAR);
private static final GeneratorSwapFixedIbor EUR3MEURIBOR3M = new GeneratorSwapFixedIbor("Ibor", EURIBOR3M.getTenor(), EURIBOR3M.getDayCount(), EURIBOR3M, CALENDAR);
private static final IndexSwap SWAP_INDEX = new IndexSwap(EUR3MEURIBOR3M, SWAP_TENOR);
private static final ZonedDateTime SPOT_DATE = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, EURIBOR3M.getSpotLag(), CALENDAR);
private static final ZonedDateTime SETTLEMENT_DATE = ScheduleCalculator.getAdjustedDate(SPOT_DATE, EURIBOR3M.getSpotLag(), CALENDAR);
private static final double NOTIONAL = 100000000; //100m
private static final double STRIKE = 0.0375;
private static final boolean FIXED_IS_PAYER = true;
private static final SwapFixedIborDefinition SWAP_PAYER_DEFINITION = SwapFixedIborDefinition.from(SETTLEMENT_DATE, SWAP_INDEX, NOTIONAL, STRIKE, FIXED_IS_PAYER, CALENDAR);
//to derivatives
private static final SwapFixedCoupon<Coupon> SWAP_PAYER = SWAP_PAYER_DEFINITION.toDerivative(REFERENCE_DATE);
private static final int NB_CPN_IBOR = SWAP_PAYER.getSecondLeg().getNumberOfPayments();
private static final boolean IS_CAP = true;
private static final CouponIbor COUPON_IBOR_LAST = (CouponIbor) SWAP_PAYER.getSecondLeg().getNthPayment(NB_CPN_IBOR - 1);
private static final CouponFixed COUPON_FIXED_LAST = SWAP_PAYER.getFirstLeg().getNthPayment(NB_CPN_IBOR - 1);
private static final CapFloorIbor CAP_LAST = new CapFloorIbor(EUR, COUPON_IBOR_LAST.getPaymentTime(), COUPON_IBOR_LAST.getPaymentYearFraction(), NOTIONAL,
COUPON_IBOR_LAST.getFixingTime(), EURIBOR3M, COUPON_IBOR_LAST.getFixingPeriodStartTime(), COUPON_IBOR_LAST.getFixingPeriodEndTime(), COUPON_IBOR_LAST.getFixingAccrualFactor(),
STRIKE, IS_CAP);
private static final CapFloorIbor FLOOR_LAST = new CapFloorIbor(EUR, COUPON_IBOR_LAST.getPaymentTime(), COUPON_IBOR_LAST.getPaymentYearFraction(), NOTIONAL,
COUPON_IBOR_LAST.getFixingTime(), EURIBOR3M, COUPON_IBOR_LAST.getFixingPeriodStartTime(), COUPON_IBOR_LAST.getFixingPeriodEndTime(), COUPON_IBOR_LAST.getFixingAccrualFactor(),
STRIKE, !IS_CAP);
private static final CapFloorIbor CAP_LAST_SHORT = new CapFloorIbor(EUR, COUPON_IBOR_LAST.getPaymentTime(), COUPON_IBOR_LAST.getPaymentYearFraction(), -NOTIONAL,
COUPON_IBOR_LAST.getFixingTime(), EURIBOR3M, COUPON_IBOR_LAST.getFixingPeriodStartTime(), COUPON_IBOR_LAST.getFixingPeriodEndTime(), COUPON_IBOR_LAST.getFixingAccrualFactor(),
STRIKE, IS_CAP);
private static final CouponIbor COUPON_IBOR_6 = (CouponIbor) SWAP_PAYER.getSecondLeg().getNthPayment(6);
private static final CapFloorIbor CAP_6 = new CapFloorIbor(EUR, COUPON_IBOR_6.getPaymentTime(), COUPON_IBOR_6.getPaymentYearFraction(), NOTIONAL,
COUPON_IBOR_6.getFixingTime(), EURIBOR3M, COUPON_IBOR_6.getFixingPeriodStartTime(), COUPON_IBOR_6.getFixingPeriodEndTime(), COUPON_IBOR_6.getFixingAccrualFactor(),
STRIKE, IS_CAP);
// Parameters and methods
private static final int NB_PATH = 12500;
private static final LiborMarketModelDisplacedDiffusionParameters PARAMETERS_LMM = TestsDataSetLiborMarketModelDisplacedDiffusion.createLMMParameters(REFERENCE_DATE,
SWAP_PAYER_DEFINITION.getIborLeg());
private static final LiborMarketModelDisplacedDiffusionProviderDiscount LMM_MULTICURVES = new LiborMarketModelDisplacedDiffusionProviderDiscount(MULTICURVES, PARAMETERS_LMM, EUR);
private static final CapFloorIborLMMDDMethod METHOD_LMM_CAP = CapFloorIborLMMDDMethod.getInstance();
private static final PresentValueDiscountingCalculator PVDC = PresentValueDiscountingCalculator.getInstance();
private static final BlackPriceFunction BLACK_FUNCTION = new BlackPriceFunction();
private static final double TOLERANCE_PV = 1.0E-2;
// private static final double TOLERANCE_PV_DELTA = 1.0E+0; // 0.01 currency unit for 1bp
@Test
/**
* Test the present value explicit formula in the multi-curves framework.
*/
public void presentValueExplicit() {
final MultipleCurrencyAmount pvLastExplicit = METHOD_LMM_CAP.presentValue(CAP_LAST, LMM_MULTICURVES);
final int index = PARAMETERS_LMM.getTimeIndex(CAP_LAST.getFixingPeriodStartTime());
double volatility = 0;
for (int loopfact = 0; loopfact < PARAMETERS_LMM.getNbFactor(); loopfact++) {
volatility += PARAMETERS_LMM.getVolatility()[index][loopfact] * PARAMETERS_LMM.getVolatility()[index][loopfact];
}
volatility = Math.sqrt(volatility);
final double timeDependentFactor = Math.sqrt((Math.exp(2 * PARAMETERS_LMM.getMeanReversion() * CAP_LAST.getFixingTime()) - 1.0) / (2.0 * PARAMETERS_LMM.getMeanReversion()));
volatility *= timeDependentFactor;
final double displacement = PARAMETERS_LMM.getDisplacement()[index];
final double forward = MULTICURVES.getForwardRate(CAP_LAST.getIndex(), CAP_LAST.getFixingPeriodStartTime(), CAP_LAST.getFixingPeriodEndTime(), CAP_LAST.getFixingAccrualFactor());
final double beta = (1.0 + CAP_LAST.getFixingAccrualFactor() * forward) * MULTICURVES.getDiscountFactor(EUR, CAP_LAST.getFixingPeriodEndTime())
/ MULTICURVES.getDiscountFactor(EUR, CAP_LAST.getFixingPeriodStartTime());
final double strikeAdjusted = (STRIKE - (beta - 1) / CAP_LAST.getFixingAccrualFactor()) / beta;
// Strike adjusted from Forward on forward curve and Forward on discount curve.
final EuropeanVanillaOption option = new EuropeanVanillaOption(strikeAdjusted + displacement, 1.0, CAP_LAST.isCap());
final double forwardDsc = (MULTICURVES.getDiscountFactor(EUR, CAP_LAST.getFixingPeriodStartTime()) / MULTICURVES.getDiscountFactor(EUR, CAP_LAST.getFixingPeriodEndTime()) - 1.0)
/ CAP_LAST.getFixingAccrualFactor();
final double df = MULTICURVES.getDiscountFactor(EUR, CAP_LAST.getPaymentTime());
final BlackFunctionData dataBlack = new BlackFunctionData(forwardDsc + displacement, df, volatility);
final Function1D<BlackFunctionData, Double> func = BLACK_FUNCTION.getPriceFunction(option);
final double pvLastExpected = beta * func.evaluate(dataBlack) * NOTIONAL * CAP_LAST.getPaymentYearFraction();
assertEquals("Cap/floor: LMM pricing by explicit formula - Multi-curves", pvLastExpected, pvLastExplicit.getAmount(EUR), TOLERANCE_PV);
}
@Test
/**
* Test the present value explicit formula in the multi-curves framework.
*/
public void presentValueLongShort() {
final MultipleCurrencyAmount pvLastLong = METHOD_LMM_CAP.presentValue(CAP_LAST, LMM_MULTICURVES);
final MultipleCurrencyAmount pvLastShort = METHOD_LMM_CAP.presentValue(CAP_LAST_SHORT, LMM_MULTICURVES);
assertEquals("Cap/floor: LMM pricing by explicit formula", pvLastLong.getAmount(EUR), -pvLastShort.getAmount(EUR), TOLERANCE_PV);
}
@Test
/**
* Test the present value explicit formula in the multi-curves framework.
*/
public void presentValuePutCallParity() {
final MultipleCurrencyAmount pvCapShort = METHOD_LMM_CAP.presentValue(CAP_LAST_SHORT, LMM_MULTICURVES);
final MultipleCurrencyAmount pvFloorLong = METHOD_LMM_CAP.presentValue(FLOOR_LAST, LMM_MULTICURVES);
final MultipleCurrencyAmount pvFixed = COUPON_FIXED_LAST.accept(PVDC, MULTICURVES);
final MultipleCurrencyAmount pvIbor = COUPON_IBOR_LAST.accept(PVDC, MULTICURVES);
assertEquals("Cap/floor: LMM pricing by explicit formula", -pvIbor.getAmount(EUR) - pvFixed.getAmount(EUR), pvCapShort.getAmount(EUR) + pvFloorLong.getAmount(EUR), TOLERANCE_PV);
}
@Test(enabled = true)
/**
* Test the present value.
*/
public void presentValueMCMultiCurves() {
LiborMarketModelMonteCarloMethod methodLmmMc;
methodLmmMc = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), NB_PATH);
final MultipleCurrencyAmount pvLastMC = methodLmmMc.presentValue(CAP_LAST, EUR, LMM_MULTICURVES);
final double pvLastPreviousRun = 45829.535; // 12500 paths - 1Y jump
assertEquals("Cap/floor: LMM pricing by Monte Carlo", pvLastPreviousRun, pvLastMC.getAmount(EUR), TOLERANCE_PV);
final MultipleCurrencyAmount pvLastExplicit = METHOD_LMM_CAP.presentValue(CAP_LAST, LMM_MULTICURVES);
assertEquals("Cap/floor: LMM pricing by Monte Carlo", pvLastExplicit.getAmount(EUR), pvLastMC.getAmount(EUR), 2.5E+2);
methodLmmMc = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), NB_PATH);
final MultipleCurrencyAmount pv6MC = methodLmmMc.presentValue(CAP_6, EUR, LMM_MULTICURVES);
final double pv6PreviousRun = 12081.062; // 12500 paths - 1Y jump
assertEquals("Cap/floor: LMM pricing by Monte Carlo", pv6PreviousRun, pv6MC.getAmount(EUR), TOLERANCE_PV);
final MultipleCurrencyAmount pv6Explicit = METHOD_LMM_CAP.presentValue(CAP_6, LMM_MULTICURVES);
assertEquals("Cap/floor: LMM pricing by Monte Carlo", pv6Explicit.getAmount(EUR), pv6MC.getAmount(EUR), 1.0E+2);
}
@Test
/**
* Tests long/short parity.
*/
public void longShortParity() {
final MultipleCurrencyAmount pvLongExplicit = METHOD_LMM_CAP.presentValue(CAP_LAST, LMM_MULTICURVES);
final MultipleCurrencyAmount pvShortExplicit = METHOD_LMM_CAP.presentValue(CAP_LAST_SHORT, LMM_MULTICURVES);
assertEquals("Cap/floor - LMM - present value - long/short parity", pvLongExplicit.getAmount(EUR), -pvShortExplicit.getAmount(EUR), TOLERANCE_PV);
LiborMarketModelMonteCarloMethod methodLmmMc;
methodLmmMc = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), NB_PATH);
final MultipleCurrencyAmount pvLongMC = methodLmmMc.presentValue(CAP_LAST, EUR, LMM_MULTICURVES);
methodLmmMc = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), NB_PATH);
final MultipleCurrencyAmount pvShortMC = methodLmmMc.presentValue(CAP_LAST_SHORT, EUR, LMM_MULTICURVES);
assertEquals("Cap/floor - LMM - present value MC- long/short parity", pvLongMC.getAmount(EUR), -pvShortMC.getAmount(EUR), TOLERANCE_PV);
}
@Test
/**
* Tests payer/receiver/fixed parity.
*/
public void capFloorParity() {
final MultipleCurrencyAmount pvCapExplicit = METHOD_LMM_CAP.presentValue(CAP_LAST, LMM_MULTICURVES);
final MultipleCurrencyAmount pvFloorExplicit = METHOD_LMM_CAP.presentValue(FLOOR_LAST, LMM_MULTICURVES);
final MultipleCurrencyAmount pvFixedExplicit = SWAP_PAYER.getFirstLeg().getNthPayment(NB_CPN_IBOR - 1).accept(PVDC, MULTICURVES);
final MultipleCurrencyAmount pvIborExplicit = SWAP_PAYER.getSecondLeg().getNthPayment(NB_CPN_IBOR - 1).accept(PVDC, MULTICURVES);
assertEquals("Cap/floor - LMM - present value Explcit- cap/floor/strike/Ibor parity", pvCapExplicit.getAmount(EUR) - pvFloorExplicit.getAmount(EUR) - pvFixedExplicit.getAmount(EUR),
pvIborExplicit.getAmount(EUR), TOLERANCE_PV);
LiborMarketModelMonteCarloMethod methodLmmMc;
methodLmmMc = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), NB_PATH);
final MultipleCurrencyAmount pvCapMC = methodLmmMc.presentValue(CAP_LAST, EUR, LMM_MULTICURVES);
methodLmmMc = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), NB_PATH);
final MultipleCurrencyAmount pvFloorMC = methodLmmMc.presentValue(FLOOR_LAST, EUR, LMM_MULTICURVES);
assertEquals("Cap/floor - LMM - present value - cap/floor/strike/Ibor parity", pvCapMC.getAmount(EUR) - pvFloorMC.getAmount(EUR) - pvFixedExplicit.getAmount(EUR), pvIborExplicit.getAmount(EUR),
1.0E+3);
}
@Test(enabled = false)
/**
* Tests of performance. "enabled = false" for the standard testing.
*/
public void performance() {
long startTime, endTime;
final int nbTest = 10;
LiborMarketModelMonteCarloMethod methodLmmMc;
methodLmmMc = new LiborMarketModelMonteCarloMethod(new NormalRandomNumberGenerator(0.0, 1.0, new MersenneTwister()), NB_PATH);
final double[] pvMC = new double[nbTest];
startTime = System.currentTimeMillis();
for (int looptest = 0; looptest < nbTest; looptest++) {
pvMC[looptest] = methodLmmMc.presentValue(CAP_LAST, EUR, LMM_MULTICURVES).getAmount(EUR);
}
endTime = System.currentTimeMillis();
System.out.println(nbTest + " cap/floor LMM Monte Carlo method (" + NB_PATH + " paths): " + (endTime - startTime) + " ms");
// Performance note: LMM Monte Carlo: 15-Sep-11: On Mac Pro 3.2 GHz Quad-Core Intel Xeon: 995 ms for 10 cap (12,500 paths).
}
}