/*
Copyright (C) 2008 Richard Gomes
This source code is release under the BSD License.
This file is part of JQuantLib, a free-software/open-source library
for financial quantitative analysts and developers - http://jquantlib.org/
JQuantLib is free software: you can redistribute it and/or modify it
under the terms of the JQuantLib license. You should have received a
copy of the license along with this program; if not, please email
<jquant-devel@lists.sourceforge.net>. The license is also available online at
<http://www.jquantlib.org/index.php/LICENSE.TXT>.
This program is distributed in the hope that it will be useful, but WITHOUT
ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS
FOR A PARTICULAR PURPOSE. See the license for more details.
JQuantLib is based on QuantLib. http://quantlib.org/
When applicable, the original copyright notice follows this notice.
*/
/*
Copyright (C) 2002, 2003, 2004 Ferdinando Ametrano
Copyright (C) 2002, 2003 RiskMap srl
Copyright (C) 2003, 2004 StatPro Italia srl
This file is part of QuantLib, a free-software/open-source library
for financial quantitative analysts and developers - http://quantlib.org/
QuantLib is free software: you can redistribute it and/or modify it
under the terms of the QuantLib license. You should have received a
copy of the license along with this program; if not, please email
<quantlib-dev@lists.sf.net>. The license is also available online at
<http://quantlib.org/license.shtml>.
This program is distributed in the hope that it will be useful, but WITHOUT
ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS
FOR A PARTICULAR PURPOSE. See the license for more details.
*/
package org.jquantlib.pricingengines;
import org.jquantlib.QL;
import org.jquantlib.daycounters.DayCounter;
import org.jquantlib.exercise.Exercise;
import org.jquantlib.instruments.OneAssetOption;
import org.jquantlib.instruments.Option;
import org.jquantlib.instruments.StrikedTypePayoff;
import org.jquantlib.processes.GeneralizedBlackScholesProcess;
import org.jquantlib.time.Date;
/**
* Pricing engine for European vanilla options using analytical formulae
* <p>
* The correctness of the returned value is tested by reproducing results available in literature.
* <li>the correctness of the returned <i>greeks</i> is tested by reproducing results available in literature.</li>
* <li>the correctness of the returned greeks is tested by reproducing numerical derivatives.</li>
* <li>the correctness of the returned implied volatility is tested by using it for reproducing the target value.</li>
* <li>the <i>implied volatility</i> calculation is tested by checking that it does not modify the option.</li>
* <li>the correctness of the returned value in case of <i>cash-or-nothing</i> binary payoff is tested by reproducing results
* available in literature.</li>
* <li>the correctness of the returned value in case of <i>asset-or-nothing</i> binary payoff is tested by
* reproducing results available in literature.</li>
* <li>the correctness of the returned value in case of <i>gap-or-nothing</i> binary payoff is tested by
* reproducing results available in literature.</li>
* <li>the correctness of the returned <i>greeks</i> in case of <i>cash-or-nothing</i> binary payoff
* is tested by reproducing numerical derivatives.</li>
*
* @see PricingEngine
*
* @author <Richard Gomes>
*/
//TODO: write more test cases
public class AnalyticEuropeanEngine extends OneAssetOption.EngineImpl {
// TODO: refactor messages
private static final String NOT_AN_EUROPEAN_OPTION = "not an European Option";
private static final String NON_STRIKED_PAYOFF_GIVEN = "non-striked payoff given";
private static final String BLACK_SCHOLES_PROCESS_REQUIRED = "Black-Scholes process required";
//
// private final fields
//
private final GeneralizedBlackScholesProcess process;
private final OneAssetOption.ArgumentsImpl a;
private final OneAssetOption.ResultsImpl r;
private final Option.GreeksImpl greeks;
private final Option.MoreGreeksImpl moreGreeks;
//
// public constructors
//
public AnalyticEuropeanEngine(final GeneralizedBlackScholesProcess process) {
this.a = (OneAssetOption.ArgumentsImpl)arguments;
this.r = (OneAssetOption.ResultsImpl)results;
this.greeks = r.greeks();
this.moreGreeks = r.moreGreeks();
this.process = process;
this.process.addObserver(this);
}
//
// implements PricingEngine
//
@Override
public void calculate() /* @ReadOnly */ {
QL.require(a.exercise.type() == Exercise.Type.European , NOT_AN_EUROPEAN_OPTION); // QA:[RG]::verified // TODO: message
final StrikedTypePayoff payoff = (StrikedTypePayoff) a.payoff;
QL.require(payoff != null , NON_STRIKED_PAYOFF_GIVEN); // QA:[RG]::verified // TODO: message
/* @Variance */final double variance = process.blackVolatility().currentLink().blackVariance(a.exercise.lastDate(), payoff.strike());
/* @DiscountFactor */final double dividendDiscount = process.dividendYield().currentLink().discount(a.exercise.lastDate());
/* @DiscountFactor */final double riskFreeDiscount = process.riskFreeRate().currentLink().discount(a.exercise.lastDate());
/* @Real */final double spot = process.stateVariable().currentLink().value();
QL.require(spot > 0.0, "negative or null underlying given"); // QA:[RG]::verified // TODO: message
/* @Real */final double forwardPrice = spot * dividendDiscount / riskFreeDiscount;
final BlackCalculator black = new BlackCalculator(payoff, forwardPrice, Math.sqrt(variance), riskFreeDiscount);
r.value = black.value();
greeks.delta = black.delta(spot);
moreGreeks.deltaForward = black.deltaForward();
moreGreeks.elasticity = black.elasticity(spot);
greeks.gamma = black.gamma(spot);
final DayCounter rfdc = process.riskFreeRate().currentLink().dayCounter();
final DayCounter divdc = process.dividendYield().currentLink().dayCounter();
final DayCounter voldc = process.blackVolatility().currentLink().dayCounter();
final Date refDate = process.riskFreeRate().currentLink().referenceDate();
/* @Time */double t = rfdc.yearFraction(refDate, a.exercise.lastDate());
greeks.rho = black.rho(t);
t = divdc.yearFraction(process.dividendYield().currentLink().referenceDate(), a.exercise.lastDate());
greeks.dividendRho = black.dividendRho(t);
t = voldc.yearFraction(process.blackVolatility().currentLink().referenceDate(), a.exercise.lastDate());
greeks.vega = black.vega(t);
try {
greeks.theta = black.theta(spot, t);
moreGreeks.thetaPerDay = black.thetaPerDay(spot, t);
} catch (final Exception e) {
greeks.theta = Double.NaN;
moreGreeks.thetaPerDay = Double.NaN;
}
moreGreeks.strikeSensitivity = black.strikeSensitivity();
moreGreeks.itmCashProbability = black.itmCashProbability();
}
}