/**
* This calculates the sensitivity of the present value (PV) to the lognormal Black implied
* volatities at the knot points of the surface.
*
* <p>The return format is a DoubleMatrix2D with rows equal to the total number of maturities and
* columns equal to the number of strikes.
*
* <p>Note - the change of the surface due to the movement of a single node is
* interpolator-dependent, so an instrument may have non-local sensitivity
*
* @param swap the VarianceSwap
* @param market the VarianceSwapDataBundle
* @param shift Size of shift made in centered-finite difference approximation. e.g. 1% would be
* 0.01, and 1bp 0.0001
* @return A NodalDoublesSurface with same axes as market.getVolatilitySurface(). Contains
* currency amount per unit amount change in the black volatility of each node
*/
public NodalDoublesSurface calcBlackVegaForEntireSurface(
final VarianceSwap swap, final VarianceSwapDataBundle market, final double shift) {
Validate.notNull(swap, "null VarianceSwap");
Validate.notNull(market, "null VarianceSwapDataBundle");
// Unpack market data
final Surface<Double, Double, Double> surface = market.getVolatilitySurface().getSurface();
Validate.isTrue(
surface instanceof InterpolatedDoublesSurface,
"Currently will only accept a Equity VolatilitySurfaces based on an InterpolatedDoublesSurface");
final InterpolatedDoublesSurface blackSurf = (InterpolatedDoublesSurface) surface;
final Double[] maturities = blackSurf.getXData();
final Double[] strikes = blackSurf.getYData();
final int nNodes = maturities.length;
Validate.isTrue(nNodes == strikes.length);
// Bump and reprice
final Double[] vegas = new Double[nNodes];
for (int j = 0; j < nNodes; j++) {
vegas[j] = calcBlackVegaForSinglePoint(swap, market, maturities[j], strikes[j], shift);
}
return new NodalDoublesSurface(maturities, strikes, vegas);
}
/**
* This calculates the sensitivity of the present value (PV) to the continuously-compounded
* discount rates at the knot points of the funding curve.
*
* <p>The return format is a DoubleMatrix1D (i.e. a vector) with length equal to the total number
* of knots in the curve
*
* <p>The change of a curve due to the movement of a single knot is interpolator-dependent, so an
* instrument can have sensitivity to knots at times beyond its maturity
*
* @param swap the VarianceSwap
* @param market the VarianceSwapDataBundle
* @return A DoubleMatrix1D containing bucketed delta in order and length of
* market.getDiscountCurve(). Currency amount per unit amount change in discount rate
*/
public DoubleMatrix1D calcDeltaBucketed(
final VarianceSwap swap, final VarianceSwapDataBundle market) {
Validate.notNull(swap, "null VarianceSwap");
Validate.notNull(market, "null VarianceSwapDataBundle");
// We know that the VarianceSwap only has true sensitivity to one maturity on one curve.
// A function written for interestRate sensitivities spreads this sensitivity across yield nodes
// NodeSensitivityCalculator.curveToNodeSensitivities(curveSensitivities, interpolatedCurves)
// 2nd arg = LinkedHashMap<String, YieldAndDiscountCurve> interpolatedCurves
final YieldAndDiscountCurve discCrv = market.getDiscountCurve();
final String discCrvName = discCrv.getCurve().getName();
final YieldCurveBundle interpolatedCurves = new YieldCurveBundle();
interpolatedCurves.setCurve(discCrvName, discCrv);
// 1st arg = Map<String, List<DoublesPair>> curveSensitivities = <curveName,
// List<(maturity,sensitivity)>>
final double settlement = swap.getTimeToSettlement();
final Double sens = calcDiscountRateSensitivity(swap, market);
final Map<String, List<DoublesPair>> curveSensitivities =
new HashMap<String, List<DoublesPair>>();
curveSensitivities.put(discCrvName, Lists.newArrayList(new DoublesPair(settlement, sens)));
final NodeSensitivityCalculator distributor =
PresentValueNodeSensitivityCalculator.getDefaultInstance();
return distributor.curveToNodeSensitivities(curveSensitivities, interpolatedCurves);
}
/**
* This calculates the sensitivity of the present value (PV) to a unit move in the forward. The
* volatility surface remains unchanged.
*
* @param swap the VarianceSwap
* @param market the VarianceSwapDataBundle
* @param relShift Relative size of shift made in centered-finite difference approximation.
* @return A Double. Currency amount per unit amount change in the black volatility
*/
@SuppressWarnings({})
public Double calcForwardSensitivity(
final VarianceSwap swap, final VarianceSwapDataBundle market, final double relShift) {
Validate.notNull(swap, "null VarianceSwap");
Validate.notNull(market, "null VarianceSwapDataBundle");
final VarianceSwapPresentValueCalculator pricer =
VarianceSwapPresentValueCalculator.getInstance();
// Shift UP
VarianceSwapDataBundle bumpedMarket =
new VarianceSwapDataBundle(
market.getVolatilitySurface(),
market.getDiscountCurve(),
market.getForwardCurve().withFractionalShift(relShift));
final double pvUp = pricer.visitVarianceSwap(swap, bumpedMarket);
// Shift Down
bumpedMarket =
new VarianceSwapDataBundle(
market.getVolatilitySurface(),
market.getDiscountCurve(),
market.getForwardCurve().withFractionalShift(-relShift));
final double pvDown = pricer.visitVarianceSwap(swap, bumpedMarket);
final double t = swap.getTimeToSettlement();
final double fwd = market.getForwardCurve().getForward(t);
// Centered-difference result
return (pvUp - pvDown) / 2.0 / relShift / fwd;
}
/**
* This calculates the sensitivity of the present value (PV) to the lognormal Black implied
* volatities at the knot points of the surface.
*
* <p>Note - the change of the surface due to the movement of a single node is
* interpolator-dependent, so an instrument may have non-local sensitivity
*
* @param swap the VarianceSwap
* @param market the VarianceSwapDataBundle
* @param shift Size of shift made in centered-finite difference approximation. e.g. 1% would be
* 0.01, and 1bp 0.0001
* @return A Double. Currency amount per unit amount change in the black volatility
*/
@SuppressWarnings({})
public Double calcBlackVegaParallel(
final VarianceSwap swap, final VarianceSwapDataBundle market, final double shift) {
Validate.notNull(swap, "null VarianceSwap");
Validate.notNull(market, "null VarianceSwapDataBundle");
final VarianceSwapPresentValueCalculator pricer =
VarianceSwapPresentValueCalculator.getInstance();
// Parallel shift UP
final BlackVolatilitySurface<?> upSurface =
market.getVolatilitySurface().withShift(shift, true);
final double pvUp =
pricer.visitVarianceSwap(
swap,
new VarianceSwapDataBundle(
upSurface, market.getDiscountCurve(), market.getForwardCurve()));
// Parallel shift DOWN
final BlackVolatilitySurface<?> downSurface =
market.getVolatilitySurface().withShift(-shift, true);
final double pvDown =
pricer.visitVarianceSwap(
swap,
new VarianceSwapDataBundle(
downSurface, market.getDiscountCurve(), market.getForwardCurve()));
// Centered-difference result
return (pvUp - pvDown) / (2.0 * shift);
}
/**
* Calculates the sensitivity of the present value (PV) to a change in the funding rate from
* valuation to settlement. Also know as PVBP and DV01, though note this return per UNIT change in
* rate. calcPV01 returns per basis point change in rates.
*
* <p>
*
* <p>Rates enter the pricing of a VarianceSwap in two places: in the discounting and forward
* projection.
*
* <p>The presentValue has been structured such that the form of the PV = Z(t,T) * FwdPrice(t,T)
* with Z a zero coupon bond, and t and T the valuation and settlement times respectively. The
* form of our discounting rates is such that Z(t,T) = exp[- R(t,T) * (T-t)], hence dZ/dR =
* -(T-t)*Z(t,T) and d(PV)/dR = PV * dZ/dR The forward's dependence on the discounting rate is
* similar to the zero coupon bonds, but of opposite sign, dF/dR = (T-t)*F(t,T)
*
* @param swap the VarianceSwap
* @param market the VarianceSwapDataBundle
* @param shift Relative size of shift made in centered-finite difference approximation.
* @return A Double in the currency, deriv.getCurrency(). Currency amount per unit amount change
* in discount rate
*/
@SuppressWarnings({})
public Double calcDiscountRateSensitivity(
final VarianceSwap swap, final VarianceSwapDataBundle market, final double shift) {
Validate.notNull(market);
Validate.notNull(swap);
// Sensitivity from the discounting
final VarianceSwapStaticReplication pricer = new VarianceSwapStaticReplication();
final double pv = pricer.presentValue(swap, market);
final double timeToSettlement = swap.getTimeToSettlement();
// Sensitivity from forward projection
final double fwdSens = calcForwardSensitivity(swap, market, shift);
final double fwd = market.getForwardCurve().getForward(timeToSettlement);
return timeToSettlement * (fwd * fwdSens - pv);
}
/**
* Compute the price sensitivity to a shift of the Black volatility at a given maturity and
* strike.
*
* <p>Note - the change of the surface due to the movement of a single node is
* interpolator-dependent, so an instrument may have non-local sensitivity.
*
* <p>Important!!! If the <i>(x, y)</i> value(s) of the shift(s) are not in the nodal points of
* the original surface, they are added (with shift) to the nodal points of the new surface.
*
* @param swap the VarianceSwap
* @param market the VarianceSwapDataBundle
* @param maturity a double in same unit as VolatilitySurface
* @param strike a double in same unit as VolatilitySurface
* @param shift Size of shift made in centered-finite difference approximation. e.g. 1% would be
* 0.01, and 1bp 0.0001
* @return Currency amount per unit amount change in the black volatility at the point provided
*/
public double calcBlackVegaForSinglePoint(
final VarianceSwap swap,
final VarianceSwapDataBundle market,
final double maturity,
final double strike,
final double shift) {
final VarianceSwapPresentValueCalculator pricer =
VarianceSwapPresentValueCalculator.getInstance();
final Surface<Double, Double, Double> surface = market.getVolatilitySurface().getSurface();
Validate.isTrue(
surface instanceof InterpolatedDoublesSurface,
"Currently will only accept a Equity VolatilitySurfaces based on an InterpolatedDoublesSurface");
final InterpolatedDoublesSurface blackSurf = (InterpolatedDoublesSurface) surface;
final InterpolatedSurfaceAdditiveShiftFunction volShifter =
new InterpolatedSurfaceAdditiveShiftFunction();
// shift UP
final InterpolatedDoublesSurface bumpedVolUp =
volShifter.evaluate(blackSurf, maturity, strike, shift);
VarianceSwapDataBundle bumpedMarket =
new VarianceSwapDataBundle(
market.getVolatilitySurface().withSurface(bumpedVolUp),
market.getDiscountCurve(),
market.getForwardCurve());
final double pvUp = pricer.visitVarianceSwap(swap, bumpedMarket);
// shift DOWN
final InterpolatedDoublesSurface bumpedVolDown =
volShifter.evaluate(blackSurf, maturity, strike, -shift);
bumpedMarket =
new VarianceSwapDataBundle(
market.getVolatilitySurface().withSurface(bumpedVolDown),
market.getDiscountCurve(),
market.getForwardCurve());
final double pvDown = pricer.visitVarianceSwap(swap, bumpedMarket);
// Centered-difference result
return (pvUp - pvDown) / (2.0 * shift);
}