@Test
/** Approximation analysis. */
public void presentValueApproximationAnalysis() {
final NormalImpliedVolatilityFormula implied = new NormalImpliedVolatilityFormula();
final int nbStrike = 20;
final double[] pvExplicit = new double[nbStrike + 1];
final double[] pvApproximation = new double[nbStrike + 1];
final double[] strike = new double[nbStrike + 1];
final double[] volExplicit = new double[nbStrike + 1];
final double[] volApprox = new double[nbStrike + 1];
final double strikeRange = 0.010;
final SwapFixedCoupon<Coupon> swap = SWAP_PAYER_DEFINITION.toDerivative(REFERENCE_DATE);
final double forward = swap.accept(PRDC, MULTICURVES);
final double pvbp = METHOD_SWAP.presentValueBasisPoint(swap, MULTICURVES);
for (int loopstrike = 0; loopstrike <= nbStrike; loopstrike++) {
strike[loopstrike] =
forward
- strikeRange
+ 3
* strikeRange
* loopstrike
/ nbStrike; // From forward-strikeRange to forward+2*strikeRange
final SwapFixedIborDefinition swapDefinition =
SwapFixedIborDefinition.from(
SETTLEMENT_DATE,
SWAP_TENOR,
EUR1YEURIBOR6M,
NOTIONAL,
strike[loopstrike],
FIXED_IS_PAYER);
final SwaptionPhysicalFixedIborDefinition swaptionDefinition =
SwaptionPhysicalFixedIborDefinition.from(EXPIRY_DATE, swapDefinition, IS_LONG);
final SwaptionPhysicalFixedIbor swaption = swaptionDefinition.toDerivative(REFERENCE_DATE);
pvExplicit[loopstrike] = METHOD_HW.presentValue(swaption, HW_MULTICURVES).getAmount(EUR);
pvApproximation[loopstrike] =
METHOD_HW_APPROXIMATION.presentValue(swaption, HW_MULTICURVES).getAmount(EUR);
final NormalFunctionData data = new NormalFunctionData(forward, pvbp, 0.01);
volExplicit[loopstrike] =
implied.getImpliedVolatility(data, swaption, pvExplicit[loopstrike]);
volApprox[loopstrike] =
implied.getImpliedVolatility(data, swaption, pvApproximation[loopstrike]);
assertEquals(
"Swaption physical - Hull-White - implied volatility - explicit/approximation",
volExplicit[loopstrike],
volApprox[loopstrike],
1.0E-3); // 0.10%
}
}
@Test
public void presentValue() {
final MultipleCurrencyAmount pvMethod =
METHOD_BLACK.presentValue(SWAPTION_LONG_REC, BLACK_MULTICURVES);
final double forward = SWAPTION_LONG_REC.getUnderlyingSwap().accept(PRDC, MULTICURVES);
final double pvbp =
METHOD_SWAP.presentValueBasisPoint(SWAPTION_LONG_REC.getUnderlyingSwap(), MULTICURVES);
final double volatility =
BLACK.getVolatility(
SWAPTION_LONG_REC.getTimeToExpiry(), SWAPTION_LONG_REC.getMaturityTime());
final BlackPriceFunction blackFunction = new BlackPriceFunction();
final BlackFunctionData dataBlack = new BlackFunctionData(forward, pvbp, volatility);
final Function1D<BlackFunctionData, Double> func =
blackFunction.getPriceFunction(SWAPTION_LONG_REC);
final double pvExpected = func.evaluate(dataBlack);
assertEquals(
"Swaption Black method: present value", pvExpected, pvMethod.getAmount(EUR), TOLERANCE_PV);
}
@Test
/** Compare explicit formula with approximated formula. */
public void presentValueApproximation() {
final BlackImpliedVolatilityFormula implied = new BlackImpliedVolatilityFormula();
final double forward =
SWAPTION_LONG_PAYER
.getUnderlyingSwap()
.accept(ParRateDiscountingCalculator.getInstance(), MULTICURVES);
final double pvbp =
METHOD_SWAP.presentValueBasisPoint(SWAPTION_LONG_PAYER.getUnderlyingSwap(), MULTICURVES);
final MultipleCurrencyAmount pvPayerLongExplicit =
METHOD_HW.presentValue(SWAPTION_LONG_PAYER, HW_MULTICURVES);
final MultipleCurrencyAmount pvPayerLongApproximation =
METHOD_HW_APPROXIMATION.presentValue(SWAPTION_LONG_PAYER, HW_MULTICURVES);
final BlackFunctionData data = new BlackFunctionData(forward, pvbp, 0.20);
final double volExplicit =
implied.getImpliedVolatility(data, SWAPTION_LONG_PAYER, pvPayerLongExplicit.getAmount(EUR));
final double volApprox =
implied.getImpliedVolatility(
data, SWAPTION_LONG_PAYER, pvPayerLongApproximation.getAmount(EUR));
assertEquals(
"Swaption physical - Hull-White - present value - explicit/approximation",
pvPayerLongExplicit.getAmount(EUR),
pvPayerLongApproximation.getAmount(EUR),
5.0E+2);
assertEquals(
"Swaption physical - Hull-White - present value - explicit/approximation",
volExplicit,
volApprox,
2.5E-4); // 0.025%
final MultipleCurrencyAmount pvReceiverLongExplicit =
METHOD_HW.presentValue(SWAPTION_LONG_PAYER, HW_MULTICURVES);
final MultipleCurrencyAmount pvReceiverLongApproximation =
METHOD_HW_APPROXIMATION.presentValue(SWAPTION_LONG_PAYER, HW_MULTICURVES);
assertEquals(
"Swaption physical - Hull-White - present value - explicit/numerical integration",
pvReceiverLongExplicit.getAmount(EUR),
pvReceiverLongApproximation.getAmount(EUR),
5.0E+2);
}
