/**
* Method to computes the present value and sensitivities of physical delivery European swaptions
* with a Libor Market Model calibrated exactly to SABR prices. The LMM displacements and volatility
* weights are hard coded.
*
* @deprecated Use {@link
* com.opengamma.analytics.financial.interestrate.swaption.provider.SwaptionPhysicalFixedIborSABRLMMExactMethod}
*/
@Deprecated
public class SwaptionPhysicalFixedIborSABRLMMExactMethod implements PricingMethod {
/** The default mean reversion parameter for the model. */
private static final double DEFAULT_MEAN_REVERSION = 0.01;
/** The default common displacement parameter for all rates in the model. */
private static final double DEFAULT_DISPLACEMENT = 0.10;
/** The default parameter to create the weight on the different model volatilities. */
private static final double DEFAULT_ANGLE = Math.PI / 2;
// TODO: Create a way to pass the model parameters to the method.
/** The SABR method used for European swaptions with physical delivery. */
private static final SwaptionPhysicalFixedIborSABRMethod METHOD_SWAPTION_SABR =
SwaptionPhysicalFixedIborSABRMethod.getInstance();
/** The LMM method used for European swaptions with physical delivery. */
private static final SwaptionPhysicalFixedIborLMMDDMethod METHOD_SWAPTION_LMM =
SwaptionPhysicalFixedIborLMMDDMethod.getInstance();
/** The method used to create the calibration basket. */
private static final SwaptionPhysicalFixedIborBasketMethod METHOD_BASKET =
SwaptionPhysicalFixedIborBasketMethod.getInstance();
/**
* The method calibrates a LMM on a set of vanilla swaption priced with SABR. The set of vanilla
* swaptions is given by the CalibrationType. The original swaption is priced with the calibrated
* LMM. This should not be used for vanilla swaptions (the price is equal to the SABR price with a
* longer computation type and some approximation). This is useful for non-standard swaptions like
* amortized swaptions.
*
* @param swaption The swaption.
* @param curves The curves and SABR data.
* @return The present value.
*/
public CurrencyAmount presentValue(
final SwaptionPhysicalFixedIbor swaption, final SABRInterestRateDataBundle curves) {
ArgumentChecker.notNull(swaption, "swaption");
ArgumentChecker.notNull(curves, "curves");
// TODO: Create a way to chose the LMM base parameters (displacement, mean reversion,
// volatility).
final LiborMarketModelDisplacedDiffusionParameters lmmParameters =
LiborMarketModelDisplacedDiffusionParameters.from(
swaption,
DEFAULT_DISPLACEMENT,
DEFAULT_MEAN_REVERSION,
new VolatilityLMMAngle(DEFAULT_ANGLE, DEFAULT_DISPLACEMENT));
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective objective =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective(lmmParameters);
final SuccessiveRootFinderCalibrationEngine calibrationEngine =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine(objective);
// TODO: Create a way to chose the calibration type.
final InstrumentDerivative[] swaptionCalibration =
METHOD_BASKET.calibrationBasketFixedLegPeriod(swaption);
calibrationEngine.addInstrument(swaptionCalibration, METHOD_SWAPTION_SABR);
calibrationEngine.calibrate(curves);
final LiborMarketModelDisplacedDiffusionDataBundle lmmBundle =
new LiborMarketModelDisplacedDiffusionDataBundle(lmmParameters, curves);
return CurrencyAmount.of(
swaption.getCurrency(), METHOD_SWAPTION_LMM.presentValue(swaption, lmmBundle).getAmount());
}
@Override
public CurrencyAmount presentValue(
final InstrumentDerivative instrument, final YieldCurveBundle curves) {
ArgumentChecker.isTrue(
instrument instanceof SwaptionPhysicalFixedIbor, "Physical delivery swaption");
ArgumentChecker.isTrue(
curves instanceof SABRInterestRateDataBundle, "Bundle should contain SABR data");
return presentValue(
(SwaptionPhysicalFixedIbor) instrument, (SABRInterestRateDataBundle) curves);
}
/**
* The method calibrates a LMM on a set of vanilla swaption priced with SABR. The set of vanilla
* swaptions is given by the CalibrationType. The SABR parameters sensitivities of the original
* swaption are calculated with LMM re-calibration.
*
* @param swaption The swaption.
* @param curves The curves and SABR data.
* @return The present value SABR parameters sensitivity.
*/
public PresentValueSABRSensitivityDataBundle presentValueSABRSensitivity(
final SwaptionPhysicalFixedIbor swaption, final SABRInterestRateDataBundle curves) {
ArgumentChecker.notNull(swaption, "swaption");
ArgumentChecker.notNull(curves, "curves");
// TODO: Create a way to chose the LMM base parameters (displacement, mean reversion,
// volatility).
final LiborMarketModelDisplacedDiffusionParameters lmmParameters =
LiborMarketModelDisplacedDiffusionParameters.from(
swaption,
DEFAULT_DISPLACEMENT,
DEFAULT_MEAN_REVERSION,
new VolatilityLMMAngle(DEFAULT_ANGLE, DEFAULT_DISPLACEMENT));
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective objective =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective(lmmParameters);
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine calibrationEngine =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine(objective);
// TODO: Create a way to chose the calibration type.
final SwaptionPhysicalFixedIbor[] swaptionCalibration =
METHOD_BASKET.calibrationBasketFixedLegPeriod(swaption);
calibrationEngine.addInstrument(swaptionCalibration, METHOD_SWAPTION_SABR);
calibrationEngine.calibrate(curves);
final LiborMarketModelDisplacedDiffusionDataBundle lmmBundle =
new LiborMarketModelDisplacedDiffusionDataBundle(lmmParameters, curves);
// Risks
final int nbCal = swaptionCalibration.length;
final int nbFact = lmmParameters.getNbFactor();
final List<Integer> instrumentIndex = calibrationEngine.getInstrumentIndex();
final double[] dPvAmdLambda = new double[nbCal];
final double[][][] dPvCaldGamma = new double[nbCal][][];
final double[][] dPvCaldLambda = new double[nbCal][nbCal];
final PresentValueSABRSensitivityDataBundle[] dPvCaldSABR =
new PresentValueSABRSensitivityDataBundle[nbCal];
final double[][] dPvAmdGamma =
METHOD_SWAPTION_LMM.presentValueLMMSensitivity(swaption, lmmBundle);
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
dPvCaldGamma[loopcal] =
METHOD_SWAPTION_LMM.presentValueLMMSensitivity(swaptionCalibration[loopcal], lmmBundle);
}
// Multiplicative-factor sensitivity
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
for (int loopperiod = instrumentIndex.get(loopcal);
loopperiod < instrumentIndex.get(loopcal + 1);
loopperiod++) {
for (int loopfact = 0; loopfact < nbFact; loopfact++) {
dPvAmdLambda[loopcal] +=
dPvAmdGamma[loopperiod][loopfact]
* lmmParameters.getVolatility()[loopperiod][loopfact];
}
}
}
for (int loopcal1 = 0; loopcal1 < nbCal; loopcal1++) {
for (int loopcal2 = 0; loopcal2 < nbCal; loopcal2++) {
for (int loopperiod = instrumentIndex.get(loopcal2);
loopperiod < instrumentIndex.get(loopcal2 + 1);
loopperiod++) {
for (int loopfact = 0; loopfact < nbFact; loopfact++) {
dPvCaldLambda[loopcal1][loopcal2] +=
dPvCaldGamma[loopcal1][loopperiod][loopfact]
* lmmParameters.getVolatility()[loopperiod][loopfact];
}
}
}
}
final CommonsMatrixAlgebra matrix = new CommonsMatrixAlgebra();
final DoubleMatrix2D dPvCaldLambdaMatrix = new DoubleMatrix2D(dPvCaldLambda);
final DoubleMatrix2D dPvCaldLambdaMatrixInverse = matrix.getInverse(dPvCaldLambdaMatrix);
// SABR sensitivity
final double[][] dPvCaldAlpha = new double[nbCal][nbCal];
final double[][] dPvCaldRho = new double[nbCal][nbCal];
final double[][] dPvCaldNu = new double[nbCal][nbCal];
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
dPvCaldSABR[loopcal] =
METHOD_SWAPTION_SABR.presentValueSABRSensitivity(swaptionCalibration[loopcal], curves);
final Set<DoublesPair> keySet = dPvCaldSABR[loopcal].getAlpha().getMap().keySet();
final DoublesPair[] keys = keySet.toArray(new DoublesPair[keySet.size()]);
dPvCaldAlpha[loopcal][loopcal] = dPvCaldSABR[loopcal].getAlpha().getMap().get(keys[0]);
dPvCaldRho[loopcal][loopcal] = dPvCaldSABR[loopcal].getRho().getMap().get(keys[0]);
dPvCaldNu[loopcal][loopcal] = dPvCaldSABR[loopcal].getNu().getMap().get(keys[0]);
}
final DoubleMatrix1D dPvAmdLambdaMatrix = new DoubleMatrix1D(dPvAmdLambda);
final DoubleMatrix2D dPvCaldAlphaMatrix = new DoubleMatrix2D(dPvCaldAlpha);
final DoubleMatrix2D dLambdadAlphaMatrix =
(DoubleMatrix2D) matrix.multiply(dPvCaldLambdaMatrixInverse, dPvCaldAlphaMatrix);
final DoubleMatrix2D dPvAmdAlphaMatrix =
(DoubleMatrix2D)
matrix.multiply(matrix.getTranspose(dLambdadAlphaMatrix), dPvAmdLambdaMatrix);
final DoubleMatrix2D dPvCaldRhoMatrix = new DoubleMatrix2D(dPvCaldRho);
final DoubleMatrix2D dLambdadRhoMatrix =
(DoubleMatrix2D) matrix.multiply(dPvCaldLambdaMatrixInverse, dPvCaldRhoMatrix);
final DoubleMatrix2D dPvAmdRhoMatrix =
(DoubleMatrix2D)
matrix.multiply(matrix.getTranspose(dLambdadRhoMatrix), dPvAmdLambdaMatrix);
final DoubleMatrix2D dPvCaldNuMatrix = new DoubleMatrix2D(dPvCaldNu);
final DoubleMatrix2D dLambdadNuMatrix =
(DoubleMatrix2D) matrix.multiply(dPvCaldLambdaMatrixInverse, dPvCaldNuMatrix);
final DoubleMatrix2D dPvAmdNuMatrix =
(DoubleMatrix2D) matrix.multiply(matrix.getTranspose(dLambdadNuMatrix), dPvAmdLambdaMatrix);
final double[] dPvAmdAlpha = matrix.getTranspose(dPvAmdAlphaMatrix).getData()[0];
final double[] dPvAmdRho = matrix.getTranspose(dPvAmdRhoMatrix).getData()[0];
final double[] dPvAmdNu = matrix.getTranspose(dPvAmdNuMatrix).getData()[0];
// Storage in PresentValueSABRSensitivityDataBundle
final PresentValueSABRSensitivityDataBundle sensi = new PresentValueSABRSensitivityDataBundle();
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
final DoublesPair expiryMaturity =
DoublesPair.of(
swaptionCalibration[loopcal].getTimeToExpiry(),
swaptionCalibration[loopcal].getMaturityTime());
sensi.addAlpha(expiryMaturity, dPvAmdAlpha[loopcal]);
sensi.addRho(expiryMaturity, dPvAmdRho[loopcal]);
sensi.addNu(expiryMaturity, dPvAmdNu[loopcal]);
}
return sensi;
}
/**
* The method calibrates a LMM on a set of vanilla swaption priced with SABR. The set of vanilla
* swaptions is given by the CalibrationType. The curve sensitivities of the original swaption are
* calculated with LMM re-calibration.
*
* @param swaption The swaption.
* @param curves The curves and SABR data.
* @return The present value curve sensitivities.
*/
public InterestRateCurveSensitivity presentValueCurveSensitivity(
final SwaptionPhysicalFixedIbor swaption, final SABRInterestRateDataBundle curves) {
ArgumentChecker.notNull(swaption, "swaption");
ArgumentChecker.notNull(curves, "curves");
// TODO: Create a way to chose the LMM base parameters (displacement, mean reversion,
// volatility).
final LiborMarketModelDisplacedDiffusionParameters lmmParameters =
LiborMarketModelDisplacedDiffusionParameters.from(
swaption,
DEFAULT_DISPLACEMENT,
DEFAULT_MEAN_REVERSION,
new VolatilityLMMAngle(DEFAULT_ANGLE, DEFAULT_DISPLACEMENT));
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective objective =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective(lmmParameters);
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine calibrationEngine =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine(objective);
final SwaptionPhysicalFixedIbor[] swaptionCalibration =
METHOD_BASKET.calibrationBasketFixedLegPeriod(swaption);
calibrationEngine.addInstrument(swaptionCalibration, METHOD_SWAPTION_SABR);
calibrationEngine.calibrate(curves);
final LiborMarketModelDisplacedDiffusionDataBundle lmmBundle =
new LiborMarketModelDisplacedDiffusionDataBundle(lmmParameters, curves);
// Risks
final int nbCal = swaptionCalibration.length;
final int nbFact = lmmParameters.getNbFactor();
final List<Integer> instrumentIndex = calibrationEngine.getInstrumentIndex();
final double[] dPvAmdLambda = new double[nbCal];
final double[][][] dPvCaldGamma = new double[nbCal][][];
final double[][] dPvCaldLambda = new double[nbCal][nbCal];
InterestRateCurveSensitivity pvcsCal =
METHOD_SWAPTION_LMM.presentValueCurveSensitivity(swaption, lmmBundle);
pvcsCal = pvcsCal.cleaned();
final double[][] dPvAmdGamma =
METHOD_SWAPTION_LMM.presentValueLMMSensitivity(swaption, lmmBundle);
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
dPvCaldGamma[loopcal] =
METHOD_SWAPTION_LMM.presentValueLMMSensitivity(swaptionCalibration[loopcal], lmmBundle);
}
// Multiplicative-factor sensitivity
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
for (int loopperiod = instrumentIndex.get(loopcal);
loopperiod < instrumentIndex.get(loopcal + 1);
loopperiod++) {
for (int loopfact = 0; loopfact < nbFact; loopfact++) {
dPvAmdLambda[loopcal] +=
dPvAmdGamma[loopperiod][loopfact]
* lmmParameters.getVolatility()[loopperiod][loopfact];
}
}
}
for (int loopcal1 = 0; loopcal1 < nbCal; loopcal1++) {
for (int loopcal2 = 0; loopcal2 < nbCal; loopcal2++) {
for (int loopperiod = instrumentIndex.get(loopcal2);
loopperiod < instrumentIndex.get(loopcal2 + 1);
loopperiod++) {
for (int loopfact = 0; loopfact < nbFact; loopfact++) {
dPvCaldLambda[loopcal1][loopcal2] +=
dPvCaldGamma[loopcal1][loopperiod][loopfact]
* lmmParameters.getVolatility()[loopperiod][loopfact];
}
}
}
}
final InterestRateCurveSensitivity[] pvcsCalBase = new InterestRateCurveSensitivity[nbCal];
final InterestRateCurveSensitivity[] pvcsCalCal = new InterestRateCurveSensitivity[nbCal];
final InterestRateCurveSensitivity[] pvcsCalDiff = new InterestRateCurveSensitivity[nbCal];
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
pvcsCalBase[loopcal] =
METHOD_SWAPTION_SABR.presentValueCurveSensitivity(swaptionCalibration[loopcal], curves);
pvcsCalBase[loopcal] = pvcsCalBase[loopcal].cleaned();
pvcsCalCal[loopcal] =
METHOD_SWAPTION_LMM.presentValueCurveSensitivity(swaptionCalibration[loopcal], lmmBundle);
pvcsCalCal[loopcal] = pvcsCalCal[loopcal].cleaned();
pvcsCalDiff[loopcal] = pvcsCalBase[loopcal].plus(pvcsCalCal[loopcal].multipliedBy(-1));
pvcsCalDiff[loopcal] = pvcsCalDiff[loopcal].cleaned();
}
final CommonsMatrixAlgebra matrix = new CommonsMatrixAlgebra();
final DoubleMatrix2D dPvCaldLambdaMatrix = new DoubleMatrix2D(dPvCaldLambda);
final DoubleMatrix2D dPvCaldLambdaMatrixInverse = matrix.getInverse(dPvCaldLambdaMatrix);
// Curve sensitivity
final InterestRateCurveSensitivity[] dLambdadC = new InterestRateCurveSensitivity[nbCal];
for (int loopcal1 = 0; loopcal1 < nbCal; loopcal1++) {
dLambdadC[loopcal1] = new InterestRateCurveSensitivity();
for (int loopcal2 = 0; loopcal2 <= loopcal1; loopcal2++) {
dLambdadC[loopcal1] =
dLambdadC[loopcal1].plus(
pvcsCalDiff[loopcal2].multipliedBy(
dPvCaldLambdaMatrixInverse.getEntry(loopcal1, loopcal2)));
}
}
InterestRateCurveSensitivity pvcsAdjust = new InterestRateCurveSensitivity();
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
pvcsAdjust = pvcsAdjust.plus(dLambdadC[loopcal].multipliedBy(dPvAmdLambda[loopcal]));
}
pvcsAdjust = pvcsAdjust.cleaned();
InterestRateCurveSensitivity pvcsTot = pvcsCal.plus(pvcsAdjust);
pvcsTot = pvcsTot.cleaned();
return pvcsTot;
}
private static final class VolatilityLMMAngle extends Function1D<Double, Double[]> {
/**
* The angle between the factors: factor 1 weight is cos(angle*t/20) and factor 2 weight is
* sin(angle*t/20). For the angle = 0, there is only one factor. For angle = pi/2, the 0Y rate
* is independent of the 20Y rate.
*/
private final double _angle;
private final double _displacement;
public VolatilityLMMAngle(final double angle, final double displacement) {
_angle = angle;
_displacement = displacement;
}
@Override
public Double[] evaluate(final Double x) {
final Double[] result = new Double[2];
result[0] = 0.01 / (_displacement + 0.05) * Math.cos(x / 20.0 * _angle);
result[1] = 0.01 / (_displacement + 0.05) * Math.sin(x / 20.0 * _angle);
// Implementation note: the initial value are chosen to have a 20% Black vol at 5% rate level.
return result;
}
}
/**
* The method calibrates a LMM on a set of vanilla swaption priced with SABR. The set of vanilla
* swaptions is given by the CalibrationType. The curve and SABR sensitivities of the original
* swaption are calculated with LMM re-calibration. Used mainly for performance test purposes as
* the output is hybrid list.
*
* @param swaption The swaption.
* @param curves The curves and SABR data.
* @return The results (returned as a list of objects) [0] the present value, [1] the present
* curve sensitivity, [2] the present value SABR sensitivity.
*/
public List<Object> presentValueCurveSABRSensitivity(
final SwaptionPhysicalFixedIbor swaption, final SABRInterestRateDataBundle curves) {
ArgumentChecker.notNull(swaption, "swaption");
ArgumentChecker.notNull(curves, "curves");
// TODO: Create a way to chose the LMM base parameters (displacement, mean reversion,
// volatility).
final LiborMarketModelDisplacedDiffusionParameters lmmParameters =
LiborMarketModelDisplacedDiffusionParameters.from(
swaption,
DEFAULT_DISPLACEMENT,
DEFAULT_MEAN_REVERSION,
new VolatilityLMMAngle(DEFAULT_ANGLE, DEFAULT_DISPLACEMENT));
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective objective =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective(lmmParameters);
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine calibrationEngine =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine(objective);
final SwaptionPhysicalFixedIbor[] swaptionCalibration =
METHOD_BASKET.calibrationBasketFixedLegPeriod(swaption);
calibrationEngine.addInstrument(swaptionCalibration, METHOD_SWAPTION_SABR);
calibrationEngine.calibrate(curves);
final LiborMarketModelDisplacedDiffusionDataBundle lmmBundle =
new LiborMarketModelDisplacedDiffusionDataBundle(lmmParameters, curves);
// Risks
final int nbCal = swaptionCalibration.length;
final int nbFact = lmmParameters.getNbFactor();
final List<Integer> instrumentIndex = calibrationEngine.getInstrumentIndex();
final double[] dPvAmdLambda = new double[nbCal];
final double[][][] dPvCaldGamma = new double[nbCal][][];
final double[][] dPvCaldLambda = new double[nbCal][nbCal];
final PresentValueSABRSensitivityDataBundle[] dPvCaldSABR =
new PresentValueSABRSensitivityDataBundle[nbCal];
InterestRateCurveSensitivity pvcsCal =
METHOD_SWAPTION_LMM.presentValueCurveSensitivity(swaption, lmmBundle);
pvcsCal = pvcsCal.cleaned();
final double[][] dPvAmdGamma =
METHOD_SWAPTION_LMM.presentValueLMMSensitivity(swaption, lmmBundle);
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
dPvCaldGamma[loopcal] =
METHOD_SWAPTION_LMM.presentValueLMMSensitivity(swaptionCalibration[loopcal], lmmBundle);
}
// Multiplicative-factor sensitivity
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
for (int loopperiod = instrumentIndex.get(loopcal);
loopperiod < instrumentIndex.get(loopcal + 1);
loopperiod++) {
for (int loopfact = 0; loopfact < nbFact; loopfact++) {
dPvAmdLambda[loopcal] +=
dPvAmdGamma[loopperiod][loopfact]
* lmmParameters.getVolatility()[loopperiod][loopfact];
}
}
}
for (int loopcal1 = 0; loopcal1 < nbCal; loopcal1++) {
for (int loopcal2 = 0; loopcal2 < nbCal; loopcal2++) {
for (int loopperiod = instrumentIndex.get(loopcal2);
loopperiod < instrumentIndex.get(loopcal2 + 1);
loopperiod++) {
for (int loopfact = 0; loopfact < nbFact; loopfact++) {
dPvCaldLambda[loopcal1][loopcal2] +=
dPvCaldGamma[loopcal1][loopperiod][loopfact]
* lmmParameters.getVolatility()[loopperiod][loopfact];
}
}
}
}
final InterestRateCurveSensitivity[] pvcsCalBase = new InterestRateCurveSensitivity[nbCal];
final InterestRateCurveSensitivity[] pvcsCalCal = new InterestRateCurveSensitivity[nbCal];
final InterestRateCurveSensitivity[] pvcsCalDiff = new InterestRateCurveSensitivity[nbCal];
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
pvcsCalBase[loopcal] =
METHOD_SWAPTION_SABR.presentValueCurveSensitivity(swaptionCalibration[loopcal], curves);
pvcsCalBase[loopcal] = pvcsCalBase[loopcal].cleaned();
pvcsCalCal[loopcal] =
METHOD_SWAPTION_LMM.presentValueCurveSensitivity(swaptionCalibration[loopcal], lmmBundle);
pvcsCalCal[loopcal] = pvcsCalCal[loopcal].cleaned();
pvcsCalDiff[loopcal] = pvcsCalBase[loopcal].plus(pvcsCalCal[loopcal].multipliedBy(-1));
pvcsCalDiff[loopcal] = pvcsCalDiff[loopcal].cleaned();
}
final CommonsMatrixAlgebra matrix = new CommonsMatrixAlgebra();
final DoubleMatrix2D dPvCaldLambdaMatrix = new DoubleMatrix2D(dPvCaldLambda);
final DoubleMatrix2D dPvCaldLambdaMatrixInverse = matrix.getInverse(dPvCaldLambdaMatrix);
// SABR sensitivity
final double[][] dPvCaldAlpha = new double[nbCal][nbCal];
final double[][] dPvCaldRho = new double[nbCal][nbCal];
final double[][] dPvCaldNu = new double[nbCal][nbCal];
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
dPvCaldSABR[loopcal] =
METHOD_SWAPTION_SABR.presentValueSABRSensitivity(swaptionCalibration[loopcal], curves);
final Set<DoublesPair> keySet = dPvCaldSABR[loopcal].getAlpha().getMap().keySet();
final DoublesPair[] keys = keySet.toArray(new DoublesPair[keySet.size()]);
dPvCaldAlpha[loopcal][loopcal] = dPvCaldSABR[loopcal].getAlpha().getMap().get(keys[0]);
dPvCaldRho[loopcal][loopcal] = dPvCaldSABR[loopcal].getRho().getMap().get(keys[0]);
dPvCaldNu[loopcal][loopcal] = dPvCaldSABR[loopcal].getNu().getMap().get(keys[0]);
}
final DoubleMatrix1D dPvAmdLambdaMatrix = new DoubleMatrix1D(dPvAmdLambda);
final DoubleMatrix2D dPvCaldAlphaMatrix = new DoubleMatrix2D(dPvCaldAlpha);
final DoubleMatrix2D dLambdadAlphaMatrix =
(DoubleMatrix2D) matrix.multiply(dPvCaldLambdaMatrixInverse, dPvCaldAlphaMatrix);
final DoubleMatrix2D dPvAmdAlphaMatrix =
(DoubleMatrix2D)
matrix.multiply(matrix.getTranspose(dLambdadAlphaMatrix), dPvAmdLambdaMatrix);
final DoubleMatrix2D dPvCaldRhoMatrix = new DoubleMatrix2D(dPvCaldRho);
final DoubleMatrix2D dLambdadRhoMatrix =
(DoubleMatrix2D) matrix.multiply(dPvCaldLambdaMatrixInverse, dPvCaldRhoMatrix);
final DoubleMatrix2D dPvAmdRhoMatrix =
(DoubleMatrix2D)
matrix.multiply(matrix.getTranspose(dLambdadRhoMatrix), dPvAmdLambdaMatrix);
final DoubleMatrix2D dPvCaldNuMatrix = new DoubleMatrix2D(dPvCaldNu);
final DoubleMatrix2D dLambdadNuMatrix =
(DoubleMatrix2D) matrix.multiply(dPvCaldLambdaMatrixInverse, dPvCaldNuMatrix);
final DoubleMatrix2D dPvAmdNuMatrix =
(DoubleMatrix2D) matrix.multiply(matrix.getTranspose(dLambdadNuMatrix), dPvAmdLambdaMatrix);
final double[] dPvAmdAlpha = matrix.getTranspose(dPvAmdAlphaMatrix).getData()[0];
final double[] dPvAmdRho = matrix.getTranspose(dPvAmdRhoMatrix).getData()[0];
final double[] dPvAmdNu = matrix.getTranspose(dPvAmdNuMatrix).getData()[0];
// Storage in PresentValueSABRSensitivityDataBundle
final PresentValueSABRSensitivityDataBundle pvss = new PresentValueSABRSensitivityDataBundle();
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
final DoublesPair expiryMaturity =
DoublesPair.of(
swaptionCalibration[loopcal].getTimeToExpiry(),
swaptionCalibration[loopcal].getMaturityTime());
pvss.addAlpha(expiryMaturity, dPvAmdAlpha[loopcal]);
pvss.addRho(expiryMaturity, dPvAmdRho[loopcal]);
pvss.addNu(expiryMaturity, dPvAmdNu[loopcal]);
}
// Curve sensitivity
final InterestRateCurveSensitivity[] dLambdadC = new InterestRateCurveSensitivity[nbCal];
for (int loopcal1 = 0; loopcal1 < nbCal; loopcal1++) {
dLambdadC[loopcal1] = new InterestRateCurveSensitivity();
for (int loopcal2 = 0; loopcal2 <= loopcal1; loopcal2++) {
dLambdadC[loopcal1] =
dLambdadC[loopcal1].plus(
pvcsCalDiff[loopcal2].multipliedBy(
dPvCaldLambdaMatrixInverse.getEntry(loopcal1, loopcal2)));
}
}
InterestRateCurveSensitivity pvcs = new InterestRateCurveSensitivity();
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
pvcs = pvcs.plus(dLambdadC[loopcal].multipliedBy(dPvAmdLambda[loopcal]));
}
pvcs = pvcs.plus(pvcsCal);
pvcs = pvcs.cleaned();
final List<Object> results = new ArrayList<>();
results.add(
CurrencyAmount.of(
swaption.getCurrency(),
METHOD_SWAPTION_LMM.presentValue(swaption, lmmBundle).getAmount()));
results.add(pvcs);
results.add(pvss);
return results;
}
}
/**
* The method calibrates a LMM on a set of vanilla swaption priced with SABR. The set of vanilla
* swaptions is given by the CalibrationType. The curve and SABR sensitivities of the original
* swaption are calculated with LMM re-calibration. Used mainly for performance test purposes as
* the output is hybrid list.
*
* @param swaption The swaption.
* @param curves The curves and SABR data.
* @return The results (returned as a list of objects) [0] the present value, [1] the present
* curve sensitivity, [2] the present value SABR sensitivity.
*/
public List<Object> presentValueCurveSABRSensitivity(
final SwaptionPhysicalFixedIbor swaption, final SABRInterestRateDataBundle curves) {
ArgumentChecker.notNull(swaption, "swaption");
ArgumentChecker.notNull(curves, "curves");
// TODO: Create a way to chose the LMM base parameters (displacement, mean reversion,
// volatility).
final LiborMarketModelDisplacedDiffusionParameters lmmParameters =
LiborMarketModelDisplacedDiffusionParameters.from(
swaption,
DEFAULT_DISPLACEMENT,
DEFAULT_MEAN_REVERSION,
new VolatilityLMMAngle(DEFAULT_ANGLE, DEFAULT_DISPLACEMENT));
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective objective =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective(lmmParameters);
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine calibrationEngine =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine(objective);
final SwaptionPhysicalFixedIbor[] swaptionCalibration =
METHOD_BASKET.calibrationBasketFixedLegPeriod(swaption);
calibrationEngine.addInstrument(swaptionCalibration, METHOD_SWAPTION_SABR);
calibrationEngine.calibrate(curves);
final LiborMarketModelDisplacedDiffusionDataBundle lmmBundle =
new LiborMarketModelDisplacedDiffusionDataBundle(lmmParameters, curves);
// Risks
final int nbCal = swaptionCalibration.length;
final int nbFact = lmmParameters.getNbFactor();
final List<Integer> instrumentIndex = calibrationEngine.getInstrumentIndex();
final double[] dPvAmdLambda = new double[nbCal];
final double[][][] dPvCaldGamma = new double[nbCal][][];
final double[][] dPvCaldLambda = new double[nbCal][nbCal];
final PresentValueSABRSensitivityDataBundle[] dPvCaldSABR =
new PresentValueSABRSensitivityDataBundle[nbCal];
InterestRateCurveSensitivity pvcsCal =
METHOD_SWAPTION_LMM.presentValueCurveSensitivity(swaption, lmmBundle);
pvcsCal = pvcsCal.cleaned();
final double[][] dPvAmdGamma =
METHOD_SWAPTION_LMM.presentValueLMMSensitivity(swaption, lmmBundle);
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
dPvCaldGamma[loopcal] =
METHOD_SWAPTION_LMM.presentValueLMMSensitivity(swaptionCalibration[loopcal], lmmBundle);
}
// Multiplicative-factor sensitivity
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
for (int loopperiod = instrumentIndex.get(loopcal);
loopperiod < instrumentIndex.get(loopcal + 1);
loopperiod++) {
for (int loopfact = 0; loopfact < nbFact; loopfact++) {
dPvAmdLambda[loopcal] +=
dPvAmdGamma[loopperiod][loopfact]
* lmmParameters.getVolatility()[loopperiod][loopfact];
}
}
}
for (int loopcal1 = 0; loopcal1 < nbCal; loopcal1++) {
for (int loopcal2 = 0; loopcal2 < nbCal; loopcal2++) {
for (int loopperiod = instrumentIndex.get(loopcal2);
loopperiod < instrumentIndex.get(loopcal2 + 1);
loopperiod++) {
for (int loopfact = 0; loopfact < nbFact; loopfact++) {
dPvCaldLambda[loopcal1][loopcal2] +=
dPvCaldGamma[loopcal1][loopperiod][loopfact]
* lmmParameters.getVolatility()[loopperiod][loopfact];
}
}
}
}
final InterestRateCurveSensitivity[] pvcsCalBase = new InterestRateCurveSensitivity[nbCal];
final InterestRateCurveSensitivity[] pvcsCalCal = new InterestRateCurveSensitivity[nbCal];
final InterestRateCurveSensitivity[] pvcsCalDiff = new InterestRateCurveSensitivity[nbCal];
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
pvcsCalBase[loopcal] =
METHOD_SWAPTION_SABR.presentValueCurveSensitivity(swaptionCalibration[loopcal], curves);
pvcsCalBase[loopcal] = pvcsCalBase[loopcal].cleaned();
pvcsCalCal[loopcal] =
METHOD_SWAPTION_LMM.presentValueCurveSensitivity(swaptionCalibration[loopcal], lmmBundle);
pvcsCalCal[loopcal] = pvcsCalCal[loopcal].cleaned();
pvcsCalDiff[loopcal] = pvcsCalBase[loopcal].plus(pvcsCalCal[loopcal].multipliedBy(-1));
pvcsCalDiff[loopcal] = pvcsCalDiff[loopcal].cleaned();
}
final CommonsMatrixAlgebra matrix = new CommonsMatrixAlgebra();
final DoubleMatrix2D dPvCaldLambdaMatrix = new DoubleMatrix2D(dPvCaldLambda);
final DoubleMatrix2D dPvCaldLambdaMatrixInverse = matrix.getInverse(dPvCaldLambdaMatrix);
// SABR sensitivity
final double[][] dPvCaldAlpha = new double[nbCal][nbCal];
final double[][] dPvCaldRho = new double[nbCal][nbCal];
final double[][] dPvCaldNu = new double[nbCal][nbCal];
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
dPvCaldSABR[loopcal] =
METHOD_SWAPTION_SABR.presentValueSABRSensitivity(swaptionCalibration[loopcal], curves);
final Set<DoublesPair> keySet = dPvCaldSABR[loopcal].getAlpha().getMap().keySet();
final DoublesPair[] keys = keySet.toArray(new DoublesPair[keySet.size()]);
dPvCaldAlpha[loopcal][loopcal] = dPvCaldSABR[loopcal].getAlpha().getMap().get(keys[0]);
dPvCaldRho[loopcal][loopcal] = dPvCaldSABR[loopcal].getRho().getMap().get(keys[0]);
dPvCaldNu[loopcal][loopcal] = dPvCaldSABR[loopcal].getNu().getMap().get(keys[0]);
}
final DoubleMatrix1D dPvAmdLambdaMatrix = new DoubleMatrix1D(dPvAmdLambda);
final DoubleMatrix2D dPvCaldAlphaMatrix = new DoubleMatrix2D(dPvCaldAlpha);
final DoubleMatrix2D dLambdadAlphaMatrix =
(DoubleMatrix2D) matrix.multiply(dPvCaldLambdaMatrixInverse, dPvCaldAlphaMatrix);
final DoubleMatrix2D dPvAmdAlphaMatrix =
(DoubleMatrix2D)
matrix.multiply(matrix.getTranspose(dLambdadAlphaMatrix), dPvAmdLambdaMatrix);
final DoubleMatrix2D dPvCaldRhoMatrix = new DoubleMatrix2D(dPvCaldRho);
final DoubleMatrix2D dLambdadRhoMatrix =
(DoubleMatrix2D) matrix.multiply(dPvCaldLambdaMatrixInverse, dPvCaldRhoMatrix);
final DoubleMatrix2D dPvAmdRhoMatrix =
(DoubleMatrix2D)
matrix.multiply(matrix.getTranspose(dLambdadRhoMatrix), dPvAmdLambdaMatrix);
final DoubleMatrix2D dPvCaldNuMatrix = new DoubleMatrix2D(dPvCaldNu);
final DoubleMatrix2D dLambdadNuMatrix =
(DoubleMatrix2D) matrix.multiply(dPvCaldLambdaMatrixInverse, dPvCaldNuMatrix);
final DoubleMatrix2D dPvAmdNuMatrix =
(DoubleMatrix2D) matrix.multiply(matrix.getTranspose(dLambdadNuMatrix), dPvAmdLambdaMatrix);
final double[] dPvAmdAlpha = matrix.getTranspose(dPvAmdAlphaMatrix).getData()[0];
final double[] dPvAmdRho = matrix.getTranspose(dPvAmdRhoMatrix).getData()[0];
final double[] dPvAmdNu = matrix.getTranspose(dPvAmdNuMatrix).getData()[0];
// Storage in PresentValueSABRSensitivityDataBundle
final PresentValueSABRSensitivityDataBundle pvss = new PresentValueSABRSensitivityDataBundle();
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
final DoublesPair expiryMaturity =
DoublesPair.of(
swaptionCalibration[loopcal].getTimeToExpiry(),
swaptionCalibration[loopcal].getMaturityTime());
pvss.addAlpha(expiryMaturity, dPvAmdAlpha[loopcal]);
pvss.addRho(expiryMaturity, dPvAmdRho[loopcal]);
pvss.addNu(expiryMaturity, dPvAmdNu[loopcal]);
}
// Curve sensitivity
final InterestRateCurveSensitivity[] dLambdadC = new InterestRateCurveSensitivity[nbCal];
for (int loopcal1 = 0; loopcal1 < nbCal; loopcal1++) {
dLambdadC[loopcal1] = new InterestRateCurveSensitivity();
for (int loopcal2 = 0; loopcal2 <= loopcal1; loopcal2++) {
dLambdadC[loopcal1] =
dLambdadC[loopcal1].plus(
pvcsCalDiff[loopcal2].multipliedBy(
dPvCaldLambdaMatrixInverse.getEntry(loopcal1, loopcal2)));
}
}
InterestRateCurveSensitivity pvcs = new InterestRateCurveSensitivity();
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
pvcs = pvcs.plus(dLambdadC[loopcal].multipliedBy(dPvAmdLambda[loopcal]));
}
pvcs = pvcs.plus(pvcsCal);
pvcs = pvcs.cleaned();
final List<Object> results = new ArrayList<>();
results.add(
CurrencyAmount.of(
swaption.getCurrency(),
METHOD_SWAPTION_LMM.presentValue(swaption, lmmBundle).getAmount()));
results.add(pvcs);
results.add(pvss);
return results;
}
/**
* The method calibrates a LMM on a set of vanilla swaption priced with SABR. The set of vanilla
* swaptions is given by the CalibrationType. The curve sensitivities of the original swaption are
* calculated with LMM re-calibration.
*
* @param swaption The swaption.
* @param curves The curves and SABR data.
* @return The present value curve sensitivities.
*/
public InterestRateCurveSensitivity presentValueCurveSensitivity(
final SwaptionPhysicalFixedIbor swaption, final SABRInterestRateDataBundle curves) {
ArgumentChecker.notNull(swaption, "swaption");
ArgumentChecker.notNull(curves, "curves");
// TODO: Create a way to chose the LMM base parameters (displacement, mean reversion,
// volatility).
final LiborMarketModelDisplacedDiffusionParameters lmmParameters =
LiborMarketModelDisplacedDiffusionParameters.from(
swaption,
DEFAULT_DISPLACEMENT,
DEFAULT_MEAN_REVERSION,
new VolatilityLMMAngle(DEFAULT_ANGLE, DEFAULT_DISPLACEMENT));
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective objective =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationObjective(lmmParameters);
final SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine calibrationEngine =
new SwaptionPhysicalLMMDDSuccessiveRootFinderCalibrationEngine(objective);
final SwaptionPhysicalFixedIbor[] swaptionCalibration =
METHOD_BASKET.calibrationBasketFixedLegPeriod(swaption);
calibrationEngine.addInstrument(swaptionCalibration, METHOD_SWAPTION_SABR);
calibrationEngine.calibrate(curves);
final LiborMarketModelDisplacedDiffusionDataBundle lmmBundle =
new LiborMarketModelDisplacedDiffusionDataBundle(lmmParameters, curves);
// Risks
final int nbCal = swaptionCalibration.length;
final int nbFact = lmmParameters.getNbFactor();
final List<Integer> instrumentIndex = calibrationEngine.getInstrumentIndex();
final double[] dPvAmdLambda = new double[nbCal];
final double[][][] dPvCaldGamma = new double[nbCal][][];
final double[][] dPvCaldLambda = new double[nbCal][nbCal];
InterestRateCurveSensitivity pvcsCal =
METHOD_SWAPTION_LMM.presentValueCurveSensitivity(swaption, lmmBundle);
pvcsCal = pvcsCal.cleaned();
final double[][] dPvAmdGamma =
METHOD_SWAPTION_LMM.presentValueLMMSensitivity(swaption, lmmBundle);
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
dPvCaldGamma[loopcal] =
METHOD_SWAPTION_LMM.presentValueLMMSensitivity(swaptionCalibration[loopcal], lmmBundle);
}
// Multiplicative-factor sensitivity
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
for (int loopperiod = instrumentIndex.get(loopcal);
loopperiod < instrumentIndex.get(loopcal + 1);
loopperiod++) {
for (int loopfact = 0; loopfact < nbFact; loopfact++) {
dPvAmdLambda[loopcal] +=
dPvAmdGamma[loopperiod][loopfact]
* lmmParameters.getVolatility()[loopperiod][loopfact];
}
}
}
for (int loopcal1 = 0; loopcal1 < nbCal; loopcal1++) {
for (int loopcal2 = 0; loopcal2 < nbCal; loopcal2++) {
for (int loopperiod = instrumentIndex.get(loopcal2);
loopperiod < instrumentIndex.get(loopcal2 + 1);
loopperiod++) {
for (int loopfact = 0; loopfact < nbFact; loopfact++) {
dPvCaldLambda[loopcal1][loopcal2] +=
dPvCaldGamma[loopcal1][loopperiod][loopfact]
* lmmParameters.getVolatility()[loopperiod][loopfact];
}
}
}
}
final InterestRateCurveSensitivity[] pvcsCalBase = new InterestRateCurveSensitivity[nbCal];
final InterestRateCurveSensitivity[] pvcsCalCal = new InterestRateCurveSensitivity[nbCal];
final InterestRateCurveSensitivity[] pvcsCalDiff = new InterestRateCurveSensitivity[nbCal];
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
pvcsCalBase[loopcal] =
METHOD_SWAPTION_SABR.presentValueCurveSensitivity(swaptionCalibration[loopcal], curves);
pvcsCalBase[loopcal] = pvcsCalBase[loopcal].cleaned();
pvcsCalCal[loopcal] =
METHOD_SWAPTION_LMM.presentValueCurveSensitivity(swaptionCalibration[loopcal], lmmBundle);
pvcsCalCal[loopcal] = pvcsCalCal[loopcal].cleaned();
pvcsCalDiff[loopcal] = pvcsCalBase[loopcal].plus(pvcsCalCal[loopcal].multipliedBy(-1));
pvcsCalDiff[loopcal] = pvcsCalDiff[loopcal].cleaned();
}
final CommonsMatrixAlgebra matrix = new CommonsMatrixAlgebra();
final DoubleMatrix2D dPvCaldLambdaMatrix = new DoubleMatrix2D(dPvCaldLambda);
final DoubleMatrix2D dPvCaldLambdaMatrixInverse = matrix.getInverse(dPvCaldLambdaMatrix);
// Curve sensitivity
final InterestRateCurveSensitivity[] dLambdadC = new InterestRateCurveSensitivity[nbCal];
for (int loopcal1 = 0; loopcal1 < nbCal; loopcal1++) {
dLambdadC[loopcal1] = new InterestRateCurveSensitivity();
for (int loopcal2 = 0; loopcal2 <= loopcal1; loopcal2++) {
dLambdadC[loopcal1] =
dLambdadC[loopcal1].plus(
pvcsCalDiff[loopcal2].multipliedBy(
dPvCaldLambdaMatrixInverse.getEntry(loopcal1, loopcal2)));
}
}
InterestRateCurveSensitivity pvcsAdjust = new InterestRateCurveSensitivity();
for (int loopcal = 0; loopcal < nbCal; loopcal++) {
pvcsAdjust = pvcsAdjust.plus(dLambdadC[loopcal].multipliedBy(dPvAmdLambda[loopcal]));
}
pvcsAdjust = pvcsAdjust.cleaned();
InterestRateCurveSensitivity pvcsTot = pvcsCal.plus(pvcsAdjust);
pvcsTot = pvcsTot.cleaned();
return pvcsTot;
}
