/**
* Computes the present value of the Physical delivery swaption through approximation..
*
* @param swaption The swaption.
* @param cfe The swaption cash flow equiovalent.
* @param g2Data The G2++ parameters and the curves.
* @return The present value.
*/
public CurrencyAmount presentValue(
final SwaptionPhysicalFixedIbor swaption,
final AnnuityPaymentFixed cfe,
final G2ppPiecewiseConstantDataBundle g2Data) {
YieldAndDiscountCurve dsc =
g2Data.getCurve(swaption.getUnderlyingSwap().getFixedLeg().getDiscountCurve());
int nbCf = cfe.getNumberOfPayments();
double[] cfa = new double[nbCf];
double[] t = new double[nbCf];
for (int loopcf = 0; loopcf < nbCf; loopcf++) {
cfa[loopcf] =
-Math.signum(cfe.getNthPayment(0).getAmount()) * cfe.getNthPayment(loopcf).getAmount();
t[loopcf] = cfe.getNthPayment(loopcf).getPaymentTime();
}
double rhog2pp = g2Data.getG2ppParameter().getCorrelation();
double[][] ht0 = MODEL_G2PP.volatilityMaturityPart(g2Data.getG2ppParameter(), t[0], t);
double[] dfswap = new double[nbCf];
double[] p0 = new double[nbCf];
double[] cP = new double[nbCf];
for (int loopcf = 0; loopcf < nbCf; loopcf++) {
dfswap[loopcf] = dsc.getDiscountFactor(t[loopcf]);
p0[loopcf] = dfswap[loopcf] / dfswap[0];
cP[loopcf] = cfa[loopcf] * p0[loopcf];
}
double k = -cfa[0];
double b0 = 0.0;
for (int loopcf = 1; loopcf < nbCf; loopcf++) {
b0 += cP[loopcf];
}
double[] alpha0 = new double[nbCf - 1];
double[] beta0 = new double[2];
for (int loopcf = 0; loopcf < nbCf - 1; loopcf++) {
alpha0[loopcf] = cfa[loopcf + 1] * p0[loopcf + 1] / b0;
beta0[0] += alpha0[loopcf] * ht0[0][loopcf + 1];
beta0[1] += alpha0[loopcf] * ht0[1][loopcf + 1];
}
double[][] gamma = MODEL_G2PP.gamma(g2Data.getG2ppParameter(), 0, swaption.getTimeToExpiry());
double[] tau = new double[nbCf];
for (int loopcf = 0; loopcf < nbCf; loopcf++) {
tau[loopcf] =
gamma[0][0] * ht0[0][loopcf] * ht0[0][loopcf]
+ gamma[1][1] * ht0[1][loopcf] * ht0[1][loopcf]
+ 2 * rhog2pp * gamma[0][1] * ht0[0][loopcf] * ht0[1][loopcf];
}
double xbarnum = 0.0;
double xbarde = 0.0;
for (int loopcf = 0; loopcf < nbCf; loopcf++) {
xbarnum += cP[loopcf] - cP[loopcf] * tau[loopcf] * tau[loopcf] / 2.0;
xbarde += cP[loopcf] * tau[loopcf];
}
double xbar = xbarnum / xbarde;
double[] pK = new double[nbCf];
for (int loopcf = 0; loopcf < nbCf; loopcf++) {
pK[loopcf] = p0[loopcf] * (1.0 - tau[loopcf] * xbar - tau[loopcf] * tau[loopcf] / 2.0);
}
double[] alphaK = new double[nbCf - 1];
double[] betaK = new double[2];
for (int loopcf = 0; loopcf < nbCf - 1; loopcf++) {
alphaK[loopcf] = cfa[loopcf + 1] * pK[loopcf + 1] / k;
betaK[0] += alphaK[loopcf] * ht0[0][loopcf + 1];
betaK[1] += alphaK[loopcf] * ht0[1][loopcf + 1];
}
double[] betaBar = new double[] {(beta0[0] + betaK[0]) / 2.0, (beta0[1] + betaK[1]) / 2.0};
double sigmaBar2 =
gamma[0][0] * betaBar[0] * betaBar[0]
+ gamma[1][1] * betaBar[1] * betaBar[1]
+ 2 * rhog2pp * gamma[0][1] * betaBar[0] * betaBar[1];
double sigmaBar = Math.sqrt(sigmaBar2);
EuropeanVanillaOption option = new EuropeanVanillaOption(k, 1, !swaption.isCall());
final BlackPriceFunction blackFunction = new BlackPriceFunction();
final BlackFunctionData dataBlack = new BlackFunctionData(b0, dfswap[0], sigmaBar);
final Function1D<BlackFunctionData, Double> func = blackFunction.getPriceFunction(option);
final double price = func.evaluate(dataBlack) * (swaption.isLong() ? 1.0 : -1.0);
return CurrencyAmount.of(swaption.getCurrency(), price);
}
