@Test
public void greekTrinomialTest() {
final LatticeSpecification[] lattices =
new LatticeSpecification[] {
new CoxRossRubinsteinLatticeSpecification(),
new JarrowRuddLatticeSpecification(),
new TrigeorgisLatticeSpecification(),
new TianLatticeSpecification()
};
final boolean[] tfSet = new boolean[] {true, false};
for (final LatticeSpecification lattice : lattices) {
for (final boolean isCall : tfSet) {
for (final double strike : STRIKES) {
for (final double interest : INTERESTS) {
for (final double vol : VOLS) {
final int nSteps = 177;
for (final double dividend : DIVIDENDS) {
final OptionFunctionProvider1D function =
new EuropeanVanillaOptionFunctionProvider(strike, TIME, nSteps, isCall);
final GreekResultCollection resDiv =
_modelTrinomial.getGreeks(lattice, function, SPOT, vol, interest, dividend);
final double priceDiv =
BlackScholesFormulaRepository.price(
SPOT, strike, TIME, vol, interest, interest - dividend, isCall);
final double refPriceDiv = Math.max(Math.abs(priceDiv), 1.) * 1.e-2;
assertEquals(resDiv.get(Greek.FAIR_PRICE), priceDiv, refPriceDiv);
final double deltaDiv =
BlackScholesFormulaRepository.delta(
SPOT, strike, TIME, vol, interest, interest - dividend, isCall);
final double refDeltaDiv = Math.max(Math.abs(deltaDiv), 0.1) * 1.e-1;
assertEquals(resDiv.get(Greek.DELTA), deltaDiv, refDeltaDiv);
final double gammaDiv =
BlackScholesFormulaRepository.gamma(
SPOT, strike, TIME, vol, interest, interest - dividend);
final double refGammaDiv = Math.max(Math.abs(gammaDiv), 0.1) * 1.e-1;
assertEquals(resDiv.get(Greek.GAMMA), gammaDiv, refGammaDiv);
final double thetaDiv =
BlackScholesFormulaRepository.theta(
SPOT, strike, TIME, vol, interest, interest - dividend, isCall);
final double refThetaDiv = Math.max(Math.abs(thetaDiv), 0.1) * 1.e-1;
assertEquals(resDiv.get(Greek.THETA), thetaDiv, refThetaDiv);
}
}
}
}
}
}
}
@Test
public void ImpliedTreeEuropeanRecoveryTest() {
final double interest = 0.06;
final YieldAndDiscountCurve yCrv = YieldCurve.from(ConstantDoublesCurve.from(interest));
final double cost = 0.02;
final double atmVol = 0.47;
final ZonedDateTime date = DateUtils.getUTCDate(2010, 7, 1);
final double spot = 100;
final Function<Double, Double> smile =
new Function<Double, Double>() {
@Override
public Double evaluate(final Double... tk) {
ArgChecker.isTrue(tk.length == 2);
final double k = tk[1];
return atmVol + (spot - k) * 0.0005;
}
};
final StandardOptionDataBundle data =
new StandardOptionDataBundle(
yCrv, cost, new VolatilitySurface(FunctionalDoublesSurface.from(smile)), spot, date);
final double[] strikes = new double[] {spot * 0.9, spot, spot * 1.11};
final int nSteps = 7;
final double time = 1.;
for (int i = 0; i < strikes.length; ++i) {
final double strike = strikes[i];
final boolean isCall = strike >= spot ? true : false;
final OptionFunctionProvider1D function =
new EuropeanVanillaOptionFunctionProvider(strike, time, nSteps, isCall);
final double tree = _modelTrinomial.getPrice(function, data);
final double black =
BlackScholesFormulaRepository.price(
spot, strike * 0.9, time, data.getVolatility(time, strike), interest, cost, isCall);
assertEquals(tree, black, black * 0.2);
}
try {
_model.getPrice(
new EuropeanVanillaOptionFunctionProvider(strikes[2], time, nSteps, true), data);
throw new RuntimeException();
} catch (Exception e) {
assertTrue(e instanceof IllegalArgumentException);
}
}
@Test
public void priceLatticeTrinomialTest() {
final LatticeSpecification[] lattices =
new LatticeSpecification[] {
new CoxRossRubinsteinLatticeSpecification(),
new JarrowRuddLatticeSpecification(),
new TrigeorgisLatticeSpecification(),
new TianLatticeSpecification()
};
final boolean[] tfSet = new boolean[] {true, false};
for (final LatticeSpecification lattice : lattices) {
for (final boolean isCall : tfSet) {
for (final double strike : STRIKES) {
for (final double interest : INTERESTS) {
for (final double vol : VOLS) {
final int nSteps = 621;
for (final double dividend : DIVIDENDS) {
final OptionFunctionProvider1D function =
new EuropeanVanillaOptionFunctionProvider(strike, TIME, nSteps, isCall);
final double exactDiv =
BlackScholesFormulaRepository.price(
SPOT, strike, TIME, vol, interest, interest - dividend, isCall);
final double resDiv =
_modelTrinomial.getPrice(lattice, function, SPOT, vol, interest, dividend);
final double refDiv =
lattice instanceof CoxRossRubinsteinLatticeSpecification
? Math.max(exactDiv, 1.) * 1.e-2
: Math.max(exactDiv, 1.) * 1.e-3;
assertEquals(resDiv, exactDiv, refDiv);
}
}
}
}
}
}
}
/** non-constant volatility and interest rate */
@Test
public void timeVaryingVolTest() {
final LatticeSpecification lattice1 = new TimeVaryingLatticeSpecification();
final double[] time_set = new double[] {0.5, 1.2};
final int steps = 701;
final double[] vol = new double[steps];
final double[] rate = new double[steps];
final double[] dividend = new double[steps];
final int stepsTri = 661;
final double[] volTri = new double[stepsTri];
final double[] rateTri = new double[stepsTri];
final double[] dividendTri = new double[stepsTri];
final double constA = 0.01;
final double constB = 0.001;
final double constC = 0.1;
final double constD = 0.05;
final boolean[] tfSet = new boolean[] {true, false};
for (final boolean isCall : tfSet) {
for (final double strike : STRIKES) {
for (final double time : time_set) {
for (int i = 0; i < steps; ++i) {
rate[i] = constA + constB * i * time / steps;
vol[i] = constC + constD * Math.sin(i * time / steps);
dividend[i] = 0.005;
}
for (int i = 0; i < stepsTri; ++i) {
rateTri[i] = constA + constB * i * time / steps;
volTri[i] = constC + constD * Math.sin(i * time / steps);
dividendTri[i] = 0.005;
}
final double rateRef = constA + 0.5 * constB * time;
final double volRef =
Math.sqrt(
constC * constC
+ 0.5 * constD * constD
+ 2. * constC * constD / time * (1. - Math.cos(time))
- constD * constD * 0.25 / time * Math.sin(2. * time));
final OptionFunctionProvider1D functionVanilla =
new EuropeanVanillaOptionFunctionProvider(strike, time, steps, isCall);
final double resPrice = _model.getPrice(functionVanilla, SPOT, vol, rate, dividend);
final GreekResultCollection resGreeks =
_model.getGreeks(functionVanilla, SPOT, vol, rate, dividend);
final double resPriceConst =
_model.getPrice(lattice1, functionVanilla, SPOT, volRef, rateRef, dividend[0]);
final GreekResultCollection resGreeksConst =
_model.getGreeks(lattice1, functionVanilla, SPOT, volRef, rateRef, dividend[0]);
assertEquals(resPrice, resPriceConst, Math.max(Math.abs(resPriceConst), .1) * 1.e-1);
assertEquals(
resGreeks.get(Greek.FAIR_PRICE),
resGreeksConst.get(Greek.FAIR_PRICE),
Math.max(Math.abs(resGreeksConst.get(Greek.FAIR_PRICE)), 0.1) * 0.1);
assertEquals(
resGreeks.get(Greek.DELTA),
resGreeksConst.get(Greek.DELTA),
Math.max(Math.abs(resGreeksConst.get(Greek.DELTA)), 0.1) * 0.1);
assertEquals(
resGreeks.get(Greek.GAMMA),
resGreeksConst.get(Greek.GAMMA),
Math.max(Math.abs(resGreeksConst.get(Greek.GAMMA)), 0.1) * 0.1);
assertEquals(
resGreeks.get(Greek.THETA),
resGreeksConst.get(Greek.THETA),
Math.max(Math.abs(resGreeksConst.get(Greek.THETA)), 0.1));
final OptionFunctionProvider1D functionTri =
new EuropeanVanillaOptionFunctionProvider(strike, time, stepsTri, isCall);
final double resPriceTrinomial =
_modelTrinomial.getPrice(functionTri, SPOT, volTri, rateTri, dividendTri);
assertEquals(
resPriceTrinomial, resPriceConst, Math.max(Math.abs(resPriceConst), .1) * 1.e-1);
final GreekResultCollection resGreeksTrinomial =
_modelTrinomial.getGreeks(functionTri, SPOT, volTri, rateTri, dividendTri);
assertEquals(
resGreeksTrinomial.get(Greek.FAIR_PRICE),
resGreeksConst.get(Greek.FAIR_PRICE),
Math.max(Math.abs(resGreeksConst.get(Greek.FAIR_PRICE)), 0.1) * 0.1);
assertEquals(
resGreeksTrinomial.get(Greek.DELTA),
resGreeksConst.get(Greek.DELTA),
Math.max(Math.abs(resGreeksConst.get(Greek.DELTA)), 0.1) * 0.1);
assertEquals(
resGreeksTrinomial.get(Greek.GAMMA),
resGreeksConst.get(Greek.GAMMA),
Math.max(Math.abs(resGreeksConst.get(Greek.GAMMA)), 0.1) * 0.1);
assertEquals(
resGreeksTrinomial.get(Greek.THETA),
resGreeksConst.get(Greek.THETA),
Math.max(Math.abs(resGreeksConst.get(Greek.THETA)), 0.1));
}
}
}
}
/** The dividend is cash or proportional to asset price */
@Test
public void greeksDiscreteDividendLatticeTest() {
final LatticeSpecification[] lattices =
new LatticeSpecification[] {
new CoxRossRubinsteinLatticeSpecification(),
new JarrowRuddLatticeSpecification(),
new TrigeorgisLatticeSpecification(),
new JabbourKraminYoungLatticeSpecification(),
new TianLatticeSpecification(),
new LeisenReimerLatticeSpecification()
};
final double[] propDividends = new double[] {0.01, 0.01, 0.01};
final double[] cashDividends = new double[] {5., 10., 8.};
final double[] dividendTimes = new double[] {TIME / 420., TIME / 203., TIME / 2.};
final boolean[] tfSet = new boolean[] {true, false};
for (final LatticeSpecification lattice : lattices) {
for (final boolean isCall : tfSet) {
for (final double strike : STRIKES) {
for (final double interest : INTERESTS) {
for (final double vol : VOLS) {
final int nSteps = 401;
final double resSpot =
SPOT
* (1. - propDividends[0])
* (1. - propDividends[1])
* (1. - propDividends[2]);
final double modSpot =
SPOT
- cashDividends[0] * Math.exp(-interest * dividendTimes[0])
- cashDividends[1] * Math.exp(-interest * dividendTimes[1])
- cashDividends[2] * Math.exp(-interest * dividendTimes[2]);
final double exactPriceProp =
BlackScholesFormulaRepository.price(
resSpot, strike, TIME, vol, interest, interest, isCall);
final double exactDeltaProp =
BlackScholesFormulaRepository.delta(
resSpot, strike, TIME, vol, interest, interest, isCall);
final double exactGammaProp =
BlackScholesFormulaRepository.gamma(
resSpot, strike, TIME, vol, interest, interest);
final double exactThetaProp =
BlackScholesFormulaRepository.theta(
resSpot, strike, TIME, vol, interest, interest, isCall);
final double appPriceCash =
BlackScholesFormulaRepository.price(
modSpot, strike, TIME, vol, interest, interest, isCall);
final double appDeltaCash =
BlackScholesFormulaRepository.delta(
modSpot, strike, TIME, vol, interest, interest, isCall);
final double appGammaCash =
BlackScholesFormulaRepository.gamma(
modSpot, strike, TIME, vol, interest, interest);
final double appThetaCash =
BlackScholesFormulaRepository.theta(
modSpot, strike, TIME, vol, interest, interest, isCall);
final OptionFunctionProvider1D function =
new EuropeanVanillaOptionFunctionProvider(strike, TIME, nSteps, isCall);
final DividendFunctionProvider cashDividend =
new CashDividendFunctionProvider(dividendTimes, cashDividends);
final DividendFunctionProvider propDividend =
new ProportionalDividendFunctionProvider(dividendTimes, propDividends);
final GreekResultCollection resProp =
_model.getGreeks(lattice, function, SPOT, vol, interest, propDividend);
final GreekResultCollection resCash =
_model.getGreeks(lattice, function, SPOT, vol, interest, cashDividend);
assertEquals(
resProp.get(Greek.FAIR_PRICE),
exactPriceProp,
Math.max(1., Math.abs(exactPriceProp)) * 1.e-2);
assertEquals(
resProp.get(Greek.DELTA),
exactDeltaProp,
Math.max(1., Math.abs(exactDeltaProp)) * 1.e-1);
assertEquals(
resProp.get(Greek.GAMMA),
exactGammaProp,
Math.max(1., Math.abs(exactGammaProp)) * 1.e-1);
assertEquals(
resProp.get(Greek.THETA),
exactThetaProp,
Math.max(1., Math.abs(exactThetaProp)) * 1.e-1);
assertEquals(
resCash.get(Greek.FAIR_PRICE),
appPriceCash,
Math.max(1., Math.abs(appPriceCash)) * 1.e-2);
assertEquals(
resCash.get(Greek.DELTA),
appDeltaCash,
Math.max(1., Math.abs(appDeltaCash)) * 1.e-1);
assertEquals(
resCash.get(Greek.GAMMA),
appGammaCash,
Math.max(1., Math.abs(appGammaCash)) * 1.e-1);
assertEquals(
resCash.get(Greek.THETA), appThetaCash, Math.max(1., Math.abs(appThetaCash)));
if (lattice instanceof CoxRossRubinsteinLatticeSpecification
|| lattice instanceof JarrowRuddLatticeSpecification
|| lattice instanceof TrigeorgisLatticeSpecification
|| lattice instanceof TianLatticeSpecification) {
final GreekResultCollection resPropTrinomial =
_modelTrinomial.getGreeks(lattice, function, SPOT, vol, interest, propDividend);
final GreekResultCollection resCashTrinomial =
_modelTrinomial.getGreeks(lattice, function, SPOT, vol, interest, cashDividend);
assertEquals(
resPropTrinomial.get(Greek.FAIR_PRICE),
resProp.get(Greek.FAIR_PRICE),
Math.max(1., Math.abs(resProp.get(Greek.FAIR_PRICE))) * 1.e-2);
assertEquals(
resPropTrinomial.get(Greek.DELTA),
resProp.get(Greek.DELTA),
Math.max(1., Math.abs(resProp.get(Greek.DELTA))) * 1.e-2);
assertEquals(
resPropTrinomial.get(Greek.GAMMA),
resProp.get(Greek.GAMMA),
Math.max(1., Math.abs(resProp.get(Greek.GAMMA))) * 1.e-2);
assertEquals(
resPropTrinomial.get(Greek.THETA),
resProp.get(Greek.THETA),
Math.max(1., Math.abs(resProp.get(Greek.THETA))) * 1.e-1);
assertEquals(
resCashTrinomial.get(Greek.FAIR_PRICE),
resCash.get(Greek.FAIR_PRICE),
Math.max(1., Math.abs(resCash.get(Greek.FAIR_PRICE))) * 1.e-2);
assertEquals(
resCashTrinomial.get(Greek.DELTA),
resCash.get(Greek.DELTA),
Math.max(1., Math.abs(resCash.get(Greek.DELTA))) * 1.e-2);
assertEquals(
resCashTrinomial.get(Greek.GAMMA),
resCash.get(Greek.GAMMA),
Math.max(1., Math.abs(resCash.get(Greek.GAMMA))) * 1.e-2);
assertEquals(
resCashTrinomial.get(Greek.THETA),
resCash.get(Greek.THETA),
Math.max(1., Math.abs(resCash.get(Greek.THETA))) * 1.e-1);
}
}
}
}
}
}
}
/** The dividend is cash or proportional to asset price */
@Test
public void priceDiscreteDividendTest() {
final LatticeSpecification[] lattices =
new LatticeSpecification[] {
new CoxRossRubinsteinLatticeSpecification(),
new JarrowRuddLatticeSpecification(),
new TrigeorgisLatticeSpecification(),
new JabbourKraminYoungLatticeSpecification(),
new TianLatticeSpecification(),
new LeisenReimerLatticeSpecification()
};
final double[] propDividends = new double[] {0.01, 0.01, 0.01};
final double[] cashDividends = new double[] {5., 10., 8.};
final double[] dividendTimes = new double[] {TIME / 9., TIME / 3., TIME / 2.};
final boolean[] tfSet = new boolean[] {true, false};
for (final LatticeSpecification lattice : lattices) {
for (final boolean isCall : tfSet) {
for (final double strike : STRIKES) {
for (final double interest : INTERESTS) {
for (final double vol : VOLS) {
final int[] choicesSteps = new int[] {33, 115};
for (final int nSteps : choicesSteps) {
final OptionFunctionProvider1D function =
new EuropeanVanillaOptionFunctionProvider(strike, TIME, nSteps, isCall);
final DividendFunctionProvider cashDividend =
new CashDividendFunctionProvider(dividendTimes, cashDividends);
final DividendFunctionProvider propDividend =
new ProportionalDividendFunctionProvider(dividendTimes, propDividends);
final double df = Math.exp(-interest * TIME);
final double resSpot =
SPOT
* Math.exp(interest * TIME)
* (1. - propDividends[0])
* (1. - propDividends[1])
* (1. - propDividends[2]);
final double modSpot =
SPOT
- cashDividends[0] * Math.exp(-interest * dividendTimes[0])
- cashDividends[1] * Math.exp(-interest * dividendTimes[1])
- cashDividends[2] * Math.exp(-interest * dividendTimes[2]);
final double exactProp =
df * BlackFormulaRepository.price(resSpot, strike, TIME, vol, isCall);
final double appCash =
BlackScholesFormulaRepository.price(
modSpot, strike, TIME, vol, interest, interest, isCall);
final double resProp =
_model.getPrice(lattice, function, SPOT, vol, interest, propDividend);
final double refProp = Math.max(exactProp, 1.) / Math.sqrt(nSteps);
assertEquals(resProp, exactProp, refProp);
final double resCash =
_model.getPrice(lattice, function, SPOT, vol, interest, cashDividend);
final double refCash = Math.max(appCash, 1.) / Math.sqrt(nSteps);
assertEquals(resCash, appCash, refCash);
if (lattice instanceof CoxRossRubinsteinLatticeSpecification
|| lattice instanceof JarrowRuddLatticeSpecification
|| lattice instanceof TrigeorgisLatticeSpecification
|| lattice instanceof TianLatticeSpecification) {
final double resPropTrinomial =
_modelTrinomial.getPrice(
lattice, function, SPOT, vol, interest, propDividend);
final double resCashTrinomial =
_modelTrinomial.getPrice(
lattice, function, SPOT, vol, interest, cashDividend);
assertEquals(
resPropTrinomial, resProp, Math.max(resProp, 1.) / Math.sqrt(nSteps));
assertEquals(
resCashTrinomial, resCash, Math.max(resCash, 1.) / Math.sqrt(nSteps));
}
}
}
}
}
}
}
}
