public InterestRateCurveSensitivity presentValueSensitivity(
final BondIborTransaction bond, final YieldCurveBundle curves) {
final InterestRateCurveSensitivity pvsNominal =
new InterestRateCurveSensitivity(
bond.getBondTransaction().getNominal().accept(PVSC, curves));
final InterestRateCurveSensitivity pvsCoupon =
new InterestRateCurveSensitivity(
bond.getBondTransaction().getCoupon().accept(PVSC, curves));
final double settlementAmount =
bond.getTransactionPrice()
* bond.getBondTransaction()
.getCoupon()
.getNthPayment(0)
.getNotional(); // FIXME: add accrued.
LOGGER.error("The FRN settlement amount does not include the accrued interests.");
final PaymentFixed settlement =
new PaymentFixed(
bond.getBondTransaction().getCurrency(),
bond.getBondTransaction().getSettlementTime(),
settlementAmount,
bond.getBondTransaction().getRepoCurveName());
final InterestRateCurveSensitivity pvsSettlement =
new InterestRateCurveSensitivity(settlement.accept(PVSC, curves));
return pvsNominal.plus(pvsCoupon).multipliedBy(bond.getQuantity()).plus(pvsSettlement);
}
/**
* Computes the option security price curve sensitivity. The future price is computed without
* convexity adjustment.
*
* @param security The future option security.
* @param sabrData The SABR data bundle.
* @return The security price curve sensitivity.
*/
public InterestRateCurveSensitivity priceCurveSensitivity(
final InterestRateFutureOptionMarginSecurity security,
final SABRInterestRateDataBundle sabrData) {
// Forward sweep
final double priceFuture = METHOD_FUTURE.price(security.getUnderlyingFuture(), sabrData);
final double rateStrike = 1.0 - security.getStrike();
final EuropeanVanillaOption option =
new EuropeanVanillaOption(rateStrike, security.getExpirationTime(), !security.isCall());
final double forward = 1 - priceFuture;
final double delay =
security.getUnderlyingFuture().getLastTradingTime() - security.getExpirationTime();
final double[] volatilityAdjoint =
sabrData
.getSABRParameter()
.getVolatilityAdjoint(security.getExpirationTime(), delay, rateStrike, forward);
final BlackFunctionData dataBlack = new BlackFunctionData(forward, 1.0, volatilityAdjoint[0]);
final double[] priceAdjoint = BLACK_FUNCTION.getPriceAdjoint(option, dataBlack);
// Backward sweep
final double priceBar = 1.0;
final double volatilityBar = priceAdjoint[2] * priceBar;
final double forwardBar = priceAdjoint[1] * priceBar + volatilityAdjoint[1] * volatilityBar;
final double priceFutureBar = -forwardBar;
final InterestRateCurveSensitivity priceFutureDerivative =
METHOD_FUTURE.priceCurveSensitivity(security.getUnderlyingFuture(), sabrData);
return priceFutureDerivative.multipliedBy(priceFutureBar);
}
/**
* Computes the present value curve sensitivity of a transaction.
*
* @param transaction The future option transaction.
* @param curves The yield curve bundle.
* @return The present value curve sensitivity.
*/
public InterestRateCurveSensitivity presentValueCurveSensitivity(
final InterestRateFutureOptionMarginTransaction transaction, final YieldCurveBundle curves) {
InterestRateCurveSensitivity securitySensitivity =
_securityMethod.priceCurveSensitivity(transaction.getUnderlyingOption(), curves);
return securitySensitivity.multipliedBy(
transaction.getQuantity()
* transaction.getUnderlyingOption().getUnderlyingFuture().getNotional()
* transaction.getUnderlyingOption().getUnderlyingFuture().getPaymentAccrualFactor());
}
/**
* Computes the present value curve sensitivity of a transaction.
*
* @param transaction The future option transaction.
* @param curves The yield curve bundle.
* @return The present value curve sensitivity.
*/
public InterestRateCurveSensitivity presentValueCurveSensitivity(
final BondFutureOptionPremiumTransaction transaction, final YieldCurveBundle curves) {
ArgumentChecker.notNull(transaction, "transaction");
ArgumentChecker.notNull(curves, "curves");
final InterestRateCurveSensitivity premiumSensitivity =
PVCSC.visit(transaction.getPremium(), curves);
final InterestRateCurveSensitivity securitySensitivity =
METHOD_SECURITY.priceCurveSensitivity(transaction.getUnderlyingOption(), curves);
return premiumSensitivity.plus(
securitySensitivity.multipliedBy(
transaction.getQuantity()
* transaction.getUnderlyingOption().getUnderlyingFuture().getNotional()));
}
@Test
public void presentValueCurveSensitivity() {
final InterestRateCurveSensitivity pvcsComputed =
METHOD_SECURITY.presentValueCurveSensitivity(BILL_IAM_SEC, CURVE_BUNDLE);
assertEquals(
"Bill Security: present value curve sensitivity",
1,
pvcsComputed.getSensitivities().size());
assertEquals(
"Bill Security: present value curve sensitivity",
1,
pvcsComputed.getSensitivities().get(NAME_CURVES[1]).size());
final double deltaTolerancePrice = 1.0E+2;
// Testing note: Sensitivity is for a movement of 1. 1E+2 = 0.01 unit for a 1 bp move.
final double deltaShift = 1.0E-6;
// Credit curve sensitivity
final String bumpedCurveName = "Bumped Curve";
final BillSecurity billBumped =
BILL_IAM_SEC_DEFINITION.toDerivative(REFERENCE_DATE, NAME_CURVES[0], bumpedCurveName);
final double[] nodeTimes = new double[] {billBumped.getEndTime()};
final double[] sensi =
SensitivityFiniteDifference.curveSensitivity(
billBumped,
CURVE_BUNDLE,
NAME_CURVES[1],
bumpedCurveName,
nodeTimes,
deltaShift,
METHOD_SECURITY);
final List<DoublesPair> sensiPv = pvcsComputed.getSensitivities().get(NAME_CURVES[1]);
for (int loopnode = 0; loopnode < sensi.length; loopnode++) {
final DoublesPair pairPv = sensiPv.get(loopnode);
assertEquals(
"Bill Security: curve sensitivity - Node " + loopnode,
nodeTimes[loopnode],
pairPv.getFirst(),
1E-8);
AssertJUnit.assertEquals(
"Bill Security: curve sensitivity", pairPv.second, sensi[loopnode], deltaTolerancePrice);
}
}
/**
* Compute the present value sensitivity of a bond transaction.
*
* @param bond The bond transaction.
* @param curves The curve bundle.
* @return The present value sensitivity.
*/
public InterestRateCurveSensitivity presentValueSensitivity(
final BondFixedTransaction bond, final YieldCurveBundle curves) {
final InterestRateCurveSensitivity pvsNominal =
new InterestRateCurveSensitivity(
bond.getBondTransaction().getNominal().accept(PVSC, curves));
final InterestRateCurveSensitivity pvsCoupon =
new InterestRateCurveSensitivity(
bond.getBondTransaction().getCoupon().accept(PVSC, curves));
final double settlementAmount =
-(bond.getTransactionPrice()
* bond.getBondTransaction().getCoupon().getNthPayment(0).getNotional()
+ bond.getBondTransaction().getAccruedInterest())
* bond.getQuantity();
final PaymentFixed settlement =
new PaymentFixed(
bond.getBondTransaction().getCurrency(),
bond.getBondTransaction().getSettlementTime(),
settlementAmount,
bond.getBondTransaction().getRepoCurveName());
final InterestRateCurveSensitivity pvsSettlement =
new InterestRateCurveSensitivity(settlement.accept(PVSC, curves));
return pvsNominal.plus(pvsCoupon).multipliedBy(bond.getQuantity()).plus(pvsSettlement);
}
@Test
/** Tests the curve sensitivity. */
public void presentValueCurveSensitivity() {
InterestRateCurveSensitivity pvsSwaption =
METHOD_HW_APPROXIMATION.presentValueCurveSensitivity(SWAPTION_PAYER_LONG, BUNDLE_HW);
pvsSwaption = pvsSwaption.cleaned();
final double deltaTolerancePrice = 1.0E+4;
// Testing note: Sensitivity is for a movement of 1. 1E+2 = 1 cent for a 1 bp move. Tolerance
// increased to cope with numerical imprecision of finite difference.
final double deltaShift = 1.0E-6;
// 1. Forward curve sensitivity
final String bumpedCurveName = "Bumped Curve";
final SwaptionCashFixedIbor swptBumpedForward =
SWAPTION_PAYER_LONG_DEFINITION.toDerivative(
REFERENCE_DATE, new String[] {CURVES_NAME[0], bumpedCurveName});
DoubleAVLTreeSet forwardTime = new DoubleAVLTreeSet();
for (int loopcpn = 0;
loopcpn < SWAPTION_PAYER_LONG.getUnderlyingSwap().getSecondLeg().getNumberOfPayments();
loopcpn++) {
CouponIbor cpn =
(CouponIbor)
SWAPTION_PAYER_LONG.getUnderlyingSwap().getSecondLeg().getNthPayment(loopcpn);
forwardTime.add(cpn.getFixingPeriodStartTime());
forwardTime.add(cpn.getFixingPeriodEndTime());
}
double[] nodeTimesForward = forwardTime.toDoubleArray();
final double[] sensiForwardMethod =
SensitivityFiniteDifference.curveSensitivity(
swptBumpedForward,
BUNDLE_HW,
CURVES_NAME[1],
bumpedCurveName,
nodeTimesForward,
deltaShift,
METHOD_HW_APPROXIMATION);
final List<DoublesPair> sensiPvForward = pvsSwaption.getSensitivities().get(CURVES_NAME[1]);
for (int loopnode = 0; loopnode < sensiForwardMethod.length; loopnode++) {
final DoublesPair pairPv = sensiPvForward.get(loopnode);
assertEquals(
"Sensitivity swaption pv to forward curve: Node " + loopnode,
nodeTimesForward[loopnode],
pairPv.getFirst(),
1E-8);
assertEquals(
"Sensitivity finite difference method: node sensitivity " + loopnode,
sensiForwardMethod[loopnode],
pairPv.second,
deltaTolerancePrice);
}
// 2. Discounting curve sensitivity
final SwaptionCashFixedIbor swptBumpedDisc =
SWAPTION_PAYER_LONG_DEFINITION.toDerivative(
REFERENCE_DATE, new String[] {bumpedCurveName, CURVES_NAME[1]});
DoubleAVLTreeSet discTime = new DoubleAVLTreeSet();
discTime.add(SWAPTION_PAYER_LONG.getSettlementTime());
for (int loopcpn = 0;
loopcpn < SWAPTION_PAYER_LONG.getUnderlyingSwap().getSecondLeg().getNumberOfPayments();
loopcpn++) {
CouponIbor cpn =
(CouponIbor)
SWAPTION_PAYER_LONG.getUnderlyingSwap().getSecondLeg().getNthPayment(loopcpn);
discTime.add(cpn.getPaymentTime());
}
double[] nodeTimesDisc = discTime.toDoubleArray();
final double[] sensiDiscMethod =
SensitivityFiniteDifference.curveSensitivity(
swptBumpedDisc,
BUNDLE_HW,
CURVES_NAME[0],
bumpedCurveName,
nodeTimesDisc,
deltaShift,
METHOD_HW_APPROXIMATION);
assertEquals(
"Sensitivity finite difference method: number of node", 11, sensiDiscMethod.length);
final List<DoublesPair> sensiPvDisc = pvsSwaption.getSensitivities().get(CURVES_NAME[0]);
for (int loopnode = 0; loopnode < sensiDiscMethod.length; loopnode++) {
final DoublesPair pairPv = sensiPvDisc.get(loopnode);
assertEquals(
"Sensitivity swaption pv to forward curve: Node " + loopnode,
nodeTimesDisc[loopnode],
pairPv.getFirst(),
1E-8);
assertEquals(
"Sensitivity finite difference method: node sensitivity",
sensiDiscMethod[loopnode],
pairPv.second,
deltaTolerancePrice);
}
}
/**
* 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;
}
@Test
/**
* Test the present value rate sensitivity against a finite difference computation; strike above
* the cut-off strike. Test sensitivity long/short parity.
*/
public void testPresentValueSensitivityAboveCutOff() {
final YieldCurveBundle curves = TestsDataSetsSABR.createCurves1();
final SABRInterestRateParameters sabrParameter = TestsDataSetsSABR.createSABR1();
final SABRInterestRateDataBundle sabrBundle =
new SABRInterestRateDataBundle(sabrParameter, curves);
InterestRateCurveSensitivity pvsCapLong =
METHOD.presentValueSensitivity(CAP_HIGH_LONG, sabrBundle);
final InterestRateCurveSensitivity pvsCapShort =
METHOD.presentValueSensitivity(CAP_HIGH_SHORT, sabrBundle);
// Long/short parity
final InterestRateCurveSensitivity pvsCapShort_1 = pvsCapShort.multipliedBy(-1);
assertEquals(pvsCapLong.getSensitivities(), pvsCapShort_1.getSensitivities());
// Present value sensitivity comparison with finite difference.
final double deltaTolerancePrice = 1.0E-1;
// Testing note: Sensitivity is for a movement of 1. 1E+2 = 1 cent for a 1 bp move.
final double deltaShift = 1.0E-7;
pvsCapLong = pvsCapLong.cleaned();
final String bumpedCurveName = "Bumped Curve";
// 1. Forward curve sensitivity
final String[] CurveNameBumpedForward = {FUNDING_CURVE_NAME, bumpedCurveName};
final CapFloorIbor capBumpedForward =
(CapFloorIbor)
CAP_HIGH_LONG_DEFINITION.toDerivative(REFERENCE_DATE, CurveNameBumpedForward);
final double[] nodeTimesForward =
new double[] {
capBumpedForward.getFixingPeriodStartTime(), capBumpedForward.getFixingPeriodEndTime()
};
final double[] sensiForwardMethod =
SensitivityFiniteDifference.curveSensitivity(
capBumpedForward,
SABR_BUNDLE,
FORWARD_CURVE_NAME,
bumpedCurveName,
nodeTimesForward,
deltaShift,
METHOD);
assertEquals(
"Sensitivity finite difference method: number of node", 2, sensiForwardMethod.length);
final List<DoublesPair> sensiPvForward = pvsCapLong.getSensitivities().get(FORWARD_CURVE_NAME);
for (int loopnode = 0; loopnode < sensiForwardMethod.length; loopnode++) {
final DoublesPair pairPv = sensiPvForward.get(loopnode);
assertEquals(
"Sensitivity cap/floor pv to forward curve: Node " + loopnode,
nodeTimesForward[loopnode],
pairPv.getFirst(),
1E-8);
// assertEquals("Sensitivity finite difference method: node sensitivity: Node " +
// loopnode, pairPv.second, sensiForwardMethod[loopnode], deltaTolerancePrice);
}
// 2. Discounting curve sensitivity
final String[] CurveNameBumpedDisc = {bumpedCurveName, FORWARD_CURVE_NAME};
final CapFloorIbor capBumpedDisc =
(CapFloorIbor) CAP_HIGH_LONG_DEFINITION.toDerivative(REFERENCE_DATE, CurveNameBumpedDisc);
final double[] nodeTimesDisc = new double[] {capBumpedDisc.getPaymentTime()};
final double[] sensiDiscMethod =
SensitivityFiniteDifference.curveSensitivity(
capBumpedDisc,
SABR_BUNDLE,
FUNDING_CURVE_NAME,
bumpedCurveName,
nodeTimesDisc,
deltaShift,
METHOD);
assertEquals("Sensitivity finite difference method: number of node", 1, sensiDiscMethod.length);
final List<DoublesPair> sensiPvDisc = pvsCapLong.getSensitivities().get(FUNDING_CURVE_NAME);
for (int loopnode = 0; loopnode < sensiDiscMethod.length; loopnode++) {
final DoublesPair pairPv = sensiPvDisc.get(loopnode);
assertEquals(
"Sensitivity cap/floor pv to forward curve: Node " + loopnode,
nodeTimesDisc[loopnode],
pairPv.getFirst(),
1E-8);
assertEquals(
"Sensitivity finite difference method: node sensitivity",
pairPv.second,
sensiDiscMethod[loopnode],
deltaTolerancePrice);
}
}
/**
* Computes the present value sensitivity to the yield curves of a CMS cap/floor by replication in
* the SABR framework with extrapolation on the right.
*
* @param cmsCapFloor The CMS cap/floor.
* @param sabrData The SABR data bundle. The SABR function need to be the Hagan function.
* @return The present value sensitivity to curves.
*/
@Override
public InterestRateCurveSensitivity presentValueCurveSensitivity(
final CapFloorCMS cmsCapFloor, final SABRInterestRateDataBundle sabrData) {
Validate.notNull(cmsCapFloor);
Validate.notNull(sabrData);
final SABRInterestRateParameters sabrParameter = sabrData.getSABRParameter();
final SwapFixedCoupon<? extends Payment> underlyingSwap = cmsCapFloor.getUnderlyingSwap();
final double forward = underlyingSwap.accept(PRC, sabrData);
final double discountFactor =
sabrData
.getCurve(underlyingSwap.getFixedLeg().getNthPayment(0).getFundingCurveName())
.getDiscountFactor(cmsCapFloor.getPaymentTime());
final double strike = cmsCapFloor.getStrike();
final double maturity =
underlyingSwap
.getFixedLeg()
.getNthPayment(underlyingSwap.getFixedLeg().getNumberOfPayments() - 1)
.getPaymentTime()
- cmsCapFloor.getSettlementTime();
final DoublesPair expiryMaturity = new DoublesPair(cmsCapFloor.getFixingTime(), maturity);
final double alpha = sabrParameter.getAlpha(expiryMaturity);
final double beta = sabrParameter.getBeta(expiryMaturity);
final double rho = sabrParameter.getRho(expiryMaturity);
final double nu = sabrParameter.getNu(expiryMaturity);
final SABRFormulaData sabrPoint = new SABRFormulaData(alpha, beta, rho, nu);
// Common
final CMSIntegrant integrantPrice =
new CMSIntegrant(cmsCapFloor, sabrPoint, forward, _cutOffStrike, _mu);
final CMSDeltaIntegrant integrantDelta =
new CMSDeltaIntegrant(cmsCapFloor, sabrPoint, forward, _cutOffStrike, _mu);
final double factor = discountFactor / integrantDelta.h(forward) * integrantDelta.g(forward);
final double absoluteTolerance =
1.0 / (factor * Math.abs(cmsCapFloor.getNotional()) * cmsCapFloor.getPaymentYearFraction());
final double relativeTolerance = 1E-10;
final RungeKuttaIntegrator1D integrator =
new RungeKuttaIntegrator1D(absoluteTolerance, relativeTolerance, getNbIteration());
// Price
final double[] bs = integrantDelta.bsbsp(strike);
@SuppressWarnings("synthetic-access")
final double[] n = integrantDelta.nnp(forward);
final double strikePartPrice = discountFactor * integrantDelta.k(strike) * n[0] * bs[0];
double integralPartPrice;
try {
if (cmsCapFloor.isCap()) {
integralPartPrice =
discountFactor
* integrator.integrate(integrantPrice, strike, strike + getIntegrationInterval());
} else {
integralPartPrice = discountFactor * integrator.integrate(integrantPrice, 0.0, strike);
}
} catch (final Exception e) {
throw new RuntimeException(e);
}
final double price =
(strikePartPrice + integralPartPrice)
* cmsCapFloor.getNotional()
* cmsCapFloor.getPaymentYearFraction();
// Delta
final double strikePart =
discountFactor * integrantDelta.k(strike) * (n[1] * bs[0] + n[0] * bs[1]);
double integralPart;
try {
if (cmsCapFloor.isCap()) {
integralPart =
discountFactor
* integrator.integrate(integrantDelta, strike, strike + getIntegrationInterval());
} else {
integralPart = discountFactor * integrator.integrate(integrantDelta, 0.0, strike);
}
} catch (final Exception e) {
throw new RuntimeException(e);
}
final double deltaS0 =
(strikePart + integralPart)
* cmsCapFloor.getNotional()
* cmsCapFloor.getPaymentYearFraction();
final double deltaPD = price / discountFactor;
final double sensiDF = -cmsCapFloor.getPaymentTime() * discountFactor * deltaPD;
final List<DoublesPair> list = new ArrayList<>();
list.add(new DoublesPair(cmsCapFloor.getPaymentTime(), sensiDF));
final Map<String, List<DoublesPair>> resultMap = new HashMap<>();
resultMap.put(
cmsCapFloor.getUnderlyingSwap().getFixedLeg().getNthPayment(0).getFundingCurveName(), list);
InterestRateCurveSensitivity result = new InterestRateCurveSensitivity(resultMap);
final InterestRateCurveSensitivity forwardDr =
new InterestRateCurveSensitivity(cmsCapFloor.getUnderlyingSwap().accept(PRSC, sabrData));
result = result.plus(forwardDr.multipliedBy(deltaS0));
return result;
}