@Test
public void greekTest() {
final LatticeSpecification[] lattices =
new LatticeSpecification[] {
new CoxRossRubinsteinLatticeSpecification(),
new JarrowRuddLatticeSpecification(),
new TrigeorgisLatticeSpecification(),
new JabbourKraminYoungLatticeSpecification(),
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[] choicesSteps = new int[] {31, 112, 301};
for (final int nSteps : choicesSteps) {
for (final double dividend : DIVIDENDS) {
final OptionFunctionProvider1D function =
new EuropeanVanillaOptionFunctionProvider(strike, TIME, nSteps, isCall);
final GreekResultCollection resDiv =
_model.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.) / Math.sqrt(nSteps);
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), 1.) / Math.sqrt(nSteps);
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), 1.) / Math.sqrt(nSteps);
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), 1.) / Math.sqrt(nSteps);
assertEquals(resDiv.get(Greek.THETA), thetaDiv, refThetaDiv);
}
}
}
}
}
}
}
}
@Test
public void smoothConvergenceTest() {
final LatticeSpecification lattice = new FlexibleLatticeSpecification();
final boolean[] tfSet = new boolean[] {true, false};
for (final boolean isCall : tfSet) {
for (final double strike : STRIKES) {
for (final double interest : INTERESTS) {
for (final double vol : VOLS) {
for (final double dividend : DIVIDENDS) {
double prev = SPOT;
double diff = 0.;
if (interest - dividend > 0.) {
for (int i = 0; i < 15; ++i) {
final int nSteps = 10 + 50 * i;
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 =
_model.getPrice(lattice, function, SPOT, vol, interest, dividend);
diff = Math.abs(exactDiv - resDiv);
assertTrue(diff < prev);
prev = diff;
}
}
}
}
}
}
}
}
@Test
public void greekLeisenReimerTest() {
final LatticeSpecification lattice = new LeisenReimerLatticeSpecification();
final boolean[] tfSet = new boolean[] {true, false};
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[] {31, 109, 301};
for (final int nSteps : choicesSteps) {
for (final double dividend : DIVIDENDS) {
final OptionFunctionProvider1D function =
new EuropeanVanillaOptionFunctionProvider(strike, TIME, nSteps, isCall);
final GreekResultCollection resDiv =
_model.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.) / nSteps;
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), 1.) / nSteps;
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), 1.) / nSteps;
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), 1.) / nSteps;
assertEquals(resDiv.get(Greek.THETA), thetaDiv, refThetaDiv * 10.);
}
}
}
}
}
}
}
@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 priceLatticeTest() {
final LatticeSpecification[] lattices =
new LatticeSpecification[] {
new CoxRossRubinsteinLatticeSpecification(),
new JarrowRuddLatticeSpecification(),
new TrigeorgisLatticeSpecification(),
new JabbourKraminYoungLatticeSpecification(),
new TianLatticeSpecification(),
new LeisenReimerLatticeSpecification()
};
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[] {31, 115, 301};
for (final int nSteps : choicesSteps) {
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 =
_model.getPrice(lattice, function, SPOT, vol, interest, dividend);
final double refDiv =
(lattice instanceof LeisenReimerLatticeSpecification)
? Math.max(exactDiv, 1.) / nSteps / nSteps
: Math.max(exactDiv, 1.) / Math.sqrt(nSteps);
assertEquals(resDiv, exactDiv, refDiv);
}
}
}
}
}
}
}
}
@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);
}
}
}
}
}
}
}
/** 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));
}
}
}
}
}
}
}
}