@Test
/** Test the present value using the method with the direct formula with extrapolation. */
public void presentValueAboveCutOff() {
CurrencyAmount methodPrice = METHOD.presentValue(CAP_HIGH_LONG, SABR_BUNDLE);
final double df =
CURVES.getCurve(FUNDING_CURVE_NAME).getDiscountFactor(CAP_HIGH_LONG.getPaymentTime());
final double forward = CAP_HIGH_LONG.accept(PRC, CURVES);
final double maturity =
CAP_HIGH_LONG.getFixingPeriodEndTime() - CAP_LONG.getFixingPeriodStartTime();
final DoublesPair expiryMaturity = new DoublesPair(CAP_HIGH_LONG.getFixingTime(), maturity);
final double alpha = SABR_PARAMETERS.getAlpha(expiryMaturity);
final double beta = SABR_PARAMETERS.getBeta(expiryMaturity);
final double rho = SABR_PARAMETERS.getRho(expiryMaturity);
final double nu = SABR_PARAMETERS.getNu(expiryMaturity);
final SABRFormulaData sabrParam = new SABRFormulaData(alpha, beta, rho, nu);
final SABRExtrapolationRightFunction sabrExtrapolation =
new SABRExtrapolationRightFunction(
forward, sabrParam, CUT_OFF_STRIKE, CAP_HIGH_LONG.getFixingTime(), MU);
final EuropeanVanillaOption option =
new EuropeanVanillaOption(
CAP_HIGH_LONG.getStrike(), CAP_HIGH_LONG.getFixingTime(), CAP_HIGH_LONG.isCap());
final double expectedPrice =
sabrExtrapolation.price(option)
* CAP_HIGH_LONG.getNotional()
* CAP_HIGH_LONG.getPaymentYearFraction()
* df;
assertEquals(
"Cap/floor: SABR with extrapolation pricing", expectedPrice, methodPrice.getAmount(), 1E-2);
methodPrice = METHOD.presentValue(CAP_HIGH_LONG, SABR_BUNDLE);
assertEquals(
"Cap/floor: SABR with extrapolation pricing", expectedPrice, methodPrice.getAmount(), 1E-2);
}
@Test
/** Test the present value using the method with the direct formula with extrapolation. */
public void presentValueCurveSensitivityMethodVsCalculator() {
final SABRInterestRateDataBundle sabrExtraBundle =
new SABRInterestRateDataBundle(SABR_PARAMETERS, CURVES);
final InterestRateCurveSensitivity pvsMethod =
METHOD.presentValueSensitivity(CAP_HIGH_LONG, SABR_BUNDLE);
final InterestRateCurveSensitivity pvsCalculator =
new InterestRateCurveSensitivity(CAP_HIGH_LONG.accept(PVSC, sabrExtraBundle));
assertEquals(
"Cap/floor: SABR with extrapolation pv curve sensitivity - Method vs Calculator",
pvsMethod,
pvsCalculator);
}
@Test
/** Test the present value using the method with the direct formula with extrapolation. */
public void presentValueMethodVsCalculator() {
final SABRInterestRateDataBundle sabrExtraBundle =
new SABRInterestRateDataBundle(SABR_PARAMETERS, CURVES);
final CurrencyAmount pvMethod = METHOD.presentValue(CAP_LONG, SABR_BUNDLE);
final PresentValueSABRExtrapolationCalculator pvc =
new PresentValueSABRExtrapolationCalculator(CUT_OFF_STRIKE, MU);
final double pvCalculator = CAP_LONG.accept(pvc, sabrExtraBundle);
assertEquals(
"Cap/floor: SABR with extrapolation pricing - Method vs Calculator",
pvMethod.getAmount(),
pvCalculator,
1E-2);
}
