/**
* The bucked CS01 (or credit DV01) by shifting each implied par-spread in turn. This takes an
* extraneous yield curve and a credit curve and a set of bucket CDSs (CDSs with maturities equal
* to the bucket points). Par-spreads at the bucket maturities are implied from the credit curve.
* These spreads form pseudo market spreads to bootstraps a new credit (hazard) curve - the target
* CDS is then priced with this credit curve. This is then repeated with each spreads bumped in
* turn. The result is the vector of differences (bumped minus base price) divided by the bump
* amount.
*
* @param cds analytic description of a CDS traded at a certain time
* @param cdsCoupon The <b>fraction</b> spread of the CDS
* @param bucketCDSs these are the reference instruments that correspond to maturity buckets
* @param yieldCurve The yield (or discount) curve
* @param creditCurve the credit curve
* @param fracBumpAmount The fraction bump amount, so a 1pb bump is 1e-4
* @return The credit DV01
*/
public double[] bucketedCS01FromCreditCurve(
CdsAnalytic cds,
double cdsCoupon,
CdsAnalytic[] bucketCDSs,
IsdaCompliantYieldCurve yieldCurve,
IsdaCompliantCreditCurve creditCurve,
double fracBumpAmount) {
ArgChecker.notNull(cds, "cds");
ArgChecker.noNulls(bucketCDSs, "bucketCDSs");
ArgChecker.notNull(creditCurve, "creditCurve");
ArgChecker.notNull(yieldCurve, "yieldCurve");
ArgChecker.isTrue(Math.abs(fracBumpAmount) > 1e-10, "bump amount too small");
int n = bucketCDSs.length;
double[] impSpreads = new double[n];
double[] t = new double[n];
for (int i = 0; i < n; i++) {
impSpreads[i] = _pricer.parSpread(bucketCDSs[i], yieldCurve, creditCurve);
t[i] = bucketCDSs[i].getProtectionEnd();
if (i > 0) {
ArgChecker.isTrue(t[i] > t[i - 1], "buckets must be assending");
}
}
int index = Arrays.binarySearch(t, cds.getProtectionEnd());
if (index < 0) {
index = -1 - index;
}
index = Math.min(index, n - 1);
IsdaCompliantCreditCurve baseCurve =
_curveBuilder.calibrateCreditCurve(bucketCDSs, impSpreads, yieldCurve);
double basePrice = _pricer.pv(cds, yieldCurve, baseCurve, cdsCoupon);
double[] res = new double[n];
for (int i = 0; i <= index; i++) { // don't bother calculating where there is no sensitivity
double[] bumpedSpreads = makeBumpedSpreads(impSpreads, fracBumpAmount, ShiftType.ABSOLUTE, i);
IsdaCompliantCreditCurve bumpedCurve =
_curveBuilder.calibrateCreditCurve(bucketCDSs, bumpedSpreads, yieldCurve);
double price = _pricer.pv(cds, yieldCurve, bumpedCurve, cdsCoupon);
res[i] = (price - basePrice) / fracBumpAmount;
}
return res;
}
public double parallelCS01FromCreditCurve(
CdsAnalytic cds,
double cdsCoupon,
CdsAnalytic[] pillarCDSs,
IsdaCompliantYieldCurve yieldCurve,
IsdaCompliantCreditCurve creditCurve,
double fracBumpAmount) {
ArgChecker.notNull(cds, "cds");
ArgChecker.noNulls(pillarCDSs, "pillarCDSs");
ArgChecker.notNull(creditCurve, "creditCurve");
ArgChecker.notNull(yieldCurve, "yieldCurve");
ArgChecker.isTrue(Math.abs(fracBumpAmount) > 1e-10, "bump amount too small");
int n = pillarCDSs.length;
double[] impSpreads = new double[n];
double[] t = new double[n];
for (int i = 0; i < n; i++) {
impSpreads[i] = _pricer.parSpread(pillarCDSs[i], yieldCurve, creditCurve);
t[i] = pillarCDSs[i].getProtectionEnd();
if (i > 0) {
ArgChecker.isTrue(t[i] > t[i - 1], "pillars must be assending");
}
}
IsdaCompliantCreditCurve baseCurve =
_curveBuilder.calibrateCreditCurve(pillarCDSs, impSpreads, yieldCurve);
double basePrice = _pricer.pv(cds, yieldCurve, baseCurve, cdsCoupon);
double[] bumpedSpreads = makeBumpedSpreads(impSpreads, fracBumpAmount, ShiftType.ABSOLUTE);
IsdaCompliantCreditCurve bumpedCurve =
_curveBuilder.calibrateCreditCurve(pillarCDSs, bumpedSpreads, yieldCurve);
double price = _pricer.pv(cds, yieldCurve, bumpedCurve, cdsCoupon);
double res = (price - basePrice) / fracBumpAmount;
return res;
}
