@Test
/**
* Test the present value sensitivity to SABR parameters for a swaption with strike above the
* cut-off strike.
*/
public void testPresentValueSABRSensitivity() {
final YieldCurveBundle curves = TestsDataSetsSABR.createCurves1();
final SABRInterestRateParameters sabrParameter = TestsDataSetsSABR.createSABR1();
final SABRInterestRateDataBundle sabrBundle =
new SABRInterestRateDataBundle(sabrParameter, curves);
final double highStrike = 0.10;
final SwapFixedIborDefinition swapDefinitionPayerHighStrike =
SwapFixedIborDefinition.from(
SETTLEMENT_DATE, CMS_INDEX, NOTIONAL, highStrike, FIXED_IS_PAYER);
final SwaptionCashFixedIborDefinition swaptionDefinitionLongPayerHighStrike =
SwaptionCashFixedIborDefinition.from(EXPIRY_DATE, swapDefinitionPayerHighStrike, IS_LONG);
final SwaptionCashFixedIborDefinition swaptionDefinitionShortPayerHighStrike =
SwaptionCashFixedIborDefinition.from(EXPIRY_DATE, swapDefinitionPayerHighStrike, !IS_LONG);
final SwaptionCashFixedIbor swaptionLongPayerHighStrike =
swaptionDefinitionLongPayerHighStrike.toDerivative(REFERENCE_DATE, CURVES_NAME);
final SwaptionCashFixedIbor swaptionShortPayerHighStrike =
swaptionDefinitionShortPayerHighStrike.toDerivative(REFERENCE_DATE, CURVES_NAME);
// SwaptionCashFixedIborSABRExtrapolationRightMethod methodExtra = new
// SwaptionCashFixedIborSABRExtrapolationRightMethod(CUT_OFF_STRIKE, MU);
// Swaption sensitivity
final PresentValueSABRSensitivityDataBundle pvsLongPayer =
METHOD_EXTRAPOLATION.presentValueSABRSensitivity(swaptionLongPayerHighStrike, sabrBundle);
PresentValueSABRSensitivityDataBundle pvsShortPayer =
METHOD_EXTRAPOLATION.presentValueSABRSensitivity(swaptionShortPayerHighStrike, sabrBundle);
// Long/short parity
pvsShortPayer = PresentValueSABRSensitivityDataBundle.multiplyBy(pvsShortPayer, -1.0);
assertEquals(pvsLongPayer.getAlpha(), pvsShortPayer.getAlpha());
// SABR sensitivity vs finite difference
final double pvLongPayer =
METHOD_EXTRAPOLATION.presentValue(swaptionLongPayerHighStrike, sabrBundle);
final DoublesPair expectedExpiryTenor =
new DoublesPair(swaptionLongPayerHighStrike.getTimeToExpiry(), ANNUITY_TENOR_YEAR);
final double shift = 0.000005;
// Alpha sensitivity vs finite difference computation
final SABRInterestRateParameters sabrParameterAlphaBumped =
TestsDataSetsSABR.createSABR1AlphaBumped(shift);
final SABRInterestRateDataBundle sabrBundleAlphaBumped =
new SABRInterestRateDataBundle(sabrParameterAlphaBumped, curves);
final double pvLongPayerAlphaBumped =
METHOD_EXTRAPOLATION.presentValue(swaptionLongPayerHighStrike, sabrBundleAlphaBumped);
final double expectedAlphaSensi = (pvLongPayerAlphaBumped - pvLongPayer) / shift;
assertEquals(
"Number of alpha sensitivity", pvsLongPayer.getAlpha().getMap().keySet().size(), 1);
assertEquals(
"Alpha sensitivity expiry/tenor",
pvsLongPayer.getAlpha().getMap().keySet().contains(expectedExpiryTenor),
true);
assertEquals(
"Alpha sensitivity value",
expectedAlphaSensi,
pvsLongPayer.getAlpha().getMap().get(expectedExpiryTenor),
2.0E+3);
// Rho sensitivity vs finite difference computation
final SABRInterestRateParameters sabrParameterRhoBumped =
TestsDataSetsSABR.createSABR1RhoBumped(shift);
final SABRInterestRateDataBundle sabrBundleRhoBumped =
new SABRInterestRateDataBundle(sabrParameterRhoBumped, curves);
final double pvLongPayerRhoBumped =
METHOD_EXTRAPOLATION.presentValue(swaptionLongPayerHighStrike, sabrBundleRhoBumped);
final double expectedRhoSensi = (pvLongPayerRhoBumped - pvLongPayer) / shift;
assertEquals("Number of rho sensitivity", pvsLongPayer.getRho().getMap().keySet().size(), 1);
assertEquals(
"Rho sensitivity expiry/tenor",
pvsLongPayer.getRho().getMap().keySet().contains(expectedExpiryTenor),
true);
assertEquals(
"Rho sensitivity value",
expectedRhoSensi,
pvsLongPayer.getRho().getMap().get(expectedExpiryTenor),
1.0E+0);
// Alpha sensitivity vs finite difference computation
final SABRInterestRateParameters sabrParameterNuBumped =
TestsDataSetsSABR.createSABR1NuBumped(shift);
final SABRInterestRateDataBundle sabrBundleNuBumped =
new SABRInterestRateDataBundle(sabrParameterNuBumped, curves);
final double pvLongPayerNuBumped =
METHOD_EXTRAPOLATION.presentValue(swaptionLongPayerHighStrike, sabrBundleNuBumped);
final double expectedNuSensi = (pvLongPayerNuBumped - pvLongPayer) / shift;
assertEquals("Number of nu sensitivity", pvsLongPayer.getNu().getMap().keySet().size(), 1);
assertEquals(
"Nu sensitivity expiry/tenor",
pvsLongPayer.getNu().getMap().keySet().contains(expectedExpiryTenor),
true);
assertEquals(
"Nu sensitivity value",
expectedNuSensi,
pvsLongPayer.getNu().getMap().get(expectedExpiryTenor),
5.0E+1);
}
