/**
* Calculates the present value of the swaption product.
*
* <p>The result is expressed using the currency of the swapion.
*
* @param swaption the product to price
* @param ratesProvider the rates provider
* @param volatilityProvider the normal volatility provider
* @return the present value of the swaption product
*/
public CurrencyAmount presentValue(
SwaptionProduct swaption,
RatesProvider ratesProvider,
NormalVolatilitySwaptionProvider volatilityProvider) {
ExpandedSwaption expanded = swaption.expand();
validate(ratesProvider, expanded, volatilityProvider);
ZonedDateTime expiryDateTime = expanded.getExpiryDateTime();
double expiry = volatilityProvider.relativeTime(expiryDateTime);
ExpandedSwap underlying = expanded.getUnderlying();
ExpandedSwapLeg fixedLeg = fixedLeg(underlying);
if (expiry < 0.0d) { // Option has expired already
return CurrencyAmount.of(fixedLeg.getCurrency(), 0.0d);
}
double forward = swapPricer.parRate(underlying, ratesProvider);
double pvbp = swapPricer.getLegPricer().pvbp(fixedLeg, ratesProvider);
double strike = swapPricer.getLegPricer().couponEquivalent(fixedLeg, ratesProvider, pvbp);
double tenor = volatilityProvider.tenor(fixedLeg.getStartDate(), fixedLeg.getEndDate());
double volatility = volatilityProvider.getVolatility(expiryDateTime, tenor, strike, forward);
NormalFunctionData normalData = NormalFunctionData.of(forward, Math.abs(pvbp), volatility);
boolean isCall = (fixedLeg.getPayReceive() == PayReceive.PAY);
// Payer at strike is exercise when rate > strike, i.e. call on rate
EuropeanVanillaOption option =
EuropeanVanillaOption.of(strike, expiry, isCall ? PutCall.CALL : PutCall.PUT);
// option required to pass the strike (in case the swap has non-constant coupon).
Function1D<NormalFunctionData, Double> func = NORMAL.getPriceFunction(option);
double pv =
func.evaluate(normalData) * ((expanded.getLongShort() == LongShort.LONG) ? 1.0 : -1.0);
return CurrencyAmount.of(fixedLeg.getCurrency(), pv);
}
/**
* Calculates the present value sensitivity of the swaption product.
*
* <p>The present value sensitivity of the product is the sensitivity of the present value to the
* underlying curves.
*
* @param swaption the swaption product
* @param ratesProvider the rates provider
* @param volatilityProvider the normal volatility provider
* @return the present value curve sensitivity of the swap product
*/
public PointSensitivityBuilder presentValueSensitivityStickyStrike(
SwaptionProduct swaption,
RatesProvider ratesProvider,
NormalVolatilitySwaptionProvider volatilityProvider) {
ExpandedSwaption expanded = swaption.expand();
validate(ratesProvider, expanded, volatilityProvider);
ZonedDateTime expiryDateTime = expanded.getExpiryDateTime();
double expiry = volatilityProvider.relativeTime(expiryDateTime);
ExpandedSwap underlying = expanded.getUnderlying();
ExpandedSwapLeg fixedLeg = fixedLeg(underlying);
if (expiry < 0.0d) { // Option has expired already
return PointSensitivityBuilder.none();
}
double forward = swapPricer.parRate(underlying, ratesProvider);
double pvbp = swapPricer.getLegPricer().pvbp(fixedLeg, ratesProvider);
double strike = swapPricer.getLegPricer().couponEquivalent(fixedLeg, ratesProvider, pvbp);
double tenor = volatilityProvider.tenor(fixedLeg.getStartDate(), fixedLeg.getEndDate());
double volatility = volatilityProvider.getVolatility(expiryDateTime, tenor, strike, forward);
NormalFunctionData normalData = NormalFunctionData.of(forward, 1.0d, volatility);
boolean isCall = (fixedLeg.getPayReceive() == PayReceive.PAY);
// Payer at strike is exercise when rate > strike, i.e. call on rate
EuropeanVanillaOption option =
EuropeanVanillaOption.of(strike, expiry, isCall ? PutCall.CALL : PutCall.PUT);
// option required to pass the strike (in case the swap has non-constant coupon).
// Backward sweep
PointSensitivityBuilder pvbpDr =
swapPricer.getLegPricer().pvbpSensitivity(fixedLeg, ratesProvider);
PointSensitivityBuilder forwardDr = swapPricer.parRateSensitivity(underlying, ratesProvider);
ValueDerivatives pv = NORMAL.getPriceAdjoint(option, normalData);
double sign = (expanded.getLongShort() == LongShort.LONG) ? 1.0 : -1.0;
return pvbpDr
.multipliedBy(pv.getValue() * sign * Math.signum(pvbp))
.combinedWith(forwardDr.multipliedBy(pv.getDerivative(0) * Math.abs(pvbp) * sign));
}
// validate that the rates and volatilities providers are coherent
private void validate(
RatesProvider ratesProvider,
ExpandedSwaption swaption,
NormalVolatilitySwaptionProvider volatilityProvider) {
ArgChecker.isTrue(
volatilityProvider
.getValuationDateTime()
.toLocalDate()
.equals(ratesProvider.getValuationDate()),
"volatility and rate data should be for the same date");
ArgChecker.isFalse(
swaption.getUnderlying().isCrossCurrency(), "underlying swap should be single currency");
ArgChecker.isTrue(
swaption.getSwaptionSettlement().getSettlementType().equals(SettlementType.PHYSICAL),
"swaption should be physical settlement");
}
/**
* Computes the implied Normal volatility of the swaption.
*
* @param swaption the product to price
* @param ratesProvider the rates provider
* @param volatilityProvider the normal volatility provider
* @return the present value of the swap product
*/
public double impliedVolatility(
SwaptionProduct swaption,
RatesProvider ratesProvider,
NormalVolatilitySwaptionProvider volatilityProvider) {
ExpandedSwaption expanded = swaption.expand();
validate(ratesProvider, expanded, volatilityProvider);
ZonedDateTime expiryDateTime = expanded.getExpiryDateTime();
double expiry = volatilityProvider.relativeTime(expiryDateTime);
ExpandedSwap underlying = expanded.getUnderlying();
ExpandedSwapLeg fixedLeg = fixedLeg(underlying);
ArgChecker.isTrue(
expiry >= 0.0d, "option should be before expiry to compute an implied volatility");
double forward = swapPricer.parRate(underlying, ratesProvider);
double pvbp = swapPricer.getLegPricer().pvbp(fixedLeg, ratesProvider);
double strike = swapPricer.getLegPricer().couponEquivalent(fixedLeg, ratesProvider, pvbp);
double tenor = volatilityProvider.tenor(fixedLeg.getStartDate(), fixedLeg.getEndDate());
return volatilityProvider.getVolatility(expiryDateTime, tenor, strike, forward);
}