public static QuotedSpread getQuotedSpread(
CDSQuoteConvention quote,
PointsUpFront puf,
BuySellProtection buySellProtection,
ISDACompliantYieldCurve yieldCurve,
CDSAnalytic analytic) {
double quotedSpread;
if (quote instanceof QuotedSpread) {
return (QuotedSpread) quote;
} else {
quotedSpread =
POINTS_UP_FRONT_CONVERTER.pufToQuotedSpread(
analytic, puf.getCoupon(), yieldCurve, puf.getPointsUpFront());
}
// SELL protection reverses directions of legs
quotedSpread = (buySellProtection == BuySellProtection.SELL) ? -quotedSpread : quotedSpread;
return new QuotedSpread(quote.getCoupon(), quotedSpread);
}
public PointsUpFront getPointsUpfront(
CDSQuoteConvention quote,
BuySellProtection buySellProtection,
ISDACompliantYieldCurve yieldCurve,
CDSAnalytic analytic,
ISDACompliantCreditCurve creditCurve) {
double puf = 0.0;
if (quote instanceof PointsUpFront) {
return (PointsUpFront) quote;
} else if (quote instanceof QuotedSpread) {
puf =
POINTS_UP_FRONT_CONVERTER.quotedSpreadToPUF(
analytic, quote.getCoupon(), yieldCurve, ((QuotedSpread) quote).getQuotedSpread());
} else if (quote instanceof ParSpread) {
puf = PRICER.pv(analytic, yieldCurve, creditCurve, ((ParSpread) quote).getCoupon());
} else {
throw new OpenGammaRuntimeException("Unknown quote type " + quote);
}
// SELL protection reverses directions of legs
puf = (buySellProtection == BuySellProtection.SELL) ? -puf : puf;
return new PointsUpFront(quote.getCoupon(), puf);
}
@Test
public void consistencyTest() {
final double tol = 1.e-12;
final LocalDate optionExpiry = getNextIMMDate(TRADE_DATE).minusDays(1);
final double timeToExpiry = ACT365F.yearFraction(TRADE_DATE, optionExpiry);
final CDSAnalytic fwdCDX = FACTORY.makeCDX(optionExpiry, Period.ofYears(5));
final CDSAnalytic fwdStartingCDX = fwdCDX.withOffset(timeToExpiry);
final double[] indexPUF = new double[] {0.0556, 0.0582, 0.0771, 0.0652};
final CDSAnalytic[] indexCDS = FACTORY.makeCDX(TRADE_DATE, INDEX_PILLARS);
final IntrinsicIndexDataBundle adjCurves =
PSA.adjustCurves(indexPUF, indexCDS, INDEX_COUPON, YIELD_CURVE, INTRINSIC_DATA);
final double fwdSpread =
INDEX_CAL.defaultAdjustedForwardSpread(
fwdStartingCDX, timeToExpiry, YIELD_CURVE, adjCurves);
final double fwdAnnuity = INDEX_CAL.indexAnnuity(fwdStartingCDX, YIELD_CURVE, adjCurves);
final BlackIndexOptionPricer pricerWithFwd =
new BlackIndexOptionPricer(
fwdCDX, timeToExpiry, YIELD_CURVE, INDEX_COUPON, fwdSpread, fwdAnnuity);
final BlackIndexOptionPricer pricerNoFwd =
new BlackIndexOptionPricer(fwdCDX, timeToExpiry, YIELD_CURVE, INDEX_COUPON, adjCurves);
final boolean[] payer = new boolean[] {true, false};
final double vol = 0.4;
final double strikeSpread = 0.015;
final ISDACompliantYieldCurve fwdYC = YIELD_CURVE.withOffset(timeToExpiry);
final double strikePrice =
CONVERTER.quotedSpreadToPUF(fwdCDX, INDEX_COUPON, fwdYC, strikeSpread);
final IndexOptionStrike exPriceAmount = new ExerciseAmount(strikePrice);
final IndexOptionStrike exSpreadAmount = new SpreadBasedStrike(strikeSpread);
for (int i = 0; i < 2; ++i) {
/** Consistency between option pricing methods */
final double premFromPrice = pricerWithFwd.getOptionPremium(exPriceAmount, vol, payer[i]);
final double premFromSpread = pricerWithFwd.getOptionPremium(exSpreadAmount, vol, payer[i]);
final double premFromPriceBare =
pricerWithFwd.getOptionPriceForPriceQuotedIndex(strikePrice, vol, payer[i]);
final double premFromSpreadBare =
pricerWithFwd.getOptionPriceForSpreadQuotedIndex(strikeSpread, vol, payer[i]);
assertEquals(premFromPrice, premFromSpread, tol);
assertEquals(premFromSpread, premFromPriceBare, tol);
assertEquals(premFromPriceBare, premFromSpreadBare, tol);
/** Consistency between constructors */
final double PremFromPriceNoFwd = pricerNoFwd.getOptionPremium(exPriceAmount, vol, payer[i]);
assertEquals(premFromPrice, PremFromPriceNoFwd, tol);
/** Consistency with implied vol */
final double vol1 =
pricerWithFwd.getImpliedVolatility(exPriceAmount, premFromPrice, payer[i]);
final double vol2 =
pricerWithFwd.getImpliedVolatility(exSpreadAmount, premFromSpread, payer[i]);
final double vol3 =
pricerWithFwd.getImpliedVolForExercisePrice(strikePrice, premFromPriceBare, payer[i]);
final double vol4 =
pricerWithFwd.getImpliedVolForSpreadStrike(strikeSpread, premFromSpreadBare, payer[i]);
assertEquals(vol, vol1, tol);
assertEquals(vol, vol2, tol);
assertEquals(vol, vol3, tol);
assertEquals(vol, vol4, tol);
}
}