/**
* Copyright (C) 2011 - present by OpenGamma Inc. and the OpenGamma group of companies
*
* Please see distribution for license.
*/
package com.opengamma.analytics.financial.interestrate.swaption.method;
import java.util.ArrayList;
import java.util.HashMap;
import java.util.List;
import java.util.Map;
import com.opengamma.analytics.financial.interestrate.InstrumentDerivative;
import com.opengamma.analytics.financial.interestrate.InterestRateCurveSensitivity;
import com.opengamma.analytics.financial.interestrate.YieldCurveBundle;
import com.opengamma.analytics.financial.interestrate.method.PricingMethod;
import com.opengamma.analytics.financial.interestrate.payments.derivative.CouponFixedAccruedCompounding;
import com.opengamma.analytics.financial.interestrate.payments.derivative.CouponONCompounded;
import com.opengamma.analytics.financial.interestrate.sensitivity.PresentValueSwaptionSurfaceSensitivity;
import com.opengamma.analytics.financial.interestrate.swap.derivative.Swap;
import com.opengamma.analytics.financial.interestrate.swap.method.SwapFixedCompoundingONCompoundingDiscountingMethod;
import com.opengamma.analytics.financial.interestrate.swaption.derivative.SwaptionPhysicalFixedCompoundedONCompounded;
import com.opengamma.analytics.financial.model.option.definition.YieldCurveWithBlackSwaptionBundle;
import com.opengamma.analytics.financial.model.option.pricing.analytic.formula.BlackFunctionData;
import com.opengamma.analytics.financial.model.option.pricing.analytic.formula.BlackPriceFunction;
import com.opengamma.analytics.financial.model.option.pricing.analytic.formula.EuropeanVanillaOption;
import com.opengamma.analytics.financial.model.volatility.BlackFormulaRepository;
import com.opengamma.analytics.math.function.Function1D;
import com.opengamma.util.ArgumentChecker;
import com.opengamma.util.money.CurrencyAmount;
import com.opengamma.util.tuple.DoublesPair;
/**
* Class used to compute the price and sensitivity of a physical delivery swaption with Black model.
* The implied Black volatilities are expiry and underlying maturity dependent.
* The swap underlying the swaption should be a Fixed for Ibor (without spread) swap.
* @deprecated Use {@link SwaptionPhysicalFixedCompoundedONCompoundedBlackMethod}
*/
@Deprecated
public final class SwaptionPhysicalFixedCompoundedONCompoundedBlackMethod implements PricingMethod {
/**
* The method unique instance.
*/
private static final SwaptionPhysicalFixedCompoundedONCompoundedBlackMethod INSTANCE = new SwaptionPhysicalFixedCompoundedONCompoundedBlackMethod();
/**
* Return the unique instance of the class.
* @return The instance.
*/
public static SwaptionPhysicalFixedCompoundedONCompoundedBlackMethod getInstance() {
return INSTANCE;
}
/**
* Private constructor.
*/
private SwaptionPhysicalFixedCompoundedONCompoundedBlackMethod() {
}
/**
* The swap method.
*/
private static final SwapFixedCompoundingONCompoundingDiscountingMethod METHOD_SWAP = SwapFixedCompoundingONCompoundingDiscountingMethod.getInstance();
/**
* Computes the present value of a physical delivery European swaption in the Black model.
* @param swaption The swaption.
* @param curveBlack The curves with Black volatility data.
* @return The present value.
*/
public CurrencyAmount presentValue(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curveBlack) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curveBlack, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final CouponFixedAccruedCompounding cpnFixed = swap.getFirstLeg().getNthPayment(0);
final double numeraire = curveBlack.getCurve(cpnFixed.getFundingCurveName()).getDiscountFactor(cpnFixed.getPaymentTime()) * Math.abs(cpnFixed.getNotional());
final double delta = swap.getFirstLeg().getNthPayment(0).getPaymentYearFraction();
final double forwardModified = METHOD_SWAP.forwardModified(swap, curveBlack);
final double strikeModified = Math.pow(1.0d + swaption.getStrike(), delta) - 1.0;
// Implementation note: Modified strike: \bar K = (1+K)^\delta-1; the swaption payoff is pvbp*(\bar F - \bar K)^+
final double maturity = swaption.getMaturityTime();
final EuropeanVanillaOption option = new EuropeanVanillaOption(strikeModified, swaption.getTimeToExpiry(), swaption.isCall());
final BlackPriceFunction blackFunction = new BlackPriceFunction();
final double volatility = curveBlack.getBlackParameters().getVolatility(swaption.getTimeToExpiry(), maturity);
final BlackFunctionData dataBlack = new BlackFunctionData(forwardModified, numeraire, volatility);
final Function1D<BlackFunctionData, Double> func = blackFunction.getPriceFunction(option);
final double pv = func.evaluate(dataBlack) * (swaption.isLong() ? 1.0 : -1.0);
return CurrencyAmount.of(swaption.getCurrency(), pv);
}
/**
* Computes the present value of a physical delivery European swaption in the Black model.
* @param swaption The swaption.
* @param curveBlack The curves with Black volatility data.
* @return The present value.
*/
public double forward(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curveBlack) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curveBlack, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
// return METHOD_SWAP.forwardModified(swap, curveBlack);
return METHOD_SWAP.forward(swap, curveBlack);
}
@Override
public CurrencyAmount presentValue(final InstrumentDerivative instrument, final YieldCurveBundle curves) {
ArgumentChecker.isTrue(instrument instanceof SwaptionPhysicalFixedCompoundedONCompounded, "Physical delivery swaption");
ArgumentChecker.isTrue(curves instanceof YieldCurveWithBlackSwaptionBundle, "Bundle should contain Black Swaption data");
return presentValue((SwaptionPhysicalFixedCompoundedONCompounded) instrument, (YieldCurveWithBlackSwaptionBundle) curves);
}
/**
* Computes the implied Black volatility of the vanilla swaption.
* @param swaption The swaption.
* @param curves The yield curve bundle.
* @return The implied volatility.
*/
public double impliedVolatility(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveBundle curves) {
ArgumentChecker.notNull(curves, "Curves");
ArgumentChecker.isTrue(curves instanceof YieldCurveWithBlackSwaptionBundle, "Yield curve bundle should contain Black swaption data");
final YieldCurveWithBlackSwaptionBundle curvesBlack = (YieldCurveWithBlackSwaptionBundle) curves;
ArgumentChecker.notNull(swaption, "Forex option");
final double tenor = swaption.getMaturityTime();
final double volatility = curvesBlack.getBlackParameters().getVolatility(swaption.getTimeToExpiry(), tenor);
return volatility;
}
/**
* Computes the present value rate sensitivity to rates of a physical delivery European swaption in the SABR model.
* @param swaption The swaption.
* @param curveBlack The curves with Black volatility data.
* @return The present value curve sensitivity.
*/
public InterestRateCurveSensitivity presentValueCurveSensitivity(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curveBlack) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curveBlack, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final CouponFixedAccruedCompounding cpnFixed = swap.getFirstLeg().getNthPayment(0);
final double numeraire = Math.abs(curveBlack.getCurve(cpnFixed.getFundingCurveName()).getDiscountFactor(cpnFixed.getPaymentTime()) * cpnFixed.getNotional());
final double delta = swap.getFirstLeg().getNthPayment(0).getPaymentYearFraction();
final double forwardModified = METHOD_SWAP.forwardModified(swap, curveBlack);
final double strikeModified = Math.pow(1.0d + swaption.getStrike(), delta) - 1.0;
// Implementation note: Modified strike: \bar K = (1+K)^\delta-1; the swaption payoff is pvbp*(\bar F - \bar K)^+
final double maturity = swaption.getMaturityTime();
final EuropeanVanillaOption option = new EuropeanVanillaOption(strikeModified, swaption.getTimeToExpiry(), swaption.isCall());
final BlackPriceFunction blackFunction = new BlackPriceFunction();
final double volatility = curveBlack.getBlackParameters().getVolatility(swaption.getTimeToExpiry(), maturity);
final BlackFunctionData dataBlack = new BlackFunctionData(forwardModified, 1, volatility);
final double[] bsAdjoint = blackFunction.getPriceAdjoint(option, dataBlack);
final double sign = (swaption.isLong() ? 1.0 : -1.0);
// final double pv = numeraire * bsAdjoint[0] * sign;
// Backward sweep
final double pvBar = 1.0;
final double numeraireBar = bsAdjoint[0] * sign * pvBar;
final double forwardModifiedBar = numeraire * bsAdjoint[1] * sign * pvBar;
final InterestRateCurveSensitivity forwardModifiedDr = METHOD_SWAP.forwardModifiedCurveSensitivity(swap, curveBlack);
final double numeraireDr = -cpnFixed.getPaymentTime() * numeraire;
final List<DoublesPair> list = new ArrayList<>();
list.add(DoublesPair.of(cpnFixed.getPaymentTime(), numeraireDr * numeraireBar));
final Map<String, List<DoublesPair>> numeraireMap = new HashMap<>();
numeraireMap.put(cpnFixed.getFundingCurveName(), list);
InterestRateCurveSensitivity result = new InterestRateCurveSensitivity(numeraireMap);
result = result.plus(forwardModifiedDr.multipliedBy(forwardModifiedBar));
result = result.cleaned();
return result;
}
/**
* Computes the present value sensitivity to the Black volatility (also called vega) of a physical delivery European swaption in the Black swaption model.
* @param swaption The swaption.
* @param curveBlack The curves with Black volatility data.
* @return The present value Black sensitivity.
*/
public PresentValueSwaptionSurfaceSensitivity presentValueBlackSensitivity(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curveBlack) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curveBlack, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final CouponFixedAccruedCompounding cpnFixed = swap.getFirstLeg().getNthPayment(0);
final double numeraire = Math.abs(curveBlack.getCurve(cpnFixed.getFundingCurveName()).getDiscountFactor(cpnFixed.getPaymentTime()) * cpnFixed.getNotional());
final double delta = swap.getFirstLeg().getNthPayment(0).getPaymentYearFraction();
final double forwardModified = METHOD_SWAP.forwardModified(swap, curveBlack);
final double strikeModified = Math.pow(1.0d + swaption.getStrike(), delta) - 1.0;
// Implementation note: Modified strike: \bar K = (1+K)^\delta-1; the swaption payoff is pvbp*(\bar F - \bar K)^+
final double maturity = swaption.getMaturityTime();
final EuropeanVanillaOption option = new EuropeanVanillaOption(strikeModified, swaption.getTimeToExpiry(), swaption.isCall());
final BlackPriceFunction blackFunction = new BlackPriceFunction();
final double volatility = curveBlack.getBlackParameters().getVolatility(swaption.getTimeToExpiry(), maturity);
final BlackFunctionData dataBlack = new BlackFunctionData(forwardModified, 1, volatility);
final double[] bsAdjoint = blackFunction.getPriceAdjoint(option, dataBlack);
final double sign = (swaption.isLong() ? 1.0 : -1.0);
// Backward sweep
final DoublesPair point = DoublesPair.of(swaption.getTimeToExpiry(), maturity);
final Map<DoublesPair, Double> sensitivity = new HashMap<>();
sensitivity.put(point, bsAdjoint[2] * numeraire * sign);
return new PresentValueSwaptionSurfaceSensitivity(sensitivity, curveBlack.getBlackParameters().getGeneratorSwap());
}
/**
* Calculates the delta
* @param swaption The swaption, not null
* @param curves Yield curves and swaption volatility surface, not null
* @return The delta
*/
public CurrencyAmount delta(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curves) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curves, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final CouponFixedAccruedCompounding cpnFixed = swap.getFirstLeg().getNthPayment(0);
final double numeraire = Math.abs(curves.getCurve(cpnFixed.getFundingCurveName()).getDiscountFactor(cpnFixed.getPaymentTime()) * cpnFixed.getNotional());
final double forwardModified = METHOD_SWAP.forwardModified(swap, curves);
final double sign = (swaption.isLong() ? 1.0 : -1.0);
return CurrencyAmount.of(swaption.getCurrency(), forwardDeltaTheoretical(swaption, curves) * forwardModified * numeraire * sign);
}
/**
* Computes the gamma of the swaption. The gamma is the second order derivative of the option present value to the spot fx rate.
* @param swaption The Forex option.
* @param curves The yield curve bundle.
* @return The gamma.
*/
public CurrencyAmount gamma(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curves) {
ArgumentChecker.notNull(curves, "Curves");
final double gamma = forwardGammaTheoretical(swaption, curves);
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final CouponFixedAccruedCompounding cpnFixed = swap.getFirstLeg().getNthPayment(0);
final double numeraire = Math.abs(curves.getCurve(cpnFixed.getFundingCurveName()).getDiscountFactor(cpnFixed.getPaymentTime()) * cpnFixed.getNotional());
final double forwardModified = METHOD_SWAP.forwardModified(swap, curves);
final double sign = (swaption.isLong() ? 1.0 : -1.0);
return CurrencyAmount.of(swaption.getCurrency(), gamma * forwardModified * forwardModified * numeraire * sign);
}
/**
* Calculates the theta.
* @param swaption The swaption, not null
* @param curves Yield curves and swaption volatility surface, not null
* @return The delta
*/
public CurrencyAmount theta(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curves) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curves, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final CouponFixedAccruedCompounding cpnFixed = swap.getFirstLeg().getNthPayment(0);
final double numeraire = curves.getCurve(cpnFixed.getFundingCurveName()).getDiscountFactor(cpnFixed.getPaymentTime()) * cpnFixed.getNotional();
final double sign = (swaption.isLong() ? 1.0 : -1.0);
return CurrencyAmount.of(swaption.getCurrency(), forwardThetaTheoretical(swaption, curves) * numeraire * sign);
}
/**
* Compute first derivative of present value with respect to forward rate
* @param swaption The swaption.
* @param curveBlack The curves with Black volatility data.
* @return The forward delta
*/
public double forwardDeltaTheoretical(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curveBlack) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curveBlack, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final double delta = swap.getFirstLeg().getNthPayment(0).getPaymentYearFraction();
final double forwardModified = METHOD_SWAP.forwardModified(swap, curveBlack);
final double strikeModified = Math.pow(1.0d + swaption.getStrike(), delta) - 1.0;
final double maturity = swaption.getMaturityTime();
// Implementation note: option required to pass the strike (in case the swap has non-constant coupon).
final double volatility = curveBlack.getBlackParameters().getVolatility(swaption.getTimeToExpiry(), maturity);
final double expiry = swaption.getTimeToExpiry();
return BlackFormulaRepository.delta(forwardModified, strikeModified, expiry, volatility, swaption.isCall()) * (swaption.isLong() ? 1.0 : -1.0);
}
/**
* Compute first derivative of present value with respect to volatility
* @param swaption The swaption.
* @param curveBlack The curves with Black volatility data.
* @return The forward vega
*/
public double forwardVegaTheoretical(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curveBlack) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curveBlack, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final double forwardModified = METHOD_SWAP.forwardModified(swap, curveBlack);
final double delta = swap.getFirstLeg().getNthPayment(0).getPaymentYearFraction();
final double strikeModified = Math.pow(1.0d + swaption.getStrike(), delta) - 1.0;
final double maturity = swaption.getMaturityTime();
// Implementation note: option required to pass the strike (in case the swap has non-constant coupon).
final double volatility = curveBlack.getBlackParameters().getVolatility(swaption.getTimeToExpiry(), maturity);
final double expiry = swaption.getTimeToExpiry();
return BlackFormulaRepository.vega(forwardModified, strikeModified, expiry, volatility) * (swaption.isLong() ? 1.0 : -1.0);
}
/**
* Compute second derivative of present value with respect to forward rate
* @param swaption The swaption.
* @param curveBlack The curves with Black volatility data.
* @return The forward gamma
*/
public double forwardGammaTheoretical(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curveBlack) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curveBlack, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final double delta = swap.getFirstLeg().getNthPayment(0).getPaymentYearFraction();
final double forwardModified = METHOD_SWAP.forwardModified(swap, curveBlack);
final double strikeModified = Math.pow(1.0d + swaption.getStrike(), delta) - 1.0;
final double maturity = swaption.getMaturityTime();
// Implementation note: option required to pass the strike (in case the swap has non-constant coupon).
final double volatility = curveBlack.getBlackParameters().getVolatility(swaption.getTimeToExpiry(), maturity);
final double expiry = swaption.getTimeToExpiry();
return BlackFormulaRepository.gamma(forwardModified, strikeModified, expiry, volatility) * (swaption.isLong() ? 1.0 : -1.0);
}
/**
* Compute minus of first derivative of present value with respect to time, setting drift term to be 0
* @param swaption The swaption.
* @param curveBlack The curves with Black volatility data.
* @return The driftless theta
*/
public double driftlessThetaTheoretical(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curveBlack) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curveBlack, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final double delta = swap.getFirstLeg().getNthPayment(0).getPaymentYearFraction();
final double forwardModified = METHOD_SWAP.forwardModified(swap, curveBlack);
final double strikeModified = Math.pow(1.0d + swaption.getStrike(), delta) - 1.0;
final double maturity = swaption.getMaturityTime();
// Implementation note: option required to pass the strike (in case the swap has non-constant coupon).
final double volatility = curveBlack.getBlackParameters().getVolatility(swaption.getTimeToExpiry(), maturity);
final double expiry = swaption.getTimeToExpiry();
return BlackFormulaRepository.driftlessTheta(forwardModified, strikeModified, expiry, volatility) * (swaption.isLong() ? 1.0 : -1.0);
}
/**
* Compute minus of first derivative of present value with respect to time
* @param swaption The swaption.
* @param curveBlack The curves with Black volatility data.
* @return The forward theta
*/
public double forwardThetaTheoretical(final SwaptionPhysicalFixedCompoundedONCompounded swaption, final YieldCurveWithBlackSwaptionBundle curveBlack) {
ArgumentChecker.notNull(swaption, "Swaption");
ArgumentChecker.notNull(curveBlack, "Curves with Black volatility");
final Swap<CouponFixedAccruedCompounding, CouponONCompounded> swap = swaption.getUnderlyingSwap();
final double delta = swap.getFirstLeg().getNthPayment(0).getPaymentYearFraction();
final double forwardModified = METHOD_SWAP.forwardModified(swap, curveBlack);
final double strikeModified = Math.pow(1.0d + swaption.getStrike(), delta) - 1.0;
final double maturity = swaption.getMaturityTime();
// Implementation note: option required to pass the strike (in case the swap has non-constant coupon).
final double volatility = curveBlack.getBlackParameters().getVolatility(swaption.getTimeToExpiry(), maturity);
final double expiry = swaption.getTimeToExpiry();
final boolean isCall = swaption.isCall();
return forwardModified * BlackFormulaRepository.price(forwardModified, strikeModified, expiry, volatility, isCall) * (swaption.isLong() ? 1.0 : -1.0) +
BlackFormulaRepository.driftlessTheta(forwardModified, strikeModified, expiry, volatility) * (swaption.isLong() ? 1.0 : -1.0);
}
}