/**
* Copyright (C) 2016 - present by OpenGamma Inc. and the OpenGamma group of companies
*
* Please see distribution for license.
*/
package com.opengamma.strata.pricer.capfloor;
import com.opengamma.strata.basics.currency.Currency;
import com.opengamma.strata.basics.currency.CurrencyAmount;
import com.opengamma.strata.collect.ArgChecker;
import com.opengamma.strata.market.sensitivity.PointSensitivityBuilder;
import com.opengamma.strata.pricer.rate.RatesProvider;
import com.opengamma.strata.product.capfloor.IborCapletFloorletPeriod;
import com.opengamma.strata.product.common.PutCall;
/**
* Pricer for caplet/floorlet based on volatilities.
* <p>
* The pricing methodologies are defined in individual implementations of the volatilities, {@link IborCapletFloorletVolatilities}.
* <p>
* The value of the caplet/floorlet after expiry is a fixed payoff amount. The value is zero if valuation date is
* after payment date of the caplet/floorlet.
* <p>
* The consistency between {@code RatesProvider} and {@code IborCapletFloorletVolatilities} is not checked in this
* class, but validated only once in {@link VolatilityIborCapFloorLegPricer}.
*/
public class VolatilityIborCapletFloorletPeriodPricer {
/**
* Default implementation.
*/
public static final VolatilityIborCapletFloorletPeriodPricer DEFAULT = new VolatilityIborCapletFloorletPeriodPricer();
//-------------------------------------------------------------------------
/**
* Calculates the present value of the Ibor caplet/floorlet period.
* <p>
* The result is expressed using the currency of the period.
*
* @param period the Ibor caplet/floorlet period
* @param ratesProvider the rates provider
* @param volatilities the volatilities
* @return the present value
*/
public CurrencyAmount presentValue(
IborCapletFloorletPeriod period,
RatesProvider ratesProvider,
IborCapletFloorletVolatilities volatilities) {
validate(volatilities);
Currency currency = period.getCurrency();
if (ratesProvider.getValuationDate().isAfter(period.getPaymentDate())) {
return CurrencyAmount.of(currency, 0d);
}
double expiry = volatilities.relativeTime(period.getFixingDateTime());
double df = ratesProvider.discountFactor(currency, period.getPaymentDate());
PutCall putCall = period.getPutCall();
double strike = period.getStrike();
double indexRate = ratesProvider.iborIndexRates(period.getIndex()).rate(period.getIborRate().getObservation());
if (expiry < 0d) { // Option has expired already
double sign = putCall.isCall() ? 1d : -1d;
double payoff = Math.max(sign * (indexRate - strike), 0d);
return CurrencyAmount.of(currency, df * payoff * period.getYearFraction() * period.getNotional());
}
double volatility = volatilities.volatility(expiry, strike, indexRate);
double price = df * period.getYearFraction() * volatilities.price(expiry, putCall, strike, indexRate, volatility);
return CurrencyAmount.of(currency, price * period.getNotional());
}
//-------------------------------------------------------------------------
/**
* Computes the implied volatility of the Ibor caplet/floorlet.
*
* @param period the Ibor caplet/floorlet period
* @param ratesProvider the rates provider
* @param volatilities the volatilities
* @return the implied volatility
*/
public double impliedVolatility(
IborCapletFloorletPeriod period,
RatesProvider ratesProvider,
IborCapletFloorletVolatilities volatilities) {
validate(volatilities);
double expiry = volatilities.relativeTime(period.getFixingDateTime());
ArgChecker.isTrue(expiry >= 0d, "Option must be before expiry to compute an implied volatility");
double forward = ratesProvider.iborIndexRates(period.getIndex()).rate(period.getIborRate().getObservation());
double strike = period.getStrike();
return volatilities.volatility(expiry, strike, forward);
}
//-------------------------------------------------------------------------
/**
* Calculates the present value delta of the Ibor caplet/floorlet period.
* <p>
* The present value delta is given by the first derivative of the present value with respect to forward.
*
* @param period the Ibor caplet/floorlet period
* @param ratesProvider the rates provider
* @param volatilities the volatilities
* @return the present value delta
*/
public CurrencyAmount presentValueDelta(
IborCapletFloorletPeriod period,
RatesProvider ratesProvider,
IborCapletFloorletVolatilities volatilities) {
validate(volatilities);
double expiry = volatilities.relativeTime(period.getFixingDateTime());
Currency currency = period.getCurrency();
if (expiry < 0d) { // Option has expired already
return CurrencyAmount.of(currency, 0d);
}
double forward = ratesProvider.iborIndexRates(period.getIndex()).rate(period.getIborRate().getObservation());
double strike = period.getStrike();
double volatility = volatilities.volatility(expiry, strike, forward);
PutCall putCall = period.getPutCall();
double df = ratesProvider.discountFactor(currency, period.getPaymentDate());
double priceDelta = df * period.getYearFraction() *
volatilities.priceDelta(expiry, putCall, strike, forward, volatility);
return CurrencyAmount.of(currency, priceDelta * period.getNotional());
}
//-------------------------------------------------------------------------
/**
* Calculates the present value gamma of the Ibor caplet/floorlet period.
* <p>
* The present value gamma is given by the second derivative of the present value with respect to forward.
*
* @param period the Ibor caplet/floorlet period
* @param ratesProvider the rates provider
* @param volatilities the volatilities
* @return the present value gamma
*/
public CurrencyAmount presentValueGamma(
IborCapletFloorletPeriod period,
RatesProvider ratesProvider,
IborCapletFloorletVolatilities volatilities) {
validate(volatilities);
double expiry = volatilities.relativeTime(period.getFixingDateTime());
Currency currency = period.getCurrency();
if (expiry < 0d) { // Option has expired already
return CurrencyAmount.of(currency, 0d);
}
double forward = ratesProvider.iborIndexRates(period.getIndex()).rate(period.getIborRate().getObservation());
double strike = period.getStrike();
double volatility = volatilities.volatility(expiry, strike, forward);
PutCall putCall = period.getPutCall();
double df = ratesProvider.discountFactor(currency, period.getPaymentDate());
double priceGamma = df * period.getYearFraction() *
volatilities.priceGamma(expiry, putCall, strike, forward, volatility);
return CurrencyAmount.of(currency, priceGamma * period.getNotional());
}
//-------------------------------------------------------------------------
/**
* Calculates the present value theta of the Ibor caplet/floorlet period.
* <p>
* The present value theta is given by the minus of the present value sensitivity to the {@code timeToExpiry}
* parameter of the model.
*
* @param period the Ibor caplet/floorlet period
* @param ratesProvider the rates provider
* @param volatilities the volatilities
* @return the present value theta
*/
public CurrencyAmount presentValueTheta(
IborCapletFloorletPeriod period,
RatesProvider ratesProvider,
IborCapletFloorletVolatilities volatilities) {
validate(volatilities);
double expiry = volatilities.relativeTime(period.getFixingDateTime());
Currency currency = period.getCurrency();
if (expiry < 0d) { // Option has expired already
return CurrencyAmount.of(currency, 0d);
}
double forward = ratesProvider.iborIndexRates(period.getIndex()).rate(period.getIborRate().getObservation());
double strike = period.getStrike();
double volatility = volatilities.volatility(expiry, strike, forward);
PutCall putCall = period.getPutCall();
double df = ratesProvider.discountFactor(currency, period.getPaymentDate());
double priceTheta = df * period.getYearFraction() *
volatilities.priceTheta(expiry, putCall, strike, forward, volatility);
return CurrencyAmount.of(currency, priceTheta * period.getNotional());
}
//-------------------------------------------------------------------------
/**
* Calculates the present value rates sensitivity of the Ibor caplet/floorlet.
* <p>
* The present value rates sensitivity of the caplet/floorlet is the sensitivity
* of the present value to the underlying curves.
*
* @param period the Ibor caplet/floorlet period
* @param ratesProvider the rates provider
* @param volatilities the volatilities
* @return the present value curve sensitivity
*/
public PointSensitivityBuilder presentValueSensitivityRates(
IborCapletFloorletPeriod period,
RatesProvider ratesProvider,
IborCapletFloorletVolatilities volatilities) {
validate(volatilities);
Currency currency = period.getCurrency();
if (ratesProvider.getValuationDate().isAfter(period.getPaymentDate())) {
return PointSensitivityBuilder.none();
}
double expiry = volatilities.relativeTime(period.getFixingDateTime());
PutCall putCall = period.getPutCall();
double strike = period.getStrike();
double indexRate = ratesProvider.iborIndexRates(period.getIndex()).rate(period.getIborRate().getObservation());
PointSensitivityBuilder dfSensi =
ratesProvider.discountFactors(currency).zeroRatePointSensitivity(period.getPaymentDate());
if (expiry < 0d) { // Option has expired already
double sign = putCall.isCall() ? 1d : -1d;
double payoff = Math.max(sign * (indexRate - strike), 0d);
return dfSensi.multipliedBy(payoff * period.getYearFraction() * period.getNotional());
}
PointSensitivityBuilder indexRateSensiSensi =
ratesProvider.iborIndexRates(period.getIndex()).ratePointSensitivity(period.getIborRate().getObservation());
double volatility = volatilities.volatility(expiry, strike, indexRate);
double df = ratesProvider.discountFactor(currency, period.getPaymentDate());
double factor = period.getNotional() * period.getYearFraction();
double fwdPv = factor * volatilities.price(expiry, putCall, strike, indexRate, volatility);
double fwdDelta = factor * volatilities.priceDelta(expiry, putCall, strike, indexRate, volatility);
return dfSensi.multipliedBy(fwdPv).combinedWith(indexRateSensiSensi.multipliedBy(fwdDelta * df));
}
//-------------------------------------------------------------------------
/**
* Calculates the present value volatility sensitivity of the Ibor caplet/floorlet.
* <p>
* The present value volatility sensitivity of the caplet/floorlet is the sensitivity
* of the present value to the implied volatility.
* <p>
* The sensitivity to the implied volatility is also called vega.
*
* @param period the Ibor caplet/floorlet period
* @param ratesProvider the rates provider
* @param volatilities the volatilities
* @return the point sensitivity to the volatility
*/
public PointSensitivityBuilder presentValueSensitivityModelParamsVolatility(
IborCapletFloorletPeriod period,
RatesProvider ratesProvider,
IborCapletFloorletVolatilities volatilities) {
validate(volatilities);
double expiry = volatilities.relativeTime(period.getFixingDateTime());
double strike = period.getStrike();
Currency currency = period.getCurrency();
if (expiry <= 0d) { // Option has expired already or at expiry
return PointSensitivityBuilder.none();
}
double forward = ratesProvider.iborIndexRates(period.getIndex()).rate(period.getIborRate().getObservation());
double volatility = volatilities.volatility(expiry, strike, forward);
PutCall putCall = period.getPutCall();
double df = ratesProvider.discountFactor(currency, period.getPaymentDate());
double vega = df * period.getYearFraction() * volatilities.priceVega(expiry, putCall, strike, forward, volatility);
return IborCapletFloorletSensitivity.of(
volatilities.getName(),
expiry,
strike,
forward,
currency,
vega * period.getNotional());
}
/**
* Validate the volatilities provider.
* <p>
* This validate method should be overridden such that a correct implementation of
* {@code IborCapletFloorletVolatilities} is used for pricing.
*
* @param volatilities the volatilities
*/
protected void validate(IborCapletFloorletVolatilities volatilities) {
}
}