SabrSwaptionPhysicalProductPricer.java

/**
 * Copyright (C) 2015 - present by OpenGamma Inc. and the OpenGamma group of companies
 *
 * Please see distribution for license.
 */
package com.opengamma.strata.pricer.swaption;

import static com.opengamma.strata.market.model.SabrParameterType.ALPHA;
import static com.opengamma.strata.market.model.SabrParameterType.BETA;
import static com.opengamma.strata.market.model.SabrParameterType.NU;
import static com.opengamma.strata.market.model.SabrParameterType.RHO;

import java.time.ZonedDateTime;

import com.opengamma.strata.basics.currency.Currency;
import com.opengamma.strata.basics.value.ValueDerivatives;
import com.opengamma.strata.collect.array.DoubleArray;
import com.opengamma.strata.market.sensitivity.PointSensitivityBuilder;
import com.opengamma.strata.pricer.impl.option.BlackFormulaRepository;
import com.opengamma.strata.pricer.rate.RatesProvider;
import com.opengamma.strata.pricer.swap.DiscountingSwapProductPricer;
import com.opengamma.strata.product.swap.ResolvedSwap;
import com.opengamma.strata.product.swap.ResolvedSwapLeg;
import com.opengamma.strata.product.swap.Swap;
import com.opengamma.strata.product.swaption.ResolvedSwaption;

/**
 * Pricer for swaption with physical settlement in SABR model on the swap rate.
 * <p>
 * The swap underlying the swaption must have a fixed leg on which the forward rate is computed.
 * The underlying swap must be single currency.
 * <p>
 * The volatility parameters are not adjusted for the underlying swap convention.
 * The volatilities from the provider are taken as such.
 * <p>
 * The value of the swaption after expiry is 0. For a swaption which already expired, negative number is returned by 
 * the method, {@link SabrSwaptionVolatilities#relativeTime(ZonedDateTime)}.
 */
public class SabrSwaptionPhysicalProductPricer
    extends VolatilitySwaptionPhysicalProductPricer {

  /**
   * Default implementation.
   */
  public static final SabrSwaptionPhysicalProductPricer DEFAULT =
      new SabrSwaptionPhysicalProductPricer(DiscountingSwapProductPricer.DEFAULT);

  /**
   * Creates an instance.
   * 
   * @param swapPricer  the pricer for {@link Swap}
   */
  public SabrSwaptionPhysicalProductPricer(DiscountingSwapProductPricer swapPricer) {
    super(swapPricer);
  }

  //-------------------------------------------------------------------------
  /**
   * Calculates the present value sensitivity of the swaption product to the rate curves.
   * <p>
   * The present value sensitivity is computed in a "sticky model parameter" style, i.e. the sensitivity to the 
   * curve nodes with the SABR model parameters unchanged. This sensitivity does not include a potential 
   * re-calibration of the model parameters to the raw market data.
   * 
   * @param swaption  the swaption product
   * @param ratesProvider  the rates provider
   * @param swaptionVolatilities  the volatilities
   * @return the point sensitivity to the rate curves
   */
  public PointSensitivityBuilder presentValueSensitivityRatesStickyModel(
      ResolvedSwaption swaption,
      RatesProvider ratesProvider,
      SabrSwaptionVolatilities swaptionVolatilities) {

    validate(swaption, ratesProvider, swaptionVolatilities);
    ZonedDateTime expiryDateTime = swaption.getExpiry();
    double expiry = swaptionVolatilities.relativeTime(expiryDateTime);
    ResolvedSwap underlying = swaption.getUnderlying();
    ResolvedSwapLeg fixedLeg = fixedLeg(underlying);
    if (expiry < 0d) { // Option has expired already
      return PointSensitivityBuilder.none();
    }
    double forward = getSwapPricer().parRate(underlying, ratesProvider);
    double pvbp = getSwapPricer().getLegPricer().pvbp(fixedLeg, ratesProvider);
    double strike = getSwapPricer().getLegPricer().couponEquivalent(fixedLeg, ratesProvider, pvbp);
    double tenor = swaptionVolatilities.tenor(fixedLeg.getStartDate(), fixedLeg.getEndDate());
    double shift = swaptionVolatilities.shift(expiry, tenor);
    ValueDerivatives volatilityAdj = swaptionVolatilities.volatilityAdjoint(expiry, tenor, strike, forward);
    boolean isCall = fixedLeg.getPayReceive().isPay();
    // Payer at strike is exercise when rate > strike, i.e. call on rate
    // Backward sweep
    PointSensitivityBuilder pvbpDr = getSwapPricer().getLegPricer().pvbpSensitivity(fixedLeg, ratesProvider);
    PointSensitivityBuilder forwardDr = getSwapPricer().parRateSensitivity(underlying, ratesProvider);
    double shiftedForward = forward + shift;
    double shiftedStrike = strike + shift;
    double price = BlackFormulaRepository.price(shiftedForward, shiftedStrike, expiry, volatilityAdj.getValue(), isCall);
    double delta = BlackFormulaRepository.delta(shiftedForward, shiftedStrike, expiry, volatilityAdj.getValue(), isCall);
    double vega = BlackFormulaRepository.vega(shiftedForward, shiftedStrike, expiry, volatilityAdj.getValue());
    double sign = swaption.getLongShort().sign();
    return pvbpDr.multipliedBy(price * sign * Math.signum(pvbp))
        .combinedWith(forwardDr.multipliedBy((delta + vega * volatilityAdj.getDerivative(0)) * Math.abs(pvbp) * sign));
  }

  //-------------------------------------------------------------------------
  /**
   * Calculates the present value sensitivity to the SABR model parameters of the swaption product.
   * <p>
   * The sensitivity of the present value to the SABR model parameters, alpha, beta, rho and nu.
   * 
   * @param swaption  the swaption product
   * @param ratesProvider  the rates provider
   * @param swaptionVolatilities  the volatilities
   * @return the point sensitivity to the SABR model parameters
   */
  public PointSensitivityBuilder presentValueSensitivityModelParamsSabr(
      ResolvedSwaption swaption,
      RatesProvider ratesProvider,
      SabrSwaptionVolatilities swaptionVolatilities) {

    validate(swaption, ratesProvider, swaptionVolatilities);
    double expiry = swaptionVolatilities.relativeTime(swaption.getExpiry());
    ResolvedSwap underlying = swaption.getUnderlying();
    ResolvedSwapLeg fixedLeg = fixedLeg(underlying);
    double tenor = swaptionVolatilities.tenor(fixedLeg.getStartDate(), fixedLeg.getEndDate());
    double shift = swaptionVolatilities.shift(expiry, tenor);
    double pvbp = getSwapPricer().getLegPricer().pvbp(fixedLeg, ratesProvider);
    double strike = getSwapPricer().getLegPricer().couponEquivalent(fixedLeg, ratesProvider, pvbp);
    if (expiry < 0d) { // Option has expired already
      return PointSensitivityBuilder.none();
    }
    double forward = getSwapPricer().parRate(underlying, ratesProvider);
    double volatility = swaptionVolatilities.volatility(expiry, tenor, strike, forward);
    DoubleArray derivative =
        swaptionVolatilities.volatilityAdjoint(expiry, tenor, strike, forward).getDerivatives();
    // Backward sweep
    double vega = Math.abs(pvbp) * BlackFormulaRepository.vega(forward + shift, strike + shift, expiry, volatility) *
        swaption.getLongShort().sign();
    // sensitivities
    Currency ccy = fixedLeg.getCurrency();
    SwaptionVolatilitiesName name = swaptionVolatilities.getName();
    return PointSensitivityBuilder.of(
        SwaptionSabrSensitivity.of(name, expiry, tenor, ALPHA, ccy, vega * derivative.get(2)),
        SwaptionSabrSensitivity.of(name, expiry, tenor, BETA, ccy, vega * derivative.get(3)),
        SwaptionSabrSensitivity.of(name, expiry, tenor, RHO, ccy, vega * derivative.get(4)),
        SwaptionSabrSensitivity.of(name, expiry, tenor, NU, ccy, vega * derivative.get(5)));
  }

}