/**
* 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 java.time.ZonedDateTime;
import java.util.List;
import com.opengamma.strata.basics.currency.CurrencyAmount;
import com.opengamma.strata.basics.currency.MultiCurrencyAmount;
import com.opengamma.strata.collect.ArgChecker;
import com.opengamma.strata.market.sensitivity.PointSensitivityBuilder;
import com.opengamma.strata.pricer.rate.RatesProvider;
import com.opengamma.strata.pricer.swap.DiscountingSwapProductPricer;
import com.opengamma.strata.product.common.PutCall;
import com.opengamma.strata.product.common.SettlementType;
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.swap.SwapLegType;
import com.opengamma.strata.product.swaption.ResolvedSwaption;
/**
* Pricer for swaption with physical settlement based on volatilities.
* <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.
* <p>
* The value of the swaption after expiry is 0.
* For a swaption which has already expired, a negative number is returned by
* {@link SwaptionVolatilities#relativeTime(ZonedDateTime)}.
*/
public class VolatilitySwaptionPhysicalProductPricer {
/**
* Default implementation.
*/
public static final VolatilitySwaptionPhysicalProductPricer DEFAULT =
new VolatilitySwaptionPhysicalProductPricer(DiscountingSwapProductPricer.DEFAULT);
/**
* Pricer for {@link SwapProduct}.
*/
private final DiscountingSwapProductPricer swapPricer;
/**
* Creates an instance.
*
* @param swapPricer the pricer for {@link Swap}
*/
public VolatilitySwaptionPhysicalProductPricer(DiscountingSwapProductPricer swapPricer) {
this.swapPricer = ArgChecker.notNull(swapPricer, "swapPricer");
}
//-------------------------------------------------------------------------
/**
* Gets the swap pricer.
*
* @return the swap pricer
*/
protected DiscountingSwapProductPricer getSwapPricer() {
return swapPricer;
}
//-------------------------------------------------------------------------
/**
* Calculates the present value of the swaption.
* <p>
* The result is expressed using the currency of the swaption.
*
* @param swaption the swaption
* @param ratesProvider the rates provider
* @param swaptionVolatilities the volatilities
* @return the present value
*/
public CurrencyAmount presentValue(
ResolvedSwaption swaption,
RatesProvider ratesProvider,
SwaptionVolatilities swaptionVolatilities) {
validate(swaption, ratesProvider, swaptionVolatilities);
double expiry = swaptionVolatilities.relativeTime(swaption.getExpiry());
ResolvedSwap underlying = swaption.getUnderlying();
ResolvedSwapLeg fixedLeg = fixedLeg(underlying);
if (expiry < 0d) { // Option has expired already
return CurrencyAmount.of(fixedLeg.getCurrency(), 0d);
}
double forward = swapPricer.parRate(underlying, ratesProvider);
double pvbp = swapPricer.getLegPricer().pvbp(fixedLeg, ratesProvider);
double strike = swapPricer.getLegPricer().couponEquivalent(fixedLeg, ratesProvider, pvbp);
double tenor = swaptionVolatilities.tenor(fixedLeg.getStartDate(), fixedLeg.getEndDate());
double volatility = swaptionVolatilities.volatility(expiry, tenor, strike, forward);
PutCall putCall = PutCall.ofPut(fixedLeg.getPayReceive().isReceive());
double price = Math.abs(pvbp) * swaptionVolatilities.price(expiry, tenor, putCall, strike, forward, volatility);
return CurrencyAmount.of(fixedLeg.getCurrency(), price * swaption.getLongShort().sign());
}
//-------------------------------------------------------------------------
/**
* Computes the currency exposure of the swaption.
* <p>
* This is equivalent to the present value of the swaption.
*
* @param swaption the swaption
* @param ratesProvider the rates provider
* @param swaptionVolatilities the volatilities
* @return the currency exposure
*/
public MultiCurrencyAmount currencyExposure(
ResolvedSwaption swaption,
RatesProvider ratesProvider,
SwaptionVolatilities swaptionVolatilities) {
return MultiCurrencyAmount.of(presentValue(swaption, ratesProvider, swaptionVolatilities));
}
//-------------------------------------------------------------------------
/**
* Computes the implied volatility of the swaption.
*
* @param swaption the swaption
* @param ratesProvider the rates provider
* @param swaptionVolatilities the volatilities
* @return the implied volatility associated with the swaption
*/
public double impliedVolatility(
ResolvedSwaption swaption,
RatesProvider ratesProvider,
SwaptionVolatilities swaptionVolatilities) {
validate(swaption, ratesProvider, swaptionVolatilities);
double expiry = swaptionVolatilities.relativeTime(swaption.getExpiry());
ResolvedSwap underlying = swaption.getUnderlying();
ResolvedSwapLeg fixedLeg = fixedLeg(underlying);
ArgChecker.isTrue(expiry >= 0d, "Option must be before expiry to compute an implied volatility");
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());
return swaptionVolatilities.volatility(expiry, tenor, strike, forward);
}
//-------------------------------------------------------------------------
/**
* Calculates the present value delta of the swaption.
* <p>
* The present value delta is given by {@code pvbp * priceDelta} where {@code priceDelta}
* is the first derivative of the price with respect to forward. The derivative is computed in the formula
* underlying the volatility (Black or Normal), it does not take into account the potential change of implied
* volatility induced by the change of forward. The number computed by this method is closely related
* to the {@link VolatilitySwaptionPhysicalProductPricer#presentValueSensitivityRatesStickyStrike} method.
* <p>
* Related methods: Some concrete classes to this interface also implement a {@code presentValueSensitivity}
* method which take into account the change of implied volatility.
* <p>
* The result is expressed using the currency of the swaption.
*
* @param swaption the swaption
* @param ratesProvider the rates provider
* @param swaptionVolatilities the volatilities
* @return the present value delta of the swaption
*/
public CurrencyAmount presentValueDelta(
ResolvedSwaption swaption,
RatesProvider ratesProvider,
SwaptionVolatilities swaptionVolatilities) {
validate(swaption, ratesProvider, swaptionVolatilities);
double expiry = swaptionVolatilities.relativeTime(swaption.getExpiry());
ResolvedSwap underlying = swaption.getUnderlying();
ResolvedSwapLeg fixedLeg = fixedLeg(underlying);
if (expiry < 0d) { // Option has expired already
return CurrencyAmount.of(fixedLeg.getCurrency(), 0d);
}
double forward = getSwapPricer().parRate(underlying, ratesProvider);
double pvbp = getSwapPricer().getLegPricer().pvbp(fixedLeg, ratesProvider);
double numeraire = Math.abs(pvbp);
double strike = getSwapPricer().getLegPricer().couponEquivalent(fixedLeg, ratesProvider, pvbp);
double tenor = swaptionVolatilities.tenor(fixedLeg.getStartDate(), fixedLeg.getEndDate());
double volatility = swaptionVolatilities.volatility(expiry, tenor, strike, forward);
PutCall putCall = PutCall.ofPut(fixedLeg.getPayReceive().isReceive());
double delta = numeraire * swaptionVolatilities.priceDelta(expiry, tenor, putCall, strike, forward, volatility);
return CurrencyAmount.of(fixedLeg.getCurrency(), delta * swaption.getLongShort().sign());
}
//-------------------------------------------------------------------------
/**
* Calculates the present value gamma of the swaption.
* <p>
* The present value gamma is given by {@code pvbp * priceGamma} where {@code priceGamma}
* is the second derivative of the price with respect to forward.
* <p>
* The result is expressed using the currency of the swaption.
*
* @param swaption the swaption
* @param ratesProvider the rates provider
* @param swaptionVolatilities the volatilities
* @return the present value gamma of the swaption
*/
public CurrencyAmount presentValueGamma(
ResolvedSwaption swaption,
RatesProvider ratesProvider,
SwaptionVolatilities swaptionVolatilities) {
validate(swaption, ratesProvider, swaptionVolatilities);
double expiry = swaptionVolatilities.relativeTime(swaption.getExpiry());
ResolvedSwap underlying = swaption.getUnderlying();
ResolvedSwapLeg fixedLeg = fixedLeg(underlying);
if (expiry < 0d) { // Option has expired already
return CurrencyAmount.of(fixedLeg.getCurrency(), 0d);
}
double forward = getSwapPricer().parRate(underlying, ratesProvider);
double pvbp = getSwapPricer().getLegPricer().pvbp(fixedLeg, ratesProvider);
double numeraire = Math.abs(pvbp);
double strike = getSwapPricer().getLegPricer().couponEquivalent(fixedLeg, ratesProvider, pvbp);
double tenor = swaptionVolatilities.tenor(fixedLeg.getStartDate(), fixedLeg.getEndDate());
double volatility = swaptionVolatilities.volatility(expiry, tenor, strike, forward);
PutCall putCall = PutCall.ofPut(fixedLeg.getPayReceive().isReceive());
double gamma = numeraire * swaptionVolatilities.priceGamma(expiry, tenor, putCall, strike, forward, volatility);
return CurrencyAmount.of(fixedLeg.getCurrency(), gamma * swaption.getLongShort().sign());
}
//-------------------------------------------------------------------------
/**
* Calculates the present value of the swaption.
* <p>
* The present value theta is given by {@code pvbp * priceTheta} where {@code priceTheta}
* is the minus of the price sensitivity to {@code timeToExpiry}.
* <p>
* The result is expressed using the currency of the swaption.
*
* @param swaption the swaption
* @param ratesProvider the rates provider
* @param swaptionVolatilities the volatilities
* @return the present value theta of the swaption
*/
public CurrencyAmount presentValueTheta(
ResolvedSwaption swaption,
RatesProvider ratesProvider,
SwaptionVolatilities swaptionVolatilities) {
validate(swaption, ratesProvider, swaptionVolatilities);
double expiry = swaptionVolatilities.relativeTime(swaption.getExpiry());
ResolvedSwap underlying = swaption.getUnderlying();
ResolvedSwapLeg fixedLeg = fixedLeg(underlying);
if (expiry < 0d) { // Option has expired already
return CurrencyAmount.of(fixedLeg.getCurrency(), 0d);
}
double forward = getSwapPricer().parRate(underlying, ratesProvider);
double pvbp = getSwapPricer().getLegPricer().pvbp(fixedLeg, ratesProvider);
double numeraire = Math.abs(pvbp);
double strike = getSwapPricer().getLegPricer().couponEquivalent(fixedLeg, ratesProvider, pvbp);
double tenor = swaptionVolatilities.tenor(fixedLeg.getStartDate(), fixedLeg.getEndDate());
double volatility = swaptionVolatilities.volatility(expiry, tenor, strike, forward);
PutCall putCall = PutCall.ofPut(fixedLeg.getPayReceive().isReceive());
double theta = numeraire * swaptionVolatilities.priceTheta(expiry, tenor, putCall, strike, forward, volatility);
return CurrencyAmount.of(fixedLeg.getCurrency(), theta * swaption.getLongShort().sign());
}
//-------------------------------------------------------------------------
/**
* Calculates the present value sensitivity of the swaption to the rate curves.
* <p>
* The present value sensitivity is computed in a "sticky strike" style, i.e. the sensitivity to the
* curve nodes with the volatility at the swaption strike unchanged. This sensitivity does not include a potential
* change of volatility due to the implicit change of forward rate or moneyness.
*
* @param swaption the swaption
* @param ratesProvider the rates provider
* @param swaptionVolatilities the volatilities
* @return the point sensitivity to the rate curves
*/
public PointSensitivityBuilder presentValueSensitivityRatesStickyStrike(
ResolvedSwaption swaption,
RatesProvider ratesProvider,
SwaptionVolatilities swaptionVolatilities) {
validate(swaption, ratesProvider, swaptionVolatilities);
double expiry = swaptionVolatilities.relativeTime(swaption.getExpiry());
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 volatility = swaptionVolatilities.volatility(expiry, tenor, strike, forward);
PutCall putCall = PutCall.ofPut(fixedLeg.getPayReceive().isReceive());
double price = swaptionVolatilities.price(expiry, tenor, putCall, strike, forward, volatility);
double delta = swaptionVolatilities.priceDelta(expiry, tenor, putCall, strike, forward, volatility);
// Backward sweep
PointSensitivityBuilder pvbpDr = getSwapPricer().getLegPricer().pvbpSensitivity(fixedLeg, ratesProvider);
PointSensitivityBuilder forwardDr = getSwapPricer().parRateSensitivity(underlying, ratesProvider);
double sign = swaption.getLongShort().sign();
return pvbpDr.multipliedBy(price * sign * Math.signum(pvbp))
.combinedWith(forwardDr.multipliedBy(delta * Math.abs(pvbp) * sign));
}
//-------------------------------------------------------------------------
/**
* Calculates the present value sensitivity to the implied volatility of the swaption.
* <p>
* The sensitivity to the implied volatility is also called vega.
*
* @param swaption the swaption
* @param ratesProvider the rates provider
* @param swaptionVolatilities the volatilities
* @return the point sensitivity to the volatility
*/
public SwaptionSensitivity presentValueSensitivityModelParamsVolatility(
ResolvedSwaption swaption,
RatesProvider ratesProvider,
SwaptionVolatilities 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 pvbp = getSwapPricer().getLegPricer().pvbp(fixedLeg, ratesProvider);
double strike = getSwapPricer().getLegPricer().couponEquivalent(fixedLeg, ratesProvider, pvbp);
if (expiry < 0d) { // Option has expired already
return SwaptionSensitivity.of(
swaptionVolatilities.getName(), expiry, tenor, strike, 0d, fixedLeg.getCurrency(), 0d);
}
double forward = getSwapPricer().parRate(underlying, ratesProvider);
double numeraire = Math.abs(pvbp);
double volatility = swaptionVolatilities.volatility(expiry, tenor, strike, forward);
PutCall putCall = PutCall.ofPut(fixedLeg.getPayReceive().isReceive());
double vega = numeraire * swaptionVolatilities.priceVega(expiry, tenor, putCall, strike, forward, volatility);
return SwaptionSensitivity.of(
swaptionVolatilities.getName(),
expiry,
tenor,
strike,
forward,
fixedLeg.getCurrency(),
vega * swaption.getLongShort().sign());
}
//-------------------------------------------------------------------------
/**
* Checks that there is exactly one fixed leg and returns it.
*
* @param swap the swap
* @return the fixed leg
*/
protected ResolvedSwapLeg fixedLeg(ResolvedSwap swap) {
ArgChecker.isFalse(swap.isCrossCurrency(), "Swap must be single currency");
// find fixed leg
List<ResolvedSwapLeg> fixedLegs = swap.getLegs(SwapLegType.FIXED);
if (fixedLegs.isEmpty()) {
throw new IllegalArgumentException("Swap must contain a fixed leg");
}
return fixedLegs.get(0);
}
/**
* Validates that the rates and volatilities providers are coherent
* and that the swaption is single currency physical.
*
* @param swaption the swaption
* @param ratesProvider the rates provider
* @param swaptionVolatilities the volatilities
*/
protected void validate(
ResolvedSwaption swaption,
RatesProvider ratesProvider,
SwaptionVolatilities swaptionVolatilities) {
ArgChecker.isTrue(swaptionVolatilities.getValuationDate().equals(ratesProvider.getValuationDate()),
"Volatility and rate data must be for the same date");
validateSwaption(swaption);
}
/**
* Validates that the swaption is single currency physical.
*
* @param swaption the swaption
*/
protected void validateSwaption(ResolvedSwaption swaption) {
ArgChecker.isFalse(swaption.getUnderlying().isCrossCurrency(), "Underlying swap must be single currency");
ArgChecker.isTrue(swaption.getSwaptionSettlement().getSettlementType().equals(SettlementType.PHYSICAL),
"Swaption must be physical settlement");
}
}