SabrVolatilityFunctionProviderTestCase.java

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

import static com.opengamma.strata.product.common.PutCall.CALL;
import static org.testng.Assert.assertEquals;

import org.testng.annotations.Test;

import com.opengamma.strata.pricer.impl.option.EuropeanVanillaOption;

/**
 * Test case for SABR volatility function providers.
 */
@Test
public abstract class SabrVolatilityFunctionProviderTestCase {

  private static final double K = 105;
  private static final double T = 1.5;
  protected static final double FORWARD = 103;
  protected static final EuropeanVanillaOption OPTION = EuropeanVanillaOption.of(K, T, CALL);
  protected static final SabrFormulaData LOG_NORMAL_EQUIVALENT = SabrFormulaData.of(0.8, 1, 0.5, 0);
  protected static final SabrFormulaData APPROACHING_LOG_NORMAL_EQUIVALENT1 = SabrFormulaData.of(0.8, 1, 0.5, 1e-6);
  protected static final SabrFormulaData APPROACHING_LOG_NORMAL_EQUIVALENT2 = SabrFormulaData.of(0.8, 1 + 1e-6, 0.5, 0);
  protected static final SabrFormulaData APPROACHING_LOG_NORMAL_EQUIVALENT3 = SabrFormulaData.of(0.8, 1 - 1e-6, 0.5, 0);

  protected abstract VolatilityFunctionProvider<SabrFormulaData> getFunction();

  @Test(expectedExceptions = IllegalArgumentException.class)
  public void testNullData() {
    getFunction().volatility(FORWARD, K, T, null);
  }

  @Test
  public void testLogNormalEquivalent() {
    assertEquals(getFunction().volatility(FORWARD, K, T, LOG_NORMAL_EQUIVALENT),
        LOG_NORMAL_EQUIVALENT.getAlpha(), 0);
  }

  @Test
  public void testApproachingLogNormalEquivalent1() {
    assertEquals(getFunction().volatility(FORWARD, K, T, APPROACHING_LOG_NORMAL_EQUIVALENT1),
        LOG_NORMAL_EQUIVALENT.getAlpha(), 1e-5);
  }

  @Test
  public void testApproachingLogNormalEquivalent2() {
    assertEquals(getFunction().volatility(FORWARD, K, T, APPROACHING_LOG_NORMAL_EQUIVALENT2),
        LOG_NORMAL_EQUIVALENT.getAlpha(), 1e-5);
  }

  @Test
  public void testApproachingLogNormalEquivalent3() {
    assertEquals(getFunction().volatility(FORWARD, K, T, APPROACHING_LOG_NORMAL_EQUIVALENT3),
        LOG_NORMAL_EQUIVALENT.getAlpha(), 1e-5);
  }

  //TODO need to fill in tests
  //TODO beta = 1 nu = 0 => Black equivalent volatility
  //TODO beta = 0 nu = 0 => Bachelier
  //TODO beta != 0 nu = 0 => CEV

}