/**
* Copyright (C) 2013 - present by OpenGamma Inc. and the OpenGamma group of companies
*
* Please see distribution for license.
*/
package com.opengamma.analytics.financial.model.option.pricing.tree;
import com.google.common.primitives.Doubles;
import com.opengamma.util.ArgumentChecker;
/**
* Provides payoff function and option price function for two-dimensional tree model
*/
public abstract class OptionFunctionProvider2D {
private double _strike;
private double _timeToExpiry;
private int _steps;
private double _sign;
/**
* @param strike Strike price
* @param timeToExpiry Time to expiry
* @param steps Number of steps
* @param isCall True if call, false if put
*/
public OptionFunctionProvider2D(final double strike, final double timeToExpiry, final int steps, final boolean isCall) {
ArgumentChecker.isTrue(strike >= 0., "strike should be positive");
ArgumentChecker.isTrue(Doubles.isFinite(strike), "strike should be finite");
ArgumentChecker.isTrue(timeToExpiry > 0., "timeToExpiry should be positive");
ArgumentChecker.isTrue(Doubles.isFinite(timeToExpiry), "timeToExpiry should be finite");
ArgumentChecker.isTrue(steps > 2, "The number of steps should be greater than 2");
_strike = strike;
_timeToExpiry = timeToExpiry;
_steps = steps;
_sign = isCall ? 1. : -1.;
}
/**
* For binomial model
* @param assetPrice1 Asset price 1 at (nSteps,0), i.e., the price at the lowest node
* @param assetPrice2 Asset price 2 at (nSteps,0), i.e., the price at the lowest node
* @param upOverDown1 (up factor)/(down factor) for asset1
* @param upOverDown2 (up factor)/(down factor) for asset2
* @return Payoff at expiry
*/
public abstract double[][] getPayoffAtExpiry(final double assetPrice1, final double assetPrice2, final double upOverDown1, final double upOverDown2);
/**
* Given a set of option values in the (steps+1)-th layer, derive option values in the (steps)-th layer
* This method should be overridden if an option has early exercise feature
* @param discount Discount factor
* @param uuProbability Up-up probability
* @param udProbability Up-down probability
* @param duProbability Down-up probability
* @param ddProbability Down-down probability
* @param values Option values in the (steps+1)-th layer
* @param baseAssetPrice1 Asset price 1 at (0,0), i.e., the starting point
* @param baseAssetPrice2 Asset price 2 at (0,0), i.e., the starting point
* @param downFactor1 Down factor for asset1
* @param downFactor2 Down factor for asset2
* @param upOverDown1 (up factor)/(down factor) for asset1
* @param upOverDown2 (up factor)/(down factor) for asset2
* @param steps
* @return The option values in the (steps)-th layer
*/
public double[][] getNextOptionValues(final double discount, final double uuProbability, final double udProbability, final double duProbability, final double ddProbability,
final double[][] values, final double baseAssetPrice1, final double baseAssetPrice2, final double downFactor1, final double downFactor2,
final double upOverDown1, final double upOverDown2, final int steps) {
final int stepsP = steps + 1;
final double[][] res = new double[stepsP][stepsP];
for (int j = 0; j < stepsP; ++j) {
for (int i = 0; i < stepsP; ++i) {
res[j][i] = discount * (uuProbability * values[j + 1][i + 1] + udProbability * values[j + 1][i] + duProbability * values[j][i + 1] + ddProbability * values[j][i]);
}
}
return res;
}
/**
* For trinomial model
* @param assetPrice1 Asset price 1 at (nSteps,0), i.e., the price at the lowest node
* @param assetPrice2 Asset price 2 at (nSteps,0), i.e., the price at the lowest node
* @param middleOverDown1 (middle factor)/(down factor) for asset1
* @param middleOverDown2 (middle factor)/(down factor) for asset2
* @return Payoff at expiry
*/
public abstract double[][] getPayoffAtExpiryTrinomial(final double assetPrice1, final double assetPrice2, final double middleOverDown1, final double middleOverDown2);
/**
* Given a set of option values in the (steps+1)-th layer, derive option values in the (steps)-th layer
* This method should be overridden if an option has early exercise feature
* @param discount Discount factor
* @param uuProbability Up-up probability
* @param umProbability Up-middle probability
* @param udProbability Up-down probability
* @param muProbability Middle-up probability
* @param mmProbability Middle-middle probability
* @param mdProbability Middle-down probability
* @param duProbability Down-up probability
* @param dmProbability Down-middle probability
* @param ddProbability Down-down probability
* @param values Option values in the (steps+1)-th layer
* @param baseAssetPrice1 Asset price 1 at (0,0), i.e., the starting point
* @param baseAssetPrice2 Asset price 2 at (0,0), i.e., the starting point
* @param downFactor1 Down factor for asset1
* @param downFactor2 Down factor for asset2
* @param middleOverDown1 (middle factor)/(down factor) for asset1
* @param middleOverDown2 (middle factor)/(down factor) for asset2
* @param steps
* @return The option values in the (steps)-th layer
*/
public double[][] getNextOptionValues(final double discount, final double uuProbability, final double umProbability, final double udProbability, final double muProbability,
final double mmProbability, final double mdProbability, final double duProbability, final double dmProbability, final double ddProbability, final double[][] values,
final double baseAssetPrice1, final double baseAssetPrice2, final double downFactor1, final double downFactor2, final double middleOverDown1, final double middleOverDown2, final int steps) {
final int nNodes = 2 * steps + 1;
final double[][] res = new double[nNodes][nNodes];
for (int j = 0; j < nNodes; ++j) {
for (int i = 0; i < nNodes; ++i) {
res[j][i] = discount *
(uuProbability * values[j + 2][i + 2] + umProbability * values[j + 2][i + 1] + udProbability * values[j + 2][i] + muProbability * values[j + 1][i + 2] + mmProbability *
values[j + 1][i + 1] + mdProbability * values[j + 1][i] + duProbability * values[j][i + 2] + dmProbability * values[j][i + 1] + ddProbability * values[j][i]);
}
}
return res;
}
/**
* Access strike price
* @return _strike
*/
public double getStrike() {
return _strike;
}
/**
* Access time to expiry
* @return _timeToExpiry
*/
public double getTimeToExpiry() {
return _timeToExpiry;
}
/**
* Access number of steps
* @return _steps
*/
public int getNumberOfSteps() {
return _steps;
}
/**
* Access signature in payoff formula
* @return +1 if call, -1 if put
*/
public double getSign() {
return _sign;
}
@Override
public int hashCode() {
final int prime = 31;
int result = 1;
long temp;
temp = Double.doubleToLongBits(_sign);
result = prime * result + (int) (temp ^ (temp >>> 32));
result = prime * result + _steps;
temp = Double.doubleToLongBits(_strike);
result = prime * result + (int) (temp ^ (temp >>> 32));
temp = Double.doubleToLongBits(_timeToExpiry);
result = prime * result + (int) (temp ^ (temp >>> 32));
return result;
}
@Override
public boolean equals(Object obj) {
if (obj == null) {
return false;
}
if (!(obj instanceof OptionFunctionProvider2D)) {
return false;
}
OptionFunctionProvider2D other = (OptionFunctionProvider2D) obj;
if (Double.doubleToLongBits(_sign) != Double.doubleToLongBits(other._sign)) {
return false;
}
if (_steps != other._steps) {
return false;
}
if (Double.doubleToLongBits(_strike) != Double.doubleToLongBits(other._strike)) {
return false;
}
if (Double.doubleToLongBits(_timeToExpiry) != Double.doubleToLongBits(other._timeToExpiry)) {
return false;
}
return true;
}
}