UpfrontFlatTest.java example

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/**
 * Copyright (C) 2013 - present by OpenGamma Inc. and the OpenGamma group of companies
 * 
 * Please see distribution for license.
 */
package com.opengamma.analytics.financial.credit.isdastandardmodel;

import static com.opengamma.financial.convention.businessday.BusinessDayDateUtils.addWorkDays;
import static org.testng.AssertJUnit.assertEquals;

import org.testng.annotations.Test;
import org.threeten.bp.LocalDate;
import org.threeten.bp.Month;
import org.threeten.bp.Period;

import com.opengamma.financial.convention.businessday.BusinessDayConvention;
import com.opengamma.financial.convention.businessday.BusinessDayConventions;
import com.opengamma.financial.convention.calendar.Calendar;
import com.opengamma.financial.convention.calendar.MondayToFridayCalendar;
import com.opengamma.financial.convention.daycount.DayCount;
import com.opengamma.financial.convention.daycount.DayCounts;
import com.opengamma.util.ArgumentChecker;
import com.opengamma.util.test.TestGroup;

/**
 * Test.
 */
@Test(groups = TestGroup.UNIT)
public class UpfrontFlatTest {
  private static final Calendar DEFAULT_CALENDAR = new MondayToFridayCalendar("Weekend_Only");

  private static final DayCount ACT365 = DayCounts.ACT_365;
  private static final DayCount ACT360 = DayCounts.ACT_360;
  private static final double NOTIONAL = 1e7;

  private static final BusinessDayConvention FOLLOWING = BusinessDayConventions.FOLLOWING;

  private static final LocalDate TODAY = LocalDate.of(2008, Month.SEPTEMBER, 19);
  private static final LocalDate STEPIN_DATE = TODAY.plusDays(1);
  private static final LocalDate CASH_SETTLE_DATE = addWorkDays(TODAY, 3, DEFAULT_CALENDAR); // AKA valuation date
  private static final LocalDate START_DATE = LocalDate.of(2007, Month.MARCH, 20);
  private static final LocalDate END_DATE = LocalDate.of(2013, Month.JUNE, 20);

  // yield curve
  private static final LocalDate SPOT_DATE = addWorkDays(TODAY, 2, DEFAULT_CALENDAR);
  private static final ISDACompliantYieldCurve YIELD_CURVE;

  static {
    final int nMoneyMarket = 6;
    final int nSwaps = 15;
    final int nInstruments = nMoneyMarket + nSwaps;

    final ISDAInstrumentTypes[] types = new ISDAInstrumentTypes[nInstruments];
    final Period[] tenors = new Period[nInstruments];
    final int[] mmMonths = new int[] {1, 2, 3, 6, 9, 12 };
    final int[] swapYears = new int[] {2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 15, 20, 25, 30 };
    // check
    ArgumentChecker.isTrue(mmMonths.length == nMoneyMarket, "mmMonths");
    ArgumentChecker.isTrue(swapYears.length == nSwaps, "swapYears");

    for (int i = 0; i < nMoneyMarket; i++) {
      types[i] = ISDAInstrumentTypes.MoneyMarket;
      tenors[i] = Period.ofMonths(mmMonths[i]);
    }
    for (int i = nMoneyMarket; i < nInstruments; i++) {
      types[i] = ISDAInstrumentTypes.Swap;
      tenors[i] = Period.ofYears(swapYears[i - nMoneyMarket]);
    }

    final double[] rates = new double[] {0.00445, 0.009488, 0.012337, 0.017762, 0.01935, 0.020838, 0.01652, 0.02018, 0.023033, 0.02525, 0.02696, 0.02825, 0.02931, 0.03017, 0.03092, 0.0316, 0.03231,
      0.03367, 0.03419, 0.03411, 0.03412 };

    final DayCount moneyMarketDCC = ACT360;
    final DayCount swapDCC = ACT360;
    final DayCount curveDCC = ACT365;
    final Period swapInterval = Period.ofMonths(6);

    YIELD_CURVE = ISDACompliantYieldCurveBuild.build(TODAY, SPOT_DATE, types, tenors, rates, moneyMarketDCC, swapDCC, swapInterval, curveDCC, FOLLOWING);
  }

  @Test
  public void Test() {
    final Period tenor = Period.ofMonths(3);
    final boolean payAccOnDefault = true;
    final StubType stubType = StubType.FRONTSHORT;
    final boolean protectionStart = true;

    final double quotedSpread = 550. / 10000;
    final double coupon = 500. / 10000;
    final double recovery = 0.4;

    final ISDACompliantCreditCurveBuilder builder = new FastCreditCurveBuilder();
    final AnalyticCDSPricer pricer = new AnalyticCDSPricer();

    final ISDACompliantCreditCurve creditCurve = builder.calibrateCreditCurve(TODAY, STEPIN_DATE, CASH_SETTLE_DATE, START_DATE, END_DATE, quotedSpread, payAccOnDefault, tenor, stubType,
        protectionStart, YIELD_CURVE, recovery);

    //    System.out.println(creditCurve.getNumberOfKnots() + "\t" + creditCurve.getTimeAtIndex(0) + "\t" + creditCurve.getZeroRateAtIndex(0));

    final CDSAnalytic cds = new CDSAnalytic(TODAY, STEPIN_DATE, CASH_SETTLE_DATE, START_DATE, END_DATE, payAccOnDefault, tenor, stubType, protectionStart, recovery);

    final double clean = pricer.pv(cds, YIELD_CURVE, creditCurve, coupon, PriceType.CLEAN);
    final double dirty = pricer.pv(cds, YIELD_CURVE, creditCurve, coupon, PriceType.DIRTY);

    //    System.out.println(clean + "\t" + dirty + "\t" + (clean - dirty));
    //    System.out.println(cds.getAccrued() * coupon + "\t" + cds.getAccuredDays());

    //Numbers from Excel
    assertEquals("upfrount", 0.018566047, clean, 1e-9);
    assertEquals("cashSettled", 57882.69024, dirty * NOTIONAL, 1e-9 * NOTIONAL);

  }

}