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T_Swaption.cs
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/*
Copyright (C) 2009 Philippe Real ([email protected])
This file is part of QLNet Project http://qlnet.sourceforge.net/
QLNet is free software: you can redistribute it and/or modify it
under the terms of the QLNet license. You should have received a
copy of the license along with this program; if not, license is
available online at <http://qlnet.sourceforge.net/License.html>.
QLNet is a based on QuantLib, a free-software/open-source library
for financial quantitative analysts and developers - http://quantlib.org/
The QuantLib license is available online at http://quantlib.org/license.shtml.
This program is distributed in the hope that it will be useful, but WITHOUT
ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS
FOR A PARTICULAR PURPOSE. See the license for more details.
*/
using System;
using System.Collections.Generic;
using System.Linq;
using System.Text;
using Microsoft.VisualStudio.TestTools.UnitTesting;
using QLNet;
namespace TestSuite
{
[TestClass()]
public class T_Swaption
{
public Period[] exercises = new Period[] { new Period(1, TimeUnit.Years),
new Period(2, TimeUnit.Years),
new Period(3, TimeUnit.Years),
new Period(5, TimeUnit.Years),
new Period(7, TimeUnit.Years),
new Period(10, TimeUnit.Years) };
public Period[] lengths = new Period[] { new Period(1, TimeUnit.Years),
new Period(2, TimeUnit.Years),
new Period(3, TimeUnit.Years),
new Period(5, TimeUnit.Years),
new Period(7, TimeUnit.Years),
new Period(10, TimeUnit.Years),
new Period(15, TimeUnit.Years),
new Period(20, TimeUnit.Years) };
public VanillaSwap.Type[] type = new VanillaSwap.Type[] { VanillaSwap.Type.Receiver, VanillaSwap.Type.Payer };
public class CommonVars
{
// global data
public Date today, settlement;
public double nominal;
public Calendar calendar;
public BusinessDayConvention fixedConvention, floatingConvention;
public Frequency fixedFrequency;
public DayCounter fixedDayCount;
public Period floatingTenor;
public IborIndex index;
public int settlementDays;
public RelinkableHandle<YieldTermStructure> termStructure = new RelinkableHandle<YieldTermStructure>();
// cleanup
// SavedSettings backup;
// utilities
public Swaption makeSwaption(VanillaSwap swap,Date exercise,double volatility,Settlement.Type settlementType)
{
Handle<Quote> vol=new Handle <Quote>(new SimpleQuote(volatility));
IPricingEngine engine=new BlackSwaptionEngine(termStructure, vol);
Swaption result=new Swaption(swap,new EuropeanExercise(exercise),settlementType);
result.setPricingEngine(engine);
return result;
}
public Swaption makeSwaption(VanillaSwap swap,Date exercise,double volatility)
{
Settlement.Type settlementType= Settlement.Type.Physical;
Handle<Quote> vol=new Handle <Quote>(new SimpleQuote(volatility));
IPricingEngine engine=new BlackSwaptionEngine(termStructure, vol);
Swaption result=new Swaption(swap,new EuropeanExercise(exercise),settlementType);
result.setPricingEngine(engine);
return result;
}
public IPricingEngine makeEngine(double volatility)
{
Handle<Quote> h = new Handle < Quote >( new SimpleQuote(volatility));
return (IPricingEngine)(new BlackSwaptionEngine(termStructure, h));
}
public CommonVars()
{
settlementDays = 2;
nominal = 1000000.0;
fixedConvention = BusinessDayConvention.Unadjusted;
fixedFrequency = Frequency.Annual;
fixedDayCount = new Thirty360();
index =new Euribor6M(termStructure);
floatingConvention = index.businessDayConvention();
floatingTenor = index.tenor();
calendar = index.fixingCalendar();
today = calendar.adjust(Date.Today);
Settings.setEvaluationDate(today);
settlement = calendar.advance(today, settlementDays, TimeUnit.Days);
termStructure.linkTo(Utilities.flatRate(settlement, 0.05, new Actual365Fixed()));
}
}
[TestMethod()]
public void testStrikeDependency()
{
//("Testing swaption dependency on strike......");
CommonVars vars = new CommonVars();
double[] strikes = new double[] { 0.03, 0.04, 0.05, 0.06, 0.07 };
for (int i = 0; i < exercises.Length; i++) {
for (int j = 0; j < lengths.Length; j++) {
for (int k=0; k < type.Length ; k++) {
Date exerciseDate = vars.calendar.advance(vars.today,
exercises[i]);
Date startDate = vars.calendar.advance(exerciseDate,
vars.settlementDays, TimeUnit.Days);
// store the results for different rates...
List<double> values = new InitializedList<double>(strikes.Length);
List<double> values_cash = new InitializedList<double>(strikes.Length);
double vol = 0.20;
for (int l=0; l< strikes.Length ; l++) {
VanillaSwap swap = new MakeVanillaSwap(lengths[j], vars.index, strikes[l])
.withEffectiveDate(startDate)
.withFloatingLegSpread(0.0)
.withType(type[k]);
Swaption swaption = vars.makeSwaption(swap,exerciseDate,vol);
// FLOATING_POINT_EXCEPTION
values[l]=swaption.NPV();
Swaption swaption_cash = vars.makeSwaption( swap,exerciseDate,vol,
Settlement.Type.Cash);
values_cash[l]=swaption_cash.NPV();
}
// and check that they go the right way
if (type[k]==VanillaSwap.Type.Payer) {
for (int z = 0; z < values.Count - 1; z++)
{
if( values[z]<values[z+1]){
Assert.Fail("NPV of Payer swaption with delivery settlement"+
"is increasing with the strike:" +
"\noption tenor: " + exercises[i] +
"\noption date: " + exerciseDate +
"\nvolatility: " + vol +
"\nswap tenor: " + lengths[j] +
"\nvalue: " + values[z ] +" at strike: " + strikes[z ] +
"\nvalue: " + values[z+1] + " at strike: " + strikes[z+1]);
}
}
for (int z = 0; z < values_cash.Count - 1; z++)
{
if (values_cash[z] < values_cash[z + 1])
{
Assert.Fail("NPV of Payer swaption with cash settlement" +
"is increasing with the strike:" +
"\noption tenor: " + exercises[i] +
"\noption date: " + exerciseDate +
"\nvolatility: " + vol +
"\nswap tenor: " + lengths[j] +
"\nvalue: " + values_cash[z] + " at strike: " + strikes[z] +
"\nvalue: " + values_cash[z + 1] + " at strike: " + strikes[z + 1]);
}
}
}
else {
for (int z = 0; z < values.Count - 1; z++){
if (values[z] > values[z+1]){
Assert.Fail("NPV of Receiver swaption with delivery settlement" +
"is increasing with the strike:" +
"\noption tenor: " + exercises[i] +
"\noption date: " + exerciseDate +
"\nvolatility: " + vol +
"\nswap tenor: " + lengths[j] +
"\nvalue: " + values[z] + " at strike: " + strikes[z] +
"\nvalue: " + values[z + 1] + " at strike: " + strikes[z + 1]);
}
}
for (int z = 0; z < values_cash.Count - 1; z++)
{
if (values[z] > values[z+1])
{
Assert.Fail("NPV of Receiver swaption with cash settlement" +
"is increasing with the strike:" +
"\noption tenor: " + exercises[i] +
"\noption date: " + exerciseDate +
"\nvolatility: " + vol +
"\nswap tenor: " + lengths[j] +
"\nvalue: " + values_cash[z] + " at strike: " + strikes[z] +
"\nvalue: " + values_cash[z + 1] + " at strike: " + strikes[z + 1]);
}
}
}
}
}
}
}
[TestMethod()]
public void testSpreadDependency()
{
//"Testing swaption dependency on spread...";
CommonVars vars = new CommonVars();
double[] spreads = { -0.002, -0.001, 0.0, 0.001, 0.002 };
for (int i=0; i<exercises.Length ; i++) {
for (int j=0; j<lengths.Length ; j++) {
for (int k=0; k<type.Length ; k++) {
Date exerciseDate = vars.calendar.advance(vars.today,
exercises[i]);
Date startDate =
vars.calendar.advance(exerciseDate,
vars.settlementDays,TimeUnit.Days);
// store the results for different rates...
List<double> values=new InitializedList<double>(spreads.Length);
List<double> values_cash = new InitializedList<double>(spreads.Length);
for (int l=0; l<spreads.Length; l++) {
VanillaSwap swap =
new MakeVanillaSwap(lengths[j], vars.index, 0.06)
.withEffectiveDate(startDate)
.withFloatingLegSpread(spreads[l])
.withType(type[k]);
Swaption swaption =
vars.makeSwaption(swap,exerciseDate,0.20);
// FLOATING_POINT_EXCEPTION
values[l]=swaption.NPV();
Swaption swaption_cash =
vars.makeSwaption(swap,exerciseDate,0.20,
Settlement.Type.Cash);
values_cash[l]=swaption_cash.NPV();
}
// and check that they go the right way
if (type[k]==VanillaSwap.Type.Payer) {
for (int n = 0; n < spreads.Length - 1; n++)
{
if (values[n] > values[n + 1])
Assert.Fail("NPV is decreasing with the spread " +
"in a payer swaption (physical delivered):" +
"\nexercise date: " + exerciseDate +
"\nlength: " + lengths[j] +
"\nvalue: " + values[n] + " for spread: " + spreads[n] +
"\nvalue: " + values[n + 1] + " for spread: " + spreads[n + 1]);
if (values_cash[n] > values_cash[n + 1])
Assert.Fail("NPV is decreasing with the spread " +
"in a payer swaption (cash delivered):" +
"\nexercise date: " + exerciseDate +
"\nlength: " + lengths[j] +
"\nvalue: " + values_cash[n] + " for spread: " + spreads[n] +
"\nvalue: " + values_cash[n + 1] + " for spread: " + spreads[n + 1]);
}
}
else
{
for (int n = 0; n < spreads.Length - 1; n++)
{
if (values[n] < values[n + 1])
Assert.Fail("NPV is increasing with the spread " +
"in a receiver swaption (physical delivered):" +
"\nexercise date: " + exerciseDate +
"\nlength: " + lengths[j] +
"\nvalue: " + values[n] + " for spread: " + spreads[n] +
"\nvalue: " + values[n + 1] + " for spread: " + spreads[n + 1]);
if (values_cash[n] < values_cash[n+1])
Assert.Fail("NPV is increasing with the spread " +
"in a receiver swaption (cash delivered):" +
"\nexercise date: " + exerciseDate +
"\nlength: " + lengths[j] +
"\nvalue: " + values_cash[n ] + " for spread: " + spreads[n] +
"\nvalue: " + values_cash[n+1] + " for spread: " + spreads[n+1]);
}
}
}
}
}
}
[TestMethod()]
public void testSpreadTreatment()
{
//"Testing swaption treatment of spread...";
CommonVars vars = new CommonVars();
double[] spreads = { -0.002, -0.001, 0.0, 0.001, 0.002 };
for (int i=0; i<exercises.Length; i++) {
for (int j=0; j<lengths.Length ; j++) {
for (int k=0; k<type.Length ; k++) {
Date exerciseDate = vars.calendar.advance(vars.today,
exercises[i]);
Date startDate =
vars.calendar.advance(exerciseDate,
vars.settlementDays,TimeUnit.Days);
for (int l=0; l<spreads.Length ; l++) {
VanillaSwap swap =
new MakeVanillaSwap(lengths[j], vars.index, 0.06)
.withEffectiveDate(startDate)
.withFloatingLegSpread(spreads[l])
.withType(type[k]);
// FLOATING_POINT_EXCEPTION
double correction = spreads[l] *
swap.floatingLegBPS() /
swap.fixedLegBPS();
VanillaSwap equivalentSwap =
new MakeVanillaSwap(lengths[j], vars.index, 0.06+correction)
.withEffectiveDate(startDate)
.withFloatingLegSpread(0.0)
.withType(type[k]);
Swaption swaption1 =
vars.makeSwaption(swap,exerciseDate,0.20);
Swaption swaption2 =
vars.makeSwaption(equivalentSwap,exerciseDate,0.20);
Swaption swaption1_cash =
vars.makeSwaption(swap,exerciseDate,0.20,
Settlement.Type.Cash);
Swaption swaption2_cash =
vars.makeSwaption(equivalentSwap,exerciseDate,0.20,
Settlement.Type.Cash);
if (Math.Abs(swaption1.NPV()-swaption2.NPV()) > 1.0e-6)
Assert.Fail("wrong spread treatment:" +
"\nexercise: " + exerciseDate +
"\nlength: " + lengths[j] +
"\ntype " + type[k] +
"\nspread: " + spreads[l] +
"\noriginal swaption value: " + swaption1.NPV() +
"\nequivalent swaption value: " + swaption2.NPV());
if (Math.Abs(swaption1_cash.NPV()-swaption2_cash.NPV()) > 1.0e-6)
Assert.Fail("wrong spread treatment:" +
"\nexercise date: " + exerciseDate +
"\nlength: " + lengths[j] +
//"\npay " + (type[k] ? "fixed" : "floating") +
"\nspread: " + spreads[l] +
"\nvalue of original swaption: " + swaption1_cash.NPV() +
"\nvalue of equivalent swaption: " + swaption2_cash.NPV());
}
}
}
}
}
[TestMethod()]
public void testCachedValue()
{
//"Testing swaption value against cached value...");
CommonVars vars = new CommonVars();
vars.today = new Date(13, 3, 2002);
vars.settlement = new Date(15, 3, 2002);
Settings.setEvaluationDate( vars.today);
vars.termStructure.linkTo(Utilities.flatRate(vars.settlement, 0.05, new Actual365Fixed()));
Date exerciseDate = vars.calendar.advance(vars.settlement, new Period(5,TimeUnit.Years));
Date startDate = vars.calendar.advance(exerciseDate,
vars.settlementDays,TimeUnit.Days);
VanillaSwap swap =
new MakeVanillaSwap(new Period(10,TimeUnit.Years), vars.index, 0.06)
.withEffectiveDate(startDate);
Swaption swaption =
vars.makeSwaption(swap, exerciseDate, 0.20);
//#if QL_USE_INDEXED_COUPON
double cachedNPV = 0.036418158579;
//#else
// double cachedNPV = 0.036421429684;
//#endif
// FLOATING_POINT_EXCEPTION
if (Math.Abs(swaption.NPV()-cachedNPV) > 1.0e-12)
Assert.Fail ("failed to reproduce cached swaption value:\n" +
//QL_FIXED + std::setprecision(12) +
"\ncalculated: " + swaption.NPV() +
"\nexpected: " + cachedNPV);
}
[TestMethod()]
public void testVega()
{
//"Testing swaption vega...";
CommonVars vars = new CommonVars();
Settlement.Type[] types = { Settlement.Type.Physical, Settlement.Type.Cash };
double[] strikes = { 0.03, 0.04, 0.05, 0.06, 0.07 };
double[] vols = { 0.01, 0.20, 0.30, 0.70, 0.90 };
double shift = 1e-8;
for (int i=0; i<exercises.Length ; i++) {
Date exerciseDate = vars.calendar.advance(vars.today, exercises[i]);
// A VERIFIER§§§§
Date startDate = vars.calendar.advance(exerciseDate,
vars.settlementDays, TimeUnit.Days);
for (int j=0; j<lengths.Length ; j++) {
for (int t=0; t<strikes.Length ; t++) {
for (int h=0; h<type.Length ; h++) {
VanillaSwap swap =
new MakeVanillaSwap(lengths[j], vars.index, strikes[t])
.withEffectiveDate(startDate)
.withFloatingLegSpread(0.0)
.withType(type[h]);
for (int u=0; u<vols.Length ; u++) {
Swaption swaption =
vars.makeSwaption(swap, exerciseDate,
vols[u], types[h]);
// FLOATING_POINT_EXCEPTION
Swaption swaption1 =
vars.makeSwaption(swap, exerciseDate,
vols[u]-shift, types[h]);
Swaption swaption2 =
vars.makeSwaption(swap, exerciseDate,
vols[u]+shift, types[h]);
double swaptionNPV = swaption.NPV();
double numericalVegaPerPoint =
(swaption2.NPV()-swaption1.NPV())/(200.0*shift);
// check only relevant vega
if (numericalVegaPerPoint/swaptionNPV>1.0e-7) {
double analyticalVegaPerPoint =
(double)swaption.result("vega")/100.0;
double discrepancy = Math.Abs(analyticalVegaPerPoint
- numericalVegaPerPoint);
discrepancy /= numericalVegaPerPoint;
double tolerance = 0.015;
if (discrepancy > tolerance)
Assert.Fail ("failed to compute swaption vega:" +
"\n option tenor: " + exercises[i] +
"\n volatility: " + vols[u] +
"\n option type: " + swaption.type() +
"\n swap tenor: " + lengths[j] +
"\n strike: " + strikes[t] +
"\n settlement: " + types[h] +
"\n nominal: " + swaption.underlyingSwap().nominal +
"\n npv: " + swaptionNPV +
"\n calculated vega: " + analyticalVegaPerPoint +
"\n expected vega: " + numericalVegaPerPoint +
"\n discrepancy: " + discrepancy +
"\n tolerance: " + tolerance);
}
}
}
}
}
}
}
[TestMethod()]
public void testImpliedVolatility()
{
//"Testing implied volatility for swaptions...";
CommonVars vars=new CommonVars();
int maxEvaluations = 100;
double tolerance = 1.0e-08;
Settlement.Type[] types = { Settlement.Type.Physical, Settlement.Type.Cash };
// test data
double[] strikes = { 0.02, 0.03, 0.04, 0.05, 0.06, 0.07 };
double[] vols = { 0.01, 0.05, 0.10, 0.20, 0.30, 0.70, 0.90 };
for (int i = 0; i < exercises.Length; i++)
{
for (int j = 0; j < lengths.Length; j++)
{
Date exerciseDate = vars.calendar.advance(vars.today, exercises[i]);
Date startDate = vars.calendar.advance(exerciseDate,
vars.settlementDays, TimeUnit.Days);
Date maturity = vars.calendar.advance(startDate, lengths[j],
vars.floatingConvention);
for (int t = 0; t < strikes.Length; t++)
{
for (int k = 0; k < type.Length; k++)
{
VanillaSwap swap = new MakeVanillaSwap(lengths[j], vars.index, strikes[t])
.withEffectiveDate(startDate)
.withFloatingLegSpread(0.0)
.withType(type[k]);
for (int h = 0; h < types.Length; h++)
{
for (int u = 0; u < vols.Length; u++)
{
Swaption swaption = vars.makeSwaption(swap, exerciseDate,
vols[u], types[h]);
// Black price
double value = swaption.NPV();
double implVol = 0.0;
try
{
implVol =
swaption.impliedVolatility(value,
vars.termStructure,
0.10,
tolerance,
maxEvaluations);
}
catch (System.Exception e)
{
// couldn't bracket?
swaption.setPricingEngine(vars.makeEngine(0.0));
double value2 = swaption.NPV();
if (Math.Abs(value - value2) < tolerance)
{
// ok, just skip:
continue;
}
// otherwise, report error
Assert.Fail("implied vol failure: " +
exercises[i] + "x" + lengths[j] + " " + type[k] +
"\nsettlement: " + types[h] +
"\nstrike " + strikes[t] +
"\natm level: " + swap.fairRate() +
"\nvol: " + vols[u] +
"\nprice: " + value +
"\n" + e.Message.ToString());
}
if (Math.Abs(implVol - vols[u]) > tolerance)
{
// the difference might not matter
swaption.setPricingEngine(vars.makeEngine(implVol));
double value2 = swaption.NPV();
if (Math.Abs(value - value2) > tolerance)
{
Assert.Fail("implied vol failure: " +
exercises[i] + "x" + lengths[j] + " " + type[k] +
"\nsettlement: " + types[h] +
"\nstrike " + strikes[t] +
"\natm level: " + swap.fairRate() +
"\nvol: " + vols[u] +
"\nprice: " + value +
"\nimplied vol: " + implVol +
"\nimplied price: " + value2);
}
}
}
}
}
}
}
}
}
public void T_Swaption_suite()
{
testStrikeDependency();
testSpreadDependency();
testSpreadTreatment();
testCachedValue();
testVega();
testImpliedVolatility();
}
}
}