test_FinIborCapVolCurve.py

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# Copyright (C) 2018, 2019, 2020 Dominic O'Kane
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from financepy.market.volatility.ibor_cap_vol_curve import IborCapVolCurve
from financepy.utils.date import Date
from financepy.utils.day_count import DayCountTypes
import numpy as np


def test_FinCapVolCurve():
    # Reproduces example in Table 32.1 of Hull Book
    value_dt = Date(1, 1, 2020)

    capVolDates = []
    capletVolTenor = "1Y"
    num_periods = 10
    capletDt = value_dt

    capVolDates.append(value_dt)

    for i in range(0, num_periods):
        capletDt = capletDt.add_tenor(capletVolTenor)
        capVolDates.append(capletDt)

    capVolatilities = [0.0, 15.50, 18.25, 17.91, 17.74, 17.27,
                       16.79, 16.30, 16.01, 15.76, 15.54]
    capVolatilities = np.array(capVolatilities)/100.0

    day_count_type = DayCountTypes.ACT_ACT_ISDA
    volCurve = IborCapVolCurve(value_dt,
                               capVolDates,
                               capVolatilities,
                               day_count_type)

    dt = Date(1, 1, 2020)
    capFloorVol = volCurve.cap_vol(dt)
    capFloorLetVol = volCurve.caplet_vol(dt)
    assert round(capFloorVol * 100.0, 2) == 15.5
    assert round(capFloorLetVol * 100.0, 2) == 15.5

    dt = Date(1, 1, 2022)
    capFloorVol = volCurve.cap_vol(dt)
    capFloorLetVol = volCurve.caplet_vol(dt)
    assert round(capFloorVol * 100.0, 2) == 18.25
    assert round(capFloorLetVol * 100.0, 2) == 20.64

    dt = Date(1, 1, 2024)
    capFloorVol = volCurve.cap_vol(dt)
    capFloorLetVol = volCurve.caplet_vol(dt)
    assert round(capFloorVol * 100.0, 2) == 17.740
    assert round(capFloorLetVol * 100.0, 2) == 17.22

    dt = Date(1, 1, 2026)
    capFloorVol = volCurve.cap_vol(dt)
    capFloorLetVol = volCurve.caplet_vol(dt)
    assert round(capFloorVol * 100.0, 2) == 16.790
    assert round(capFloorLetVol * 100.0, 2) == 14.15

    dt = Date(1, 1, 2028)
    capFloorVol = volCurve.cap_vol(dt)
    capFloorLetVol = volCurve.caplet_vol(dt)
    assert round(capFloorVol * 100.0, 2) == 16.010
    assert round(capFloorLetVol * 100.0, 2) == 13.81