public ObjectiveFunction(double target, SimpleQuote quote, IPricingEngine engine, CreditDefaultSwap.Results results)
{
target_ = target;
quote_ = quote;
engine_ = engine;
results_ = results;
}
public override void fetchResults(IPricingEngineResults r)
{
base.fetchResults(r);
CreditDefaultSwap.Results results = r as CreditDefaultSwap.Results;
Utils.QL_REQUIRE(results != null, () => "wrong result type");
fairSpread_ = results.fairSpread;
fairUpfront_ = results.fairUpfront;
couponLegBPS_ = results.couponLegBPS;
couponLegNPV_ = results.couponLegNPV;
defaultLegNPV_ = results.defaultLegNPV;
upfrontNPV_ = results.upfrontNPV;
upfrontBPS_ = results.upfrontBPS;
}
//! Conventional/standard upfront-to-spread conversion
/*! Under a standard ISDA model and a set of standardised
* instrument characteristics, it is the running only quoted
* spread that will make a CDS contract have an NPV of 0 when
* quoted for that running only spread. Refer to: "ISDA
* Standard CDS converter specification." May 2009.
*
* The conventional recovery rate to apply in the calculation
* is as specified by ISDA, not necessarily equal to the
* market-quoted one. It is typically 0.4 for SeniorSec and
* 0.2 for subordinate.
*
* \note The conversion employs a flat hazard rate. As a result,
* you will not recover the market quotes.
*
* \note This method performs the calculation with the
* instrument characteristics. It will coincide with
* the ISDA calculation if your object has the standard
* characteristics. Notably:
* - The calendar should have no bank holidays, just
* weekends.
* - The yield curve should be LIBOR piecewise ant
* in fwd rates, with a discount factor of 1 on the
* calculation date, which coincides with the trade
* date.
* - Convention should be Following for yield curve and
* contract cashflows.
* - The CDS should pay accrued and mature on standard
* IMM dates, settle on trade date +1 and upfront
* settle on trade date +3.
*/
public double?conventionalSpread(double conventionalRecovery,
Handle <YieldTermStructure> discountCurve,
DayCounter dayCounter)
{
double flatHazardRate = impliedHazardRate(0.0,
discountCurve,
dayCounter,
conventionalRecovery);
Handle <DefaultProbabilityTermStructure> probability = new Handle <DefaultProbabilityTermStructure>(
new FlatHazardRate(0, new WeekendsOnly(), flatHazardRate, dayCounter));
MidPointCdsEngine engine = new MidPointCdsEngine(probability, conventionalRecovery, discountCurve, true);
setupArguments(engine.getArguments());
engine.calculate();
CreditDefaultSwap.Results results = engine.getResults() as CreditDefaultSwap.Results;
return(results.fairSpread);
}
public double impliedHazardRate(double targetNPV,
Handle <YieldTermStructure> discountCurve,
DayCounter dayCounter,
double recoveryRate = 0.4,
double accuracy = 1.0e-6)
{
SimpleQuote flatRate = new SimpleQuote(0.0);
Handle <DefaultProbabilityTermStructure> probability = new Handle <DefaultProbabilityTermStructure>(
new FlatHazardRate(0, new WeekendsOnly(), new Handle <Quote>(flatRate), dayCounter));
MidPointCdsEngine engine = new MidPointCdsEngine(probability, recoveryRate, discountCurve);
setupArguments(engine.getArguments());
CreditDefaultSwap.Results results = engine.getResults() as CreditDefaultSwap.Results;
ObjectiveFunction f = new ObjectiveFunction(targetNPV, flatRate, engine, results);
double guess = 0.001;
double step = guess * 0.1;
return(new Brent().solve(f, accuracy, guess, step));
}
/// <summary>
/// Implied hazard rate calculation
/// </summary>
/// <remarks>
/// This method performs the calculation with the
/// instrument characteristics. It will coincide with
/// the ISDA calculation if your object has the standard
/// characteristics. Notably:
/// - The calendar should have no bank holidays, just
/// weekends.
/// - The yield curve should be LIBOR piecewise ant
/// in fwd rates, with a discount factor of 1 on the
/// calculation date, which coincides with the trade
/// date.
/// - Convention should be Following for yield curve and
/// contract cashflows.
/// - The CDS should pay accrued and mature on standard
/// IMM dates, settle on trade date +1 and upfront
/// settle on trade date +3.
/// </remarks>
/// <param name="targetNPV"></param>
/// <param name="discountCurve"></param>
/// <param name="dayCounter"></param>
/// <param name="recoveryRate"></param>
/// <param name="accuracy"></param>
/// <returns></returns>
public double impliedHazardRate(double targetNPV,
Handle <YieldTermStructure> discountCurve,
DayCounter dayCounter,
double recoveryRate = 0.4,
double accuracy = 1.0e-6,
PricingModel model = PricingModel.Midpoint)
{
SimpleQuote flatRate = new SimpleQuote(0.0);
Handle <DefaultProbabilityTermStructure> probability = new Handle <DefaultProbabilityTermStructure>(
new FlatHazardRate(0, new WeekendsOnly(), new Handle <Quote>(flatRate), dayCounter));
IPricingEngine engine = null;
switch (model)
{
case PricingModel.Midpoint:
engine = new MidPointCdsEngine(probability, recoveryRate, discountCurve);
break;
case PricingModel.ISDA:
engine = new IsdaCdsEngine(probability, recoveryRate, discountCurve);
break;
default:
Utils.QL_FAIL("unknown CDS pricing model: " + model);
break;
}
setupArguments(engine.getArguments());
CreditDefaultSwap.Results results = engine.getResults() as CreditDefaultSwap.Results;
ObjectiveFunction f = new ObjectiveFunction(targetNPV, flatRate, engine, results);
double guess = runningSpread_ / (1 - recoveryRate) * 365.0 / 360.0;
double step = guess * 0.1;
return(new Brent().solve(f, accuracy, guess, step));
}
