public void testOption()
{
/* a zero-coupon convertible bond with no credit spread is
* equivalent to a call option. */
// Testing zero-coupon convertible bonds against vanilla option
CommonVars vars = new CommonVars();
Exercise euExercise = new EuropeanExercise(vars.maturityDate);
vars.settlementDays = 0;
int timeSteps = 2001;
IPricingEngine engine = new BinomialConvertibleEngine <CoxRossRubinstein>(vars.process, timeSteps);
IPricingEngine vanillaEngine = new BinomialVanillaEngine <CoxRossRubinstein>(vars.process, timeSteps);
vars.creditSpread.linkTo(new SimpleQuote(0.0));
double conversionStrike = vars.redemption / vars.conversionRatio;
StrikedTypePayoff payoff = new PlainVanillaPayoff(Option.Type.Call, conversionStrike);
Schedule schedule = new MakeSchedule().from(vars.issueDate)
.to(vars.maturityDate)
.withFrequency(Frequency.Once)
.withCalendar(vars.calendar)
.backwards().value();
ConvertibleZeroCouponBond euZero = new ConvertibleZeroCouponBond(euExercise, vars.conversionRatio,
vars.no_dividends, vars.no_callability,
vars.creditSpread,
vars.issueDate, vars.settlementDays,
vars.dayCounter, schedule,
vars.redemption);
euZero.setPricingEngine(engine);
VanillaOption euOption = new VanillaOption(payoff, euExercise);
euOption.setPricingEngine(vanillaEngine);
double tolerance = 5.0e-2 * (vars.faceAmount / 100.0);
double expected = vars.faceAmount / 100.0 *
(vars.redemption * vars.riskFreeRate.link.discount(vars.maturityDate)
+ vars.conversionRatio * euOption.NPV());
double error = Math.Abs(euZero.NPV() - expected);
if (error > tolerance)
{
QAssert.Fail("failed to reproduce plain-option price:"
+ "\n calculated: " + euZero.NPV()
+ "\n expected: " + expected
+ "\n error: " + error
+ "\n tolerance: " + tolerance);
}
}
public void testBond()
{
/* when deeply out-of-the-money, the value of the convertible bond
* should equal that of the underlying plain-vanilla bond. */
// Testing out-of-the-money convertible bonds against vanilla bonds
CommonVars vars = new CommonVars();
vars.conversionRatio = 1.0e-16;
Exercise euExercise = new EuropeanExercise(vars.maturityDate);
Exercise amExercise = new AmericanExercise(vars.issueDate, vars.maturityDate);
int timeSteps = 1001;
IPricingEngine engine = new BinomialConvertibleEngine <CoxRossRubinstein>(vars.process, timeSteps);
Handle <YieldTermStructure> discountCurve = new Handle <YieldTermStructure>(new ForwardSpreadedTermStructure(vars.riskFreeRate, vars.creditSpread));
// zero-coupon
Schedule schedule = new MakeSchedule().from(vars.issueDate)
.to(vars.maturityDate)
.withFrequency(Frequency.Once)
.withCalendar(vars.calendar)
.backwards().value();
ConvertibleZeroCouponBond euZero = new ConvertibleZeroCouponBond(euExercise, vars.conversionRatio,
vars.no_dividends, vars.no_callability,
vars.creditSpread,
vars.issueDate, vars.settlementDays,
vars.dayCounter, schedule,
vars.redemption);
euZero.setPricingEngine(engine);
ConvertibleZeroCouponBond amZero = new ConvertibleZeroCouponBond(amExercise, vars.conversionRatio,
vars.no_dividends, vars.no_callability,
vars.creditSpread,
vars.issueDate, vars.settlementDays,
vars.dayCounter, schedule,
vars.redemption);
amZero.setPricingEngine(engine);
ZeroCouponBond zero = new ZeroCouponBond(vars.settlementDays, vars.calendar,
100.0, vars.maturityDate,
BusinessDayConvention.Following, vars.redemption, vars.issueDate);
IPricingEngine bondEngine = new DiscountingBondEngine(discountCurve);
zero.setPricingEngine(bondEngine);
double tolerance = 1.0e-2 * (vars.faceAmount / 100.0);
double error = Math.Abs(euZero.NPV() - zero.settlementValue());
if (error > tolerance)
{
QAssert.Fail("failed to reproduce zero-coupon bond price:"
+ "\n calculated: " + euZero.NPV()
+ "\n expected: " + zero.settlementValue()
+ "\n error: " + error);
}
error = Math.Abs(amZero.NPV() - zero.settlementValue());
if (error > tolerance)
{
QAssert.Fail("failed to reproduce zero-coupon bond price:"
+ "\n calculated: " + amZero.NPV()
+ "\n expected: " + zero.settlementValue()
+ "\n error: " + error);
}
// coupon
List <double> coupons = new InitializedList <double>(1, 0.05);
schedule = new MakeSchedule().from(vars.issueDate)
.to(vars.maturityDate)
.withFrequency(vars.frequency)
.withCalendar(vars.calendar)
.backwards().value();
ConvertibleFixedCouponBond euFixed = new ConvertibleFixedCouponBond(euExercise, vars.conversionRatio,
vars.no_dividends, vars.no_callability,
vars.creditSpread,
vars.issueDate, vars.settlementDays,
coupons, vars.dayCounter,
schedule, vars.redemption);
euFixed.setPricingEngine(engine);
ConvertibleFixedCouponBond amFixed = new ConvertibleFixedCouponBond(amExercise, vars.conversionRatio,
vars.no_dividends, vars.no_callability,
vars.creditSpread,
vars.issueDate, vars.settlementDays,
coupons, vars.dayCounter,
schedule, vars.redemption);
amFixed.setPricingEngine(engine);
FixedRateBond fixedBond = new FixedRateBond(vars.settlementDays, vars.faceAmount, schedule,
coupons, vars.dayCounter, BusinessDayConvention.Following,
vars.redemption, vars.issueDate);
fixedBond.setPricingEngine(bondEngine);
tolerance = 2.0e-2 * (vars.faceAmount / 100.0);
error = Math.Abs(euFixed.NPV() - fixedBond.settlementValue());
if (error > tolerance)
{
QAssert.Fail("failed to reproduce fixed-coupon bond price:"
+ "\n calculated: " + euFixed.NPV()
+ "\n expected: " + fixedBond.settlementValue()
+ "\n error: " + error);
}
error = Math.Abs(amFixed.NPV() - fixedBond.settlementValue());
if (error > tolerance)
{
QAssert.Fail("failed to reproduce fixed-coupon bond price:"
+ "\n calculated: " + amFixed.NPV()
+ "\n expected: " + fixedBond.settlementValue()
+ "\n error: " + error);
}
// floating-rate
IborIndex index = new Euribor1Y(discountCurve);
int fixingDays = 2;
List <double> gearings = new InitializedList <double>(1, 1.0);
List <double> spreads = new List <double>();
ConvertibleFloatingRateBond euFloating = new ConvertibleFloatingRateBond(euExercise, vars.conversionRatio,
vars.no_dividends, vars.no_callability,
vars.creditSpread,
vars.issueDate, vars.settlementDays,
index, fixingDays, spreads,
vars.dayCounter, schedule,
vars.redemption);
euFloating.setPricingEngine(engine);
ConvertibleFloatingRateBond amFloating = new ConvertibleFloatingRateBond(amExercise, vars.conversionRatio,
vars.no_dividends, vars.no_callability,
vars.creditSpread,
vars.issueDate, vars.settlementDays,
index, fixingDays, spreads,
vars.dayCounter, schedule,
vars.redemption);
amFloating.setPricingEngine(engine);
IborCouponPricer pricer = new BlackIborCouponPricer(new Handle <OptionletVolatilityStructure>());
Schedule floatSchedule = new Schedule(vars.issueDate, vars.maturityDate,
new Period(vars.frequency),
vars.calendar, BusinessDayConvention.Following, BusinessDayConvention.Following,
DateGeneration.Rule.Backward, false);
FloatingRateBond floating = new FloatingRateBond(vars.settlementDays, vars.faceAmount, floatSchedule,
index, vars.dayCounter, BusinessDayConvention.Following, fixingDays,
gearings, spreads,
new List <double?>(), new List <double?>(),
false,
vars.redemption, vars.issueDate);
floating.setPricingEngine(bondEngine);
Utils.setCouponPricer(floating.cashflows(), pricer);
tolerance = 2.0e-2 * (vars.faceAmount / 100.0);
error = Math.Abs(euFloating.NPV() - floating.settlementValue());
if (error > tolerance)
{
QAssert.Fail("failed to reproduce floating-rate bond price:"
+ "\n calculated: " + euFloating.NPV()
+ "\n expected: " + floating.settlementValue()
+ "\n error: " + error);
}
error = Math.Abs(amFloating.NPV() - floating.settlementValue());
if (error > tolerance)
{
QAssert.Fail("failed to reproduce floating-rate bond price:"
+ "\n calculated: " + amFloating.NPV()
+ "\n expected: " + floating.settlementValue()
+ "\n error: " + error);
}
}
internal static global::System.Runtime.InteropServices.HandleRef getCPtr(ConvertibleZeroCouponBond obj)
{
return((obj == null) ? new global::System.Runtime.InteropServices.HandleRef(null, global::System.IntPtr.Zero) : obj.swigCPtr);
}
internal static global::System.Runtime.InteropServices.HandleRef getCPtr(ConvertibleZeroCouponBond obj) {
return (obj == null) ? new global::System.Runtime.InteropServices.HandleRef(null, global::System.IntPtr.Zero) : obj.swigCPtr;
}
