public virtual void test_recoverVolatility() { int nSteps = TREE_DATA.NumberOfSteps; double spot = TREE_DATA.Spot; double timeToExpiry = TREE_DATA.getTime(nSteps); double dfDom = RATE_PROVIDER.discountFactors(USD).discountFactor(timeToExpiry); double dfFor = RATE_PROVIDER.discountFactors(EUR).discountFactor(timeToExpiry); double forward = spot * dfFor / dfDom; for (int i = 0; i < 100; ++i) { double strike = spot * (0.8 + 0.004 * i); OptionFunction func = EuropeanVanillaOptionFunction.of(strike, timeToExpiry, PutCall.CALL, nSteps); double price = TREE.optionPrice(func, TREE_DATA); double impliedVol = BlackFormulaRepository.impliedVolatility(price / dfDom, forward, strike, timeToExpiry, true); double orgVol = VOLS.volatility(FX_PRODUCT.CurrencyPair, timeToExpiry, strike, forward); assertEquals(impliedVol, orgVol, orgVol * 0.1); // large tol double priceMrkt = TREE.optionPrice(func, TREE_DATA_MRKT); double impliedVolMrkt = BlackFormulaRepository.impliedVolatility(priceMrkt / dfDom, forward, strike, timeToExpiry, true); double orgVolMrkt = VOLS_MRKT.volatility(FX_PRODUCT.CurrencyPair, timeToExpiry, strike, forward); assertEquals(impliedVolMrkt, orgVolMrkt, orgVolMrkt * 0.1); // large tol } }