LiborForwardModelProcess makeProcess(Matrix volaComp)
{
int factors = (volaComp.empty() ? 1 : volaComp.columns());
IborIndex index = makeIndex();
LiborForwardModelProcess process= new LiborForwardModelProcess(len, index,null);
LfmCovarianceParameterization fct=new LfmHullWhiteParameterization(
process,
makeCapVolCurve(Settings.evaluationDate()),
volaComp * Matrix.transpose(volaComp), factors);
process.setCovarParam(fct);
return process;
}
public void testCapletPricing()
{
//"Testing caplet pricing...";
//SavedSettings backup;
const int size = 10;
#if QL_USE_INDEXED_COUPON
const double tolerance = 1e-5;
#else
const double tolerance = 1e-12;
#endif
IborIndex index = makeIndex();
LiborForwardModelProcess process=new LiborForwardModelProcess(size, index);
// set-up pricing engine
OptionletVolatilityStructure capVolCurve = makeCapVolCurve(Settings.evaluationDate());
Vector variances = new LfmHullWhiteParameterization(process, capVolCurve).covariance(0.0,null).diagonal();
LmVolatilityModel volaModel = new LmFixedVolatilityModel(Vector.Sqrt(variances),process.fixingTimes());
LmCorrelationModel corrModel = new LmExponentialCorrelationModel(size, 0.3);
IAffineModel model = (IAffineModel)(new LiborForwardModel(process, volaModel, corrModel));
Handle<YieldTermStructure> termStructure = process.index().forwardingTermStructure();
AnalyticCapFloorEngine engine1 = new AnalyticCapFloorEngine(model, termStructure);
Cap cap1 = new Cap( process.cashFlows(),
new InitializedList<double>(size, 0.04));
cap1.setPricingEngine(engine1);
const double expected = 0.015853935178;
double calculated = cap1.NPV();
if (Math.Abs(expected - calculated) > tolerance)
Assert.Fail("Failed to reproduce npv"
+ "\n calculated: " + calculated
+ "\n expected: " + expected);
}