/// <summary>
/// Helper function used by the master function that validates all
/// constructor arguments.
/// Exceptions: ArgumentNullException, ArgumentException.
/// </summary>
/// <param name="atmBootstrapEngine">An existing At-the-Money (ATM)
/// Caplet bootstrap engine.
/// </param>
private static void ValidateATMBootstrapEngine
(VolatilityCurve atmBootstrapEngine)
{
// Check for a correct engine type.
if (atmBootstrapEngine.Equals(null) ||
!atmBootstrapEngine.IsATMBootstrap)
{
// Invalid engine type.
const string errorMessage =
"Invalid engine passed as an ATM Caplet Bootstrap engine";
throw new ArgumentException
(errorMessage, nameof(atmBootstrapEngine));
}
// Check that the Caplet Bootstrap engine is in a calibrated state.
if (atmBootstrapEngine.IsBootstrapSuccessful)
{
}
else
{
// Engine is not in a calibrated state.
const string errorMessage =
"ATM Caplet Bootstrap engine is not calibrated";
throw new ArgumentException
(errorMessage, nameof(atmBootstrapEngine));
}
}
/// <summary>
/// Constructor for <see cref="ExpiryInterpolatedVolatility"/>
/// class.
/// </summary>
/// <param name="bootstrapEngine">The Bootstrap Engine
/// that contains the results of the bootstrap.
/// Precondition: IsCapletBootstrapSuccessful method applied to the
/// Caplet bootstrap engine returns "true".</param>
/// <param name="expiryInterpolationType">Type of one dimensional
/// interpolation that will be applied to the expiry.</param>
public ExpiryInterpolatedVolatility
(VolatilityCurve bootstrapEngine,
ExpiryInterpolationType expiryInterpolationType)
{
ValidateConstructorArguments(bootstrapEngine);
InitialisePrivateFields
(bootstrapEngine, expiryInterpolationType);
}
/// <summary>
/// Master function used to validate all constructor arguments.
/// </summary>
/// /// <param name="atmBootstrapEngine">An existing At-the-Money (ATM)
/// Caplet bootstrap engine.
/// </param>
/// <param name="smileSettings">An existing Smile settings
/// object that will be used in the calibration of the Caplet smile.
/// </param>
/// <param name="fixedStrikeBootstrapEngines">List of existing fixed
/// strike Caplet bootstrap engines.
/// when applied to each Caplet bootstrap engine in the list.</param>
/// <param name="handle">Unique name that will identify the object
/// that will be instantiated.</param>
private static void ValidateConstructorArguments
(VolatilityCurve atmBootstrapEngine,
SmileCalibrationSettings smileSettings,
ICollection <VolatilityCurve> fixedStrikeBootstrapEngines,
string handle)
{
ValidateATMBootstrapEngine(atmBootstrapEngine);
ValidateSmileSettings(smileSettings);
ValidateFixedStrikeBootstrapEngines(fixedStrikeBootstrapEngines);
ValidateHandle(handle);
}
/// <summary>
/// Helper function used to initialise the private fields.
/// </summary>
/// <param name="volatilityCurve">The Bootstrap engine
/// that contains the results of the bootstrap.</param>
/// <param name="expiryInterpolationType">Type of the expiry
/// interpolation.
/// Example: Linear interpolation.</param>
private void InitialisePrivateFields
(VolatilityCurve volatilityCurve,
ExpiryInterpolationType expiryInterpolationType)
{
// Initialise the Calculation Date.
_calculationDate =
volatilityCurve.GetBaseDate();
// Set the x and y arrays for the one dimensional interpolation.
var results
= volatilityCurve.BootstrapResults.Results;
IDayCounter dayCountObj = Actual365.Instance;
var tempXArray = new List <double>();
var tempYArray = new List <double>();
var count = 1;
foreach (var expiry in results.Keys)
{
var timeToExpiry = dayCountObj.YearFraction
(_calculationDate, expiry);
tempXArray.Add(timeToExpiry);
tempYArray.Add(decimal.ToDouble(results[expiry]));
// Record the first and last time to expiry and available
// bootstrap Caplet volatility.
if (count == 1)
{
_firstExpiry = (decimal)timeToExpiry;
_firstVolatility = results[expiry];
}
_lastVolatility = results[expiry];
_lastExpiry = (decimal)timeToExpiry;
++count;
}
double[] xArray = tempXArray.ToArray();
double[] yArray = tempYArray.ToArray();
// Initialise the one dimensional interpolation object.
switch (expiryInterpolationType)
{
case ExpiryInterpolationType.CubicHermiteSpline:
_expiryInterpolationObj =
new CubicHermiteSplineInterpolation();
_expiryInterpolationObj.Initialize(xArray, yArray);
break;
default: // Linear interpolation
_expiryInterpolationObj = new LinearInterpolation();
_expiryInterpolationObj.Initialize(xArray, yArray);
break;
}
}
/// <summary>
/// Constructor for the class <see cref="CapletSmileCalibrationEngine"/>
/// </summary>
/// <param name="atmBootstrapEngine">An existing At-the-Money (ATM)
/// Caplet bootstrap engine.
/// Precondition: Method IsCapletBootstrapSuccessful returns true.
/// </param>
/// <param name="capletSmileSettings">An existing Caplet Smile settings
/// object that will be used in the calibration of the Caplet smile.
/// </param>
/// <param name="fixedStrikeBootstrapEngines">List of existing fixed
/// strike Caplet bootstrap engines.
/// Precondition: Method IsCapletBootstrapSuccessful returns true
/// when applied to each Caplet bootstrap engine in the list.</param>
/// <param name="handle">Unique name that will identify the object
/// that will be instantiated.
/// Precondition: Non empty string.</param>
public SmileCalibrationEngine
(VolatilityCurve atmBootstrapEngine,
SmileCalibrationSettings capletSmileSettings,
List <VolatilityCurve> fixedStrikeBootstrapEngines,
string handle)
{
ValidateConstructorArguments
(atmBootstrapEngine,
capletSmileSettings,
fixedStrikeBootstrapEngines,
handle);
InitialisePrivateFields
(atmBootstrapEngine,
capletSmileSettings,
fixedStrikeBootstrapEngines,
handle);
}
/// <summary>
/// Master function used to initialise all private fields.
/// </summary>
/// <param name="atmBootstrapEngine">An existing At-the-Money (ATM)
/// Caplet bootstrap engine.</param>
/// <param name="capletSmileSettings">An existing Caplet Smile settings
/// object that will be used in the calibration of the Caplet smile.
/// </param>
/// <param name="fixedStrikeBootstrapEngines">List of existing fixed
/// strike Caplet bootstrap engines.</param>
/// <param name="handle">Unique name that will identify the object
/// that will be instantiated.</param>
private void InitialisePrivateFields
(VolatilityCurve atmBootstrapEngine,
SmileCalibrationSettings capletSmileSettings,
List <VolatilityCurve> fixedStrikeBootstrapEngines,
string handle)
{
_atmBootstrapEngine = atmBootstrapEngine;
_smileSettings = capletSmileSettings;
_fixedStrikeBootstrapEngines = fixedStrikeBootstrapEngines;
Handle = handle;
InitialiseSABRSettings();
// Initialise the remaining private fields to an appropriate
// default.
_assetPrice = -1.0m;
_excerciseTime = -1.0m;
_sabrEngine = null;
_sabrStrikes = null;
_sabrVolatilities = null;
}
/// <summary>
/// Helper function used to validate the arguments to the constructor.
/// Exception: ArgumentException.
/// </summary>
/// <param name="capletCurve">The Caplet bootstrap engine
/// that contains the results of the bootstrap.
/// Precondition: IsCapletBootstrapSuccessful method applied to the
/// Caplet bootstrap engine returns "true".</param>
private static void ValidateConstructorArguments
(VolatilityCurve capletCurve)
{
// Check for a valid Caplet Bootstrap Engine.
if (capletCurve == null)
{
const string errorMessage =
"Volatility curve expiry interpolation found a NULL calibration engine";
throw new ArgumentException(errorMessage);
}
if (capletCurve.IsBootstrapSuccessful)
{
}
else
{
const string errorMessage =
"Volatility curve expiry interpolation requires a successful bootstrap";
throw new ArgumentException(errorMessage);
}
}
/// <summary>
/// Calculates the specified model data.
/// </summary>
/// <param name="modelData">The model data.</param>
/// <returns></returns>
public override BasicAssetValuation Calculate(IAssetControllerData modelData)
{
ModelData = modelData;
switch (ModelIdentifier)
{
case "CapAsset":
AnalyticsModel = new RateOptionAssetAnalytic();
break;
case "DiscountCapAsset":
AnalyticsModel = new RateOptionAssetAnalytic();
break;
}
var metrics = MetricsHelper.GetMetricsToEvaluate(Metrics, AnalyticsModel.Metrics);
// Determine if DFAM has been requested - if so thats all we evaluate - every other metric is ignored
var bEvalLastForewardVolatiltiy = false;
if (metrics.Contains(RateOptionMetrics.VolatilityAtExpiry))
{
bEvalLastForewardVolatiltiy = true;
metrics.RemoveAll(
metricItem => metricItem != RateOptionMetrics.VolatilityAtExpiry);
}
var metricsToEvaluate = metrics.ToArray();
IRateOptionAssetParameters analyticModelParameters = new RateOptionAssetParameters();
AnalyticResults = new RateOptionAssetResults();
var marketEnvironment = modelData.MarketEnvironment;
//1. instantiate curve
if (marketEnvironment.GetType() == typeof(SimpleMarketEnvironment))
{
DiscountCurve = (IRateCurve)((ISimpleMarketEnvironment)marketEnvironment).GetPricingStructure();
DiscountCurveName = DiscountCurve.GetPricingStructureId().UniqueIdentifier;
ForecastCurve = DiscountCurve;
ForecastCurveName = DiscountCurveName;
var volatilities = CreateList((double)Volatility, TimesToExpiry.Count);
analyticModelParameters.Volatilities = volatilities;
}
if (marketEnvironment.GetType() == typeof(SwapLegEnvironment))
{
DiscountCurve = ((ISwapLegEnvironment)marketEnvironment).GetDiscountRateCurve();
DiscountCurveName = DiscountCurve.GetPricingStructureId().UniqueIdentifier;
ForecastCurve = ((ISwapLegEnvironment)marketEnvironment).GetForecastRateCurve();
ForecastCurveName = ForecastCurve.GetPricingStructureId().UniqueIdentifier;
VolatilityCurve = ((ISwapLegEnvironment)marketEnvironment).GetVolatilitySurface();
VolatilityCurveName = VolatilityCurve.GetPricingStructureId().UniqueIdentifier;
analyticModelParameters.Volatilities = GetVolatilties(VolatilityCurve, TimesToExpiry, Strikes);
}
if (marketEnvironment.GetType() == typeof(MarketEnvironment))
{
if (DiscountCurveName != null)
{
DiscountCurve = (IRateCurve)modelData.MarketEnvironment.GetPricingStructure(DiscountCurveName);
}
if (ForecastCurveName != null)
{
ForecastCurve = (IRateCurve)modelData.MarketEnvironment.GetPricingStructure(ForecastCurveName);
}
if (VolatilityCurveName != null)
{
VolatilityCurve = (IVolatilitySurface)modelData.MarketEnvironment.GetPricingStructure(VolatilityCurveName);
}
analyticModelParameters.Volatilities = GetVolatilties(VolatilityCurve, TimesToExpiry, Strikes);
}
analyticModelParameters.FlatVolatility = Volatility;
//2. Set the premium
if (Premium == null)
{
Premium = CalculatePremium();
}
if (Premium != null)
{
analyticModelParameters.Premium = (double)Premium;
}
if (bEvalLastForewardVolatiltiy)
{
//3. Set the start diccount factor and vol.
analyticModelParameters.PremiumPaymentDiscountFactor =
GetDiscountFactor(DiscountCurve, AdjustedStartDate, modelData.ValuationDate);
//4. Get the respective year fractions
analyticModelParameters.YearFractions = GetYearFractions();
//5. Set the anaytic input parameters and Calculate the respective metrics
AnalyticResults =
AnalyticsModel.Calculate <IRateOptionAssetResults, RateOptionAssetResults>(analyticModelParameters,
metricsToEvaluate);
}
else
{
analyticModelParameters.IsDiscounted = false;
analyticModelParameters.IsPut = !IsCap;
analyticModelParameters.Notionals = Notionals;
analyticModelParameters.ForwardRates = ResetRates;
//2. Get the discount factors
analyticModelParameters.PaymentDiscountFactors =
GetDiscountFactors(DiscountCurve, AdjustedPeriodDates.ToArray(), modelData.ValuationDate);
analyticModelParameters.ForecastDiscountFactors =
GetDiscountFactors(ForecastCurve, AdjustedPeriodDates.ToArray(), modelData.ValuationDate);
//3. Get the respective year fractions
analyticModelParameters.YearFractions = GetYearFractions();
analyticModelParameters.Strikes = Strikes;
analyticModelParameters.Rate = (double)CalculateImpliedParRate(modelData.ValuationDate);
analyticModelParameters.TimesToExpiry = TimesToExpiry;
//5. Set the anaytic input parameters and Calculate the respective metrics
AnalyticResults =
AnalyticsModel.Calculate <IRateOptionAssetResults, RateOptionAssetResults>(analyticModelParameters,
metricsToEvaluate);
}
return(GetValue(AnalyticResults));
}
