public void testFlatTermVolatilityStripping2()
{
// Testing forward/forward vol stripping from flat term vol
// surface using OptionletStripper2 class...");
CommonVars vars = new CommonVars();
Settings.setEvaluationDate(Date.Today);
vars.setFlatTermVolCurve();
vars.setFlatTermVolSurface();
IborIndex iborIndex = new Euribor6M(vars.yieldTermStructure);
// optionletstripper1
OptionletStripper1 optionletStripper1 = new OptionletStripper1(vars.flatTermVolSurface,
iborIndex, null, vars.accuracy);
StrippedOptionletAdapter strippedOptionletAdapter1 = new StrippedOptionletAdapter(optionletStripper1);
Handle <OptionletVolatilityStructure> vol1 = new Handle <OptionletVolatilityStructure>(strippedOptionletAdapter1);
vol1.link.enableExtrapolation();
// optionletstripper2
OptionletStripper optionletStripper2 = new OptionletStripper2(optionletStripper1, vars.flatTermVolCurve);
StrippedOptionletAdapter strippedOptionletAdapter2 = new StrippedOptionletAdapter(optionletStripper2);
Handle <OptionletVolatilityStructure> vol2 = new Handle <OptionletVolatilityStructure>(strippedOptionletAdapter2);
vol2.link.enableExtrapolation();
// consistency check: diff(stripped vol1-stripped vol2)
for (int strikeIndex = 0; strikeIndex < vars.strikes.Count; ++strikeIndex)
{
for (int tenorIndex = 0; tenorIndex < vars.optionTenors.Count; ++tenorIndex)
{
double strippedVol1 = vol1.link.volatility(vars.optionTenors[tenorIndex], vars.strikes[strikeIndex], true);
double strippedVol2 = vol2.link.volatility(vars.optionTenors[tenorIndex], vars.strikes[strikeIndex], true);
// vol from flat vol surface (for comparison only)
double flatVol = vars.flatTermVolSurface.volatility(vars.optionTenors[tenorIndex], vars.strikes[strikeIndex], true);
double error = Math.Abs(strippedVol1 - strippedVol2);
if (error > vars.tolerance)
{
QAssert.Fail("\noption tenor: " + vars.optionTenors[tenorIndex] +
"\nstrike: " + vars.strikes[strikeIndex] +
"\nstripped vol1: " + strippedVol1 +
"\nstripped vol2: " + strippedVol2 +
"\nflat vol: " + flatVol +
"\nerror: " + error +
"\ntolerance: " + vars.tolerance);
}
}
}
}
public void testFlatTermVolatilityStripping1()
{
// Testing forward/forward vol stripping from flat term vol
// surface using OptionletStripper1 class...
CommonVars vars = new CommonVars();
Settings.setEvaluationDate(new Date(28, Month.October, 2013));
vars.setFlatTermVolSurface();
IborIndex iborIndex = new Euribor6M(vars.yieldTermStructure);
OptionletStripper optionletStripper1 = new OptionletStripper1(vars.flatTermVolSurface,
iborIndex, null, vars.accuracy);
StrippedOptionletAdapter strippedOptionletAdapter = new StrippedOptionletAdapter(optionletStripper1);
Handle <OptionletVolatilityStructure> vol = new Handle <OptionletVolatilityStructure>(strippedOptionletAdapter);
vol.link.enableExtrapolation();
BlackCapFloorEngine strippedVolEngine = new BlackCapFloorEngine(vars.yieldTermStructure, vol);
CapFloor cap;
for (int tenorIndex = 0; tenorIndex < vars.optionTenors.Count; ++tenorIndex)
{
for (int strikeIndex = 0; strikeIndex < vars.strikes.Count; ++strikeIndex)
{
cap = new MakeCapFloor(CapFloorType.Cap, vars.optionTenors[tenorIndex], iborIndex,
vars.strikes[strikeIndex], new Period(0, TimeUnit.Days))
.withPricingEngine(strippedVolEngine);
double priceFromStrippedVolatility = cap.NPV();
IPricingEngine blackCapFloorEngineConstantVolatility = new BlackCapFloorEngine(vars.yieldTermStructure,
vars.termV[tenorIndex, strikeIndex]);
cap.setPricingEngine(blackCapFloorEngineConstantVolatility);
double priceFromConstantVolatility = cap.NPV();
double error = Math.Abs(priceFromStrippedVolatility - priceFromConstantVolatility);
if (error > vars.tolerance)
{
QAssert.Fail("\noption tenor: " + vars.optionTenors[tenorIndex] +
"\nstrike: " + vars.strikes[strikeIndex] +
"\nstripped vol price: " + priceFromStrippedVolatility +
"\nconstant vol price: " + priceFromConstantVolatility +
"\nerror: " + error +
"\ntolerance: " + vars.tolerance);
}
}
}
}