//double fixedRate = 0.001; //double notional = 10000.0; //double recoveryRate = 0.4; //////////////////////////////////////////////////////////////////////////////////////////////////// /// <summary> Calculates the cds. </summary> /// /// <param name="msg"> [in,out] The message. </param> /// <param name="fixedRate"> The fixed rate. </param> /// <param name="notional"> The notional. </param> /// <param name="recoveryRate"> The recovery rate. </param> /// /// <returns> True if it succeeds, false if it fails. </returns> //////////////////////////////////////////////////////////////////////////////////////////////////// public bool CalcCDS(ref CreditDefaultSwapRequestMessage msg, double fixedRate, double notional, double recoveryRate) { // Testing fair-spread calculation for credit-default swaps... using (SavedSettings backup = new SavedSettings()) { // Initialize curves Calendar calendar = new TARGET(); Date today = calendar.adjust(Date.Today); Settings.setEvaluationDate(today); Handle <Quote> hazardRate = new Handle <Quote>(new SimpleQuote(0.01234)); RelinkableHandle <DefaultProbabilityTermStructure> probabilityCurve = new RelinkableHandle <DefaultProbabilityTermStructure>(); probabilityCurve.linkTo(new FlatHazardRate(0, calendar, hazardRate, new Actual360())); RelinkableHandle <YieldTermStructure> discountCurve = new RelinkableHandle <YieldTermStructure>(); discountCurve.linkTo(new FlatForward(today, 0.06, new Actual360())); // Build the schedule Date issueDate = calendar.advance(today, -1, TimeUnit.Years); Date maturity = calendar.advance(issueDate, 10, TimeUnit.Years); BusinessDayConvention convention = BusinessDayConvention.Following; Schedule schedule = new MakeSchedule().from(issueDate) .to(maturity) .withFrequency(Frequency.Quarterly) .withCalendar(calendar) .withTerminationDateConvention(convention) .withRule(DateGeneration.Rule.TwentiethIMM).value(); // Build the CDS DayCounter dayCount = new Actual360(); IPricingEngine engine = new MidPointCdsEngine(probabilityCurve, recoveryRate, discountCurve); CreditDefaultSwap cds = new CreditDefaultSwap(Protection.Side.Seller, notional, fixedRate, schedule, convention, dayCount, true, true); cds.setPricingEngine(engine); double fairRate = cds.fairSpread(); CreditDefaultSwap fairCds = new CreditDefaultSwap(Protection.Side.Seller, notional, fairRate, schedule, convention, dayCount, true, true); fairCds.setPricingEngine(engine); double fairNPV = fairCds.NPV(); double tolerance = 1e-10; msg.fairRate = fairRate; msg.fairNPV = fairNPV; return(Math.Abs(fairNPV) <= tolerance); } }
public void testFairUpfront() { // Testing fair-upfront calculation for credit-default swaps... using (SavedSettings backup = new SavedSettings()) { // Initialize curves Calendar calendar = new TARGET(); Date today = calendar.adjust(Date.Today); Settings.setEvaluationDate(today); Handle <Quote> hazardRate = new Handle <Quote>(new SimpleQuote(0.01234)); RelinkableHandle <DefaultProbabilityTermStructure> probabilityCurve = new RelinkableHandle <DefaultProbabilityTermStructure>(); probabilityCurve.linkTo(new FlatHazardRate(0, calendar, hazardRate, new Actual360())); RelinkableHandle <YieldTermStructure> discountCurve = new RelinkableHandle <YieldTermStructure>(); discountCurve.linkTo(new FlatForward(today, 0.06, new Actual360())); // Build the schedule Date issueDate = today; Date maturity = calendar.advance(issueDate, 10, TimeUnit.Years); BusinessDayConvention convention = BusinessDayConvention.Following; Schedule schedule = new MakeSchedule().from(issueDate) .to(maturity) .withFrequency(Frequency.Quarterly) .withCalendar(calendar) .withTerminationDateConvention(convention) .withRule(DateGeneration.Rule.TwentiethIMM).value(); // Build the CDS double fixedRate = 0.05; double upfront = 0.001; DayCounter dayCount = new Actual360(); double notional = 10000.0; double recoveryRate = 0.4; IPricingEngine engine = new MidPointCdsEngine(probabilityCurve, recoveryRate, discountCurve, true); CreditDefaultSwap cds = new CreditDefaultSwap(Protection.Side.Seller, notional, upfront, fixedRate, schedule, convention, dayCount, true, true); cds.setPricingEngine(engine); double fairUpfront = cds.fairUpfront(); CreditDefaultSwap fairCds = new CreditDefaultSwap(Protection.Side.Seller, notional, fairUpfront, fixedRate, schedule, convention, dayCount, true, true); fairCds.setPricingEngine(engine); double fairNPV = fairCds.NPV(); double tolerance = 1e-10; if (Math.Abs(fairNPV) > tolerance) { Assert.Fail( "Failed to reproduce null NPV with calculated fair upfront\n" + " calculated upfront: " + fairUpfront + "\n" + " calculated NPV: " + fairNPV); } // same with null upfront to begin with upfront = 0.0; CreditDefaultSwap cds2 = new CreditDefaultSwap(Protection.Side.Seller, notional, upfront, fixedRate, schedule, convention, dayCount, true, true); cds2.setPricingEngine(engine); fairUpfront = cds2.fairUpfront(); CreditDefaultSwap fairCds2 = new CreditDefaultSwap(Protection.Side.Seller, notional, fairUpfront, fixedRate, schedule, convention, dayCount, true, true); fairCds2.setPricingEngine(engine); fairNPV = fairCds2.NPV(); if (Math.Abs(fairNPV) > tolerance) { Assert.Fail( "Failed to reproduce null NPV with calculated fair upfront\n" + " calculated upfront: " + fairUpfront + "\n" + " calculated NPV: " + fairNPV); } } }
public void testCachedValue() { // Testing credit-default swap against cached values... using (SavedSettings backup = new SavedSettings()) { // Initialize curves Settings.setEvaluationDate(new Date(9, Month.June, 2006)); Date today = Settings.evaluationDate(); Calendar calendar = new TARGET(); Handle <Quote> hazardRate = new Handle <Quote>(new SimpleQuote(0.01234)); RelinkableHandle <DefaultProbabilityTermStructure> probabilityCurve = new RelinkableHandle <DefaultProbabilityTermStructure>(); probabilityCurve.linkTo(new FlatHazardRate(0, calendar, hazardRate, new Actual360())); RelinkableHandle <YieldTermStructure> discountCurve = new RelinkableHandle <YieldTermStructure>(); discountCurve.linkTo(new FlatForward(today, 0.06, new Actual360())); // Build the schedule Date issueDate = calendar.advance(today, -1, TimeUnit.Years); Date maturity = calendar.advance(issueDate, 10, TimeUnit.Years); Frequency frequency = Frequency.Semiannual; BusinessDayConvention convention = BusinessDayConvention.ModifiedFollowing; Schedule schedule = new Schedule(issueDate, maturity, new Period(frequency), calendar, convention, convention, DateGeneration.Rule.Forward, false); // Build the CDS double fixedRate = 0.0120; DayCounter dayCount = new Actual360(); double notional = 10000.0; double recoveryRate = 0.4; CreditDefaultSwap cds = new CreditDefaultSwap(Protection.Side.Seller, notional, fixedRate, schedule, convention, dayCount, true, true); cds.setPricingEngine(new MidPointCdsEngine(probabilityCurve, recoveryRate, discountCurve)); double npv = 295.0153398; double fairRate = 0.007517539081; double calculatedNpv = cds.NPV(); double calculatedFairRate = cds.fairSpread(); double tolerance = 1.0e-7; if (Math.Abs(calculatedNpv - npv) > tolerance) { Assert.Fail( "Failed to reproduce NPV with mid-point engine\n" + " calculated NPV: " + calculatedNpv + "\n" + " expected NPV: " + npv); } if (Math.Abs(calculatedFairRate - fairRate) > tolerance) { Assert.Fail( "Failed to reproduce fair rate with mid-point engine\n" + " calculated fair rate: " + calculatedFairRate + "\n" + " expected fair rate: " + fairRate); } cds.setPricingEngine(new IntegralCdsEngine(new Period(1, TimeUnit.Days), probabilityCurve, recoveryRate, discountCurve)); calculatedNpv = cds.NPV(); calculatedFairRate = cds.fairSpread(); tolerance = 1.0e-5; if (Math.Abs(calculatedNpv - npv) > notional * tolerance * 10) { Assert.Fail( "Failed to reproduce NPV with integral engine " + "(step = 1 day)\n" + " calculated NPV: " + calculatedNpv + "\n" + " expected NPV: " + npv); } if (Math.Abs(calculatedFairRate - fairRate) > tolerance) { Assert.Fail( "Failed to reproduce fair rate with integral engine " + "(step = 1 day)\n" + " calculated fair rate: " + calculatedFairRate + "\n" + " expected fair rate: " + fairRate); } cds.setPricingEngine(new IntegralCdsEngine(new Period(1, TimeUnit.Weeks), probabilityCurve, recoveryRate, discountCurve)); calculatedNpv = cds.NPV(); calculatedFairRate = cds.fairSpread(); tolerance = 1.0e-5; if (Math.Abs(calculatedNpv - npv) > notional * tolerance * 10) { Assert.Fail( "Failed to reproduce NPV with integral engine " + "(step = 1 week)\n" + " calculated NPV: " + calculatedNpv + "\n" + " expected NPV: " + npv); } if (Math.Abs(calculatedFairRate - fairRate) > tolerance) { Assert.Fail( "Failed to reproduce fair rate with integral engine " + "(step = 1 week)\n" + " calculated fair rate: " + calculatedFairRate + "\n" + " expected fair rate: " + fairRate); } } }
public void testImpliedHazardRate() { // Testing implied hazard-rate for credit-default swaps... using (SavedSettings backup = new SavedSettings()) { // Initialize curves Calendar calendar = new TARGET(); Date today = calendar.adjust(Date.Today); Settings.setEvaluationDate(today); double h1 = 0.30, h2 = 0.40; DayCounter dayCounter = new Actual365Fixed(); List <Date> dates = new List <Date>(3); List <double> hazardRates = new List <double>(3); dates.Add(today); hazardRates.Add(h1); dates.Add(today + new Period(5, TimeUnit.Years)); hazardRates.Add(h1); dates.Add(today + new Period(10, TimeUnit.Years)); hazardRates.Add(h2); RelinkableHandle <DefaultProbabilityTermStructure> probabilityCurve = new RelinkableHandle <DefaultProbabilityTermStructure>(); probabilityCurve.linkTo(new InterpolatedHazardRateCurve <BackwardFlat>(dates, hazardRates, dayCounter)); RelinkableHandle <YieldTermStructure> discountCurve = new RelinkableHandle <YieldTermStructure>(); discountCurve.linkTo(new FlatForward(today, 0.03, new Actual360())); Frequency frequency = Frequency.Semiannual; BusinessDayConvention convention = BusinessDayConvention.ModifiedFollowing; Date issueDate = calendar.advance(today, -6, TimeUnit.Months); double fixedRate = 0.0120; DayCounter cdsDayCount = new Actual360(); double notional = 10000.0; double recoveryRate = 0.4; double?latestRate = null; for (int n = 6; n <= 10; ++n) { Date maturity = calendar.advance(issueDate, n, TimeUnit.Years); Schedule schedule = new Schedule(issueDate, maturity, new Period(frequency), calendar, convention, convention, DateGeneration.Rule.Forward, false); CreditDefaultSwap cds = new CreditDefaultSwap(Protection.Side.Seller, notional, fixedRate, schedule, convention, cdsDayCount, true, true); cds.setPricingEngine(new MidPointCdsEngine(probabilityCurve, recoveryRate, discountCurve)); double NPV = cds.NPV(); double flatRate = cds.impliedHazardRate(NPV, discountCurve, dayCounter, recoveryRate); if (flatRate < h1 || flatRate > h2) { Assert.Fail("implied hazard rate outside expected range\n" + " maturity: " + n + " years\n" + " expected minimum: " + h1 + "\n" + " expected maximum: " + h2 + "\n" + " implied rate: " + flatRate); } if (n > 6 && flatRate < latestRate) { Assert.Fail("implied hazard rate decreasing with swap maturity\n" + " maturity: " + n + " years\n" + " previous rate: " + latestRate + "\n" + " implied rate: " + flatRate); } latestRate = flatRate; RelinkableHandle <DefaultProbabilityTermStructure> probability = new RelinkableHandle <DefaultProbabilityTermStructure>(); probability.linkTo(new FlatHazardRate(today, new Handle <Quote>(new SimpleQuote(flatRate)), dayCounter)); CreditDefaultSwap cds2 = new CreditDefaultSwap(Protection.Side.Seller, notional, fixedRate, schedule, convention, cdsDayCount, true, true); cds2.setPricingEngine(new MidPointCdsEngine(probability, recoveryRate, discountCurve)); double NPV2 = cds2.NPV(); double tolerance = 1.0; if (Math.Abs(NPV - NPV2) > tolerance) { Assert.Fail("failed to reproduce NPV with implied rate\n" + " expected: " + NPV + "\n" + " calculated: " + NPV2); } } } }
public void testCachedMarketValue() { // Testing credit-default swap against cached market values... using (SavedSettings backup = new SavedSettings()) { Settings.setEvaluationDate(new Date(9, Month.June, 2006)); Date evalDate = Settings.evaluationDate(); Calendar calendar = new UnitedStates(); List <Date> discountDates = new List <Date>(); discountDates.Add(evalDate); discountDates.Add(calendar.advance(evalDate, 1, TimeUnit.Weeks, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 1, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 2, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 3, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 6, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 12, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 2, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 3, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 4, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 5, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 6, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 7, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 8, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 9, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 10, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 15, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); List <double> dfs = new List <double>(); dfs.Add(1.0); dfs.Add(0.9990151375768731); dfs.Add(0.99570502636871183); dfs.Add(0.99118260474528685); dfs.Add(0.98661167950906203); dfs.Add(0.9732592953359388); dfs.Add(0.94724424481038083); dfs.Add(0.89844996737120875); dfs.Add(0.85216647839921411); dfs.Add(0.80775477692556874); dfs.Add(0.76517289234200347); dfs.Add(0.72401019553182933); dfs.Add(0.68503909569219212); dfs.Add(0.64797499814013748); dfs.Add(0.61263171936255534); dfs.Add(0.5791942350748791); dfs.Add(0.43518868769953606); DayCounter curveDayCounter = new Actual360(); RelinkableHandle <YieldTermStructure> discountCurve = new RelinkableHandle <YieldTermStructure>(); discountCurve.linkTo(new InterpolatedDiscountCurve <LogLinear>(discountDates, dfs, curveDayCounter, null, null, null, new LogLinear())); DayCounter dayCounter = new Thirty360(); List <Date> dates = new List <Date>(); dates.Add(evalDate); dates.Add(calendar.advance(evalDate, 6, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 1, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 2, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 3, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 4, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 5, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 7, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 10, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); List <double> defaultProbabilities = new List <double>(); defaultProbabilities.Add(0.0000); defaultProbabilities.Add(0.0047); defaultProbabilities.Add(0.0093); defaultProbabilities.Add(0.0286); defaultProbabilities.Add(0.0619); defaultProbabilities.Add(0.0953); defaultProbabilities.Add(0.1508); defaultProbabilities.Add(0.2288); defaultProbabilities.Add(0.3666); List <double> hazardRates = new List <double>(); hazardRates.Add(0.0); for (int i = 1; i < dates.Count; ++i) { double t1 = dayCounter.yearFraction(dates[0], dates[i - 1]); double t2 = dayCounter.yearFraction(dates[0], dates[i]); double S1 = 1.0 - defaultProbabilities[i - 1]; double S2 = 1.0 - defaultProbabilities[i]; hazardRates.Add(Math.Log(S1 / S2) / (t2 - t1)); } RelinkableHandle <DefaultProbabilityTermStructure> piecewiseFlatHazardRate = new RelinkableHandle <DefaultProbabilityTermStructure>(); piecewiseFlatHazardRate.linkTo(new InterpolatedHazardRateCurve <BackwardFlat>(dates, hazardRates, new Thirty360())); // Testing credit default swap // Build the schedule Date issueDate = new Date(20, Month.March, 2006); Date maturity = new Date(20, Month.June, 2013); Frequency cdsFrequency = Frequency.Semiannual; BusinessDayConvention cdsConvention = BusinessDayConvention.ModifiedFollowing; Schedule schedule = new Schedule(issueDate, maturity, new Period(cdsFrequency), calendar, cdsConvention, cdsConvention, DateGeneration.Rule.Forward, false); // Build the CDS double recoveryRate = 0.25; double fixedRate = 0.0224; DayCounter dayCount = new Actual360(); double cdsNotional = 100.0; CreditDefaultSwap cds = new CreditDefaultSwap(Protection.Side.Seller, cdsNotional, fixedRate, schedule, cdsConvention, dayCount, true, true); cds.setPricingEngine(new MidPointCdsEngine(piecewiseFlatHazardRate, recoveryRate, discountCurve)); double calculatedNpv = cds.NPV(); double calculatedFairRate = cds.fairSpread(); double npv = -1.364048777; // from Bloomberg we have 98.15598868 - 100.00; double fairRate = 0.0248429452; // from Bloomberg we have 0.0258378; double tolerance = 1e-9; if (Math.Abs(npv - calculatedNpv) > tolerance) { Assert.Fail( "Failed to reproduce the npv for the given credit-default swap\n" + " computed NPV: " + calculatedNpv + "\n" + " Given NPV: " + npv); } if (Math.Abs(fairRate - calculatedFairRate) > tolerance) { Assert.Fail("Failed to reproduce the fair rate for the given credit-default swap\n" + " computed fair rate: " + calculatedFairRate + "\n" + " Given fair rate: " + fairRate); } } }
public void testImpliedHazardRate() { // Testing implied hazard-rate for credit-default swaps... SavedSettings backup = new SavedSettings(); // Initialize curves Calendar calendar = new TARGET(); Date today = calendar.adjust(Date.Today); Settings.setEvaluationDate(today); double h1 = 0.30, h2 = 0.40; DayCounter dayCounter = new Actual365Fixed(); List<Date> dates = new List<Date>(3); List<double> hazardRates = new List<double>(3); dates.Add(today); hazardRates.Add(h1); dates.Add(today + new Period(5,TimeUnit.Years)); hazardRates.Add(h1); dates.Add(today + new Period(10,TimeUnit.Years)); hazardRates.Add(h2); RelinkableHandle<DefaultProbabilityTermStructure> probabilityCurve = new RelinkableHandle<DefaultProbabilityTermStructure>(); probabilityCurve.linkTo(new InterpolatedHazardRateCurve<BackwardFlat>(dates, hazardRates, dayCounter)); RelinkableHandle<YieldTermStructure> discountCurve = new RelinkableHandle<YieldTermStructure>(); discountCurve.linkTo(new FlatForward(today,0.03,new Actual360())); Frequency frequency = Frequency.Semiannual; BusinessDayConvention convention = BusinessDayConvention.ModifiedFollowing; Date issueDate = calendar.advance(today, -6, TimeUnit.Months); double fixedRate = 0.0120; DayCounter cdsDayCount = new Actual360(); double notional = 10000.0; double recoveryRate = 0.4; double? latestRate = null; for (int n=6; n<=10; ++n) { Date maturity = calendar.advance(issueDate, n, TimeUnit.Years); Schedule schedule = new Schedule(issueDate, maturity, new Period(frequency), calendar, convention, convention, DateGeneration.Rule.Forward, false); CreditDefaultSwap cds = new CreditDefaultSwap(Protection.Side.Seller, notional, fixedRate, schedule, convention, cdsDayCount,true, true); cds.setPricingEngine(new MidPointCdsEngine(probabilityCurve, recoveryRate, discountCurve)); double NPV = cds.NPV(); double flatRate = cds.impliedHazardRate(NPV, discountCurve, dayCounter, recoveryRate); if (flatRate < h1 || flatRate > h2) { Assert.Fail("implied hazard rate outside expected range\n" + " maturity: " + n + " years\n" + " expected minimum: " + h1 + "\n" + " expected maximum: " + h2 + "\n" + " implied rate: " + flatRate); } if (n > 6 && flatRate < latestRate) { Assert.Fail("implied hazard rate decreasing with swap maturity\n" + " maturity: " + n + " years\n" + " previous rate: " + latestRate + "\n" + " implied rate: " + flatRate); } latestRate = flatRate; RelinkableHandle<DefaultProbabilityTermStructure> probability = new RelinkableHandle<DefaultProbabilityTermStructure>(); probability.linkTo(new FlatHazardRate( today,new Handle<Quote>(new SimpleQuote(flatRate)),dayCounter)); CreditDefaultSwap cds2 = new CreditDefaultSwap(Protection.Side.Seller, notional, fixedRate, schedule, convention, cdsDayCount,true, true); cds2.setPricingEngine(new MidPointCdsEngine(probability,recoveryRate,discountCurve)); double NPV2 = cds2.NPV(); double tolerance = 1.0; if (Math.Abs(NPV-NPV2) > tolerance) { Assert.Fail("failed to reproduce NPV with implied rate\n" + " expected: " + NPV + "\n" + " calculated: " + NPV2); } } }
public void testCachedMarketValue() { // Testing credit-default swap against cached market values... SavedSettings backup = new SavedSettings(); Settings.setEvaluationDate(new Date(9,Month.June,2006)); Date evalDate = Settings.evaluationDate(); Calendar calendar = new UnitedStates(); List<Date> discountDates = new List<Date>(); discountDates.Add(evalDate); discountDates.Add(calendar.advance(evalDate, 1, TimeUnit.Weeks, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 1, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 2, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 3, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 6, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate,12, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 2, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 3, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 4, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 5, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 6, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 7, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 8, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate, 9, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate,10, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); discountDates.Add(calendar.advance(evalDate,15, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); List<double> dfs = new List<double>(); dfs.Add(1.0); dfs.Add(0.9990151375768731); dfs.Add(0.99570502636871183); dfs.Add(0.99118260474528685); dfs.Add(0.98661167950906203); dfs.Add(0.9732592953359388 ); dfs.Add(0.94724424481038083); dfs.Add(0.89844996737120875 ); dfs.Add(0.85216647839921411 ); dfs.Add(0.80775477692556874 ); dfs.Add(0.76517289234200347 ); dfs.Add(0.72401019553182933 ); dfs.Add(0.68503909569219212 ); dfs.Add(0.64797499814013748 ); dfs.Add(0.61263171936255534 ); dfs.Add(0.5791942350748791 ); dfs.Add(0.43518868769953606 ); DayCounter curveDayCounter = new Actual360(); RelinkableHandle<YieldTermStructure> discountCurve = new RelinkableHandle<YieldTermStructure>(); discountCurve.linkTo( new InterpolatedDiscountCurve<LogLinear>( discountDates, dfs, curveDayCounter,null,null,null,new LogLinear() ) ); DayCounter dayCounter = new Thirty360(); List<Date> dates = new List<Date>(); dates.Add(evalDate); dates.Add(calendar.advance(evalDate, 6, TimeUnit.Months, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 1, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 2, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 3, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 4, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 5, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate, 7, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); dates.Add(calendar.advance(evalDate,10, TimeUnit.Years, BusinessDayConvention.ModifiedFollowing)); List<double> defaultProbabilities = new List<double>(); defaultProbabilities.Add(0.0000); defaultProbabilities.Add(0.0047); defaultProbabilities.Add(0.0093); defaultProbabilities.Add(0.0286); defaultProbabilities.Add(0.0619); defaultProbabilities.Add(0.0953); defaultProbabilities.Add(0.1508); defaultProbabilities.Add(0.2288); defaultProbabilities.Add(0.3666); List<double> hazardRates = new List<double>(); hazardRates.Add(0.0); for (int i=1; i<dates.Count; ++i) { double t1 = dayCounter.yearFraction(dates[0], dates[i-1]); double t2 = dayCounter.yearFraction(dates[0], dates[i]); double S1 = 1.0 - defaultProbabilities[i-1]; double S2 = 1.0 - defaultProbabilities[i]; hazardRates.Add(Math.Log(S1/S2)/(t2-t1)); } RelinkableHandle<DefaultProbabilityTermStructure> piecewiseFlatHazardRate = new RelinkableHandle<DefaultProbabilityTermStructure>(); piecewiseFlatHazardRate.linkTo(new InterpolatedHazardRateCurve<BackwardFlat>(dates,hazardRates,new Thirty360())); // Testing credit default swap // Build the schedule Date issueDate = new Date(20, Month.March, 2006); Date maturity = new Date(20, Month.June, 2013); Frequency cdsFrequency = Frequency.Semiannual; BusinessDayConvention cdsConvention = BusinessDayConvention.ModifiedFollowing; Schedule schedule = new Schedule(issueDate, maturity, new Period(cdsFrequency), calendar, cdsConvention, cdsConvention, DateGeneration.Rule.Forward, false); // Build the CDS double recoveryRate = 0.25; double fixedRate=0.0224; DayCounter dayCount= new Actual360(); double cdsNotional=100.0; CreditDefaultSwap cds = new CreditDefaultSwap(Protection.Side.Seller, cdsNotional, fixedRate, schedule, cdsConvention, dayCount, true, true); cds.setPricingEngine(new MidPointCdsEngine(piecewiseFlatHazardRate, recoveryRate,discountCurve)); double calculatedNpv = cds.NPV(); double calculatedFairRate = cds.fairSpread(); double npv = -1.364048777; // from Bloomberg we have 98.15598868 - 100.00; double fairRate = 0.0248429452; // from Bloomberg we have 0.0258378; double tolerance = 1e-9; if (Math.Abs(npv - calculatedNpv) > tolerance) Assert.Fail( "Failed to reproduce the npv for the given credit-default swap\n" + " computed NPV: " + calculatedNpv + "\n" + " Given NPV: " + npv); if ( Math.Abs( fairRate - calculatedFairRate ) > tolerance ) Assert.Fail( "Failed to reproduce the fair rate for the given credit-default swap\n" + " computed fair rate: " + calculatedFairRate + "\n" + " Given fair rate: " + fairRate ); }
public void testFairUpfront() { // Testing fair-upfront calculation for credit-default swaps... SavedSettings backup = new SavedSettings(); // Initialize curves Calendar calendar = new TARGET(); Date today = calendar.adjust(Date.Today); Settings.setEvaluationDate(today); Handle<Quote> hazardRate = new Handle<Quote>(new SimpleQuote(0.01234)); RelinkableHandle<DefaultProbabilityTermStructure> probabilityCurve = new RelinkableHandle<DefaultProbabilityTermStructure>(); probabilityCurve.linkTo(new FlatHazardRate(0, calendar, hazardRate, new Actual360())); RelinkableHandle<YieldTermStructure> discountCurve = new RelinkableHandle<YieldTermStructure>(); discountCurve.linkTo(new FlatForward(today,0.06,new Actual360())); // Build the schedule Date issueDate = today; Date maturity = calendar.advance(issueDate, 10, TimeUnit.Years); BusinessDayConvention convention = BusinessDayConvention.Following; Schedule schedule = new MakeSchedule().from(issueDate) .to(maturity) .withFrequency(Frequency.Quarterly) .withCalendar(calendar) .withTerminationDateConvention(convention) .withRule(DateGeneration.Rule.TwentiethIMM).value(); // Build the CDS double fixedRate = 0.05; double upfront = 0.001; DayCounter dayCount = new Actual360(); double notional = 10000.0; double recoveryRate = 0.4; IPricingEngine engine = new MidPointCdsEngine(probabilityCurve, recoveryRate, discountCurve, true); CreditDefaultSwap cds = new CreditDefaultSwap(Protection.Side.Seller, notional, upfront, fixedRate, schedule, convention, dayCount, true, true); cds.setPricingEngine(engine); double fairUpfront = cds.fairUpfront(); CreditDefaultSwap fairCds = new CreditDefaultSwap(Protection.Side.Seller, notional, fairUpfront, fixedRate, schedule, convention, dayCount, true, true); fairCds.setPricingEngine(engine); double fairNPV = fairCds.NPV(); double tolerance = 1e-10; if (Math.Abs(fairNPV) > tolerance) Assert.Fail( "Failed to reproduce null NPV with calculated fair upfront\n" + " calculated upfront: " + fairUpfront + "\n" + " calculated NPV: " + fairNPV); // same with null upfront to begin with upfront = 0.0; CreditDefaultSwap cds2 = new CreditDefaultSwap(Protection.Side.Seller, notional, upfront, fixedRate, schedule, convention, dayCount, true, true); cds2.setPricingEngine(engine); fairUpfront = cds2.fairUpfront(); CreditDefaultSwap fairCds2 = new CreditDefaultSwap(Protection.Side.Seller, notional, fairUpfront, fixedRate, schedule, convention, dayCount, true, true); fairCds2.setPricingEngine(engine); fairNPV = fairCds2.NPV(); if (Math.Abs(fairNPV) > tolerance) Assert.Fail( "Failed to reproduce null NPV with calculated fair upfront\n" + " calculated upfront: " + fairUpfront + "\n" + " calculated NPV: " + fairNPV); }
public void testCachedValue() { // Testing credit-default swap against cached values... SavedSettings backup = new SavedSettings(); // Initialize curves Settings.setEvaluationDate(new Date(9,Month.June,2006)); Date today = Settings.evaluationDate(); Calendar calendar = new TARGET(); Handle<Quote> hazardRate = new Handle<Quote>(new SimpleQuote(0.01234)); RelinkableHandle<DefaultProbabilityTermStructure> probabilityCurve = new RelinkableHandle<DefaultProbabilityTermStructure>(); probabilityCurve.linkTo(new FlatHazardRate(0, calendar, hazardRate, new Actual360())); RelinkableHandle<YieldTermStructure> discountCurve = new RelinkableHandle<YieldTermStructure>(); discountCurve.linkTo(new FlatForward(today,0.06,new Actual360())); // Build the schedule Date issueDate = calendar.advance(today, -1, TimeUnit.Years); Date maturity = calendar.advance(issueDate, 10, TimeUnit.Years); Frequency frequency = Frequency.Semiannual; BusinessDayConvention convention = BusinessDayConvention.ModifiedFollowing; Schedule schedule = new Schedule(issueDate, maturity, new Period(frequency), calendar, convention, convention, DateGeneration.Rule.Forward, false); // Build the CDS double fixedRate = 0.0120; DayCounter dayCount = new Actual360(); double notional = 10000.0; double recoveryRate = 0.4; CreditDefaultSwap cds = new CreditDefaultSwap(Protection.Side.Seller, notional, fixedRate, schedule, convention, dayCount, true, true); cds.setPricingEngine(new MidPointCdsEngine(probabilityCurve,recoveryRate,discountCurve)); double npv = 295.0153398; double fairRate = 0.007517539081; double calculatedNpv = cds.NPV(); double calculatedFairRate = cds.fairSpread(); double tolerance = 1.0e-7; if (Math.Abs(calculatedNpv - npv) > tolerance) Assert.Fail( "Failed to reproduce NPV with mid-point engine\n" + " calculated NPV: " + calculatedNpv + "\n" + " expected NPV: " + npv); if (Math.Abs(calculatedFairRate - fairRate) > tolerance) Assert.Fail( "Failed to reproduce fair rate with mid-point engine\n" + " calculated fair rate: " + calculatedFairRate + "\n" + " expected fair rate: " + fairRate); cds.setPricingEngine(new IntegralCdsEngine(new Period(1,TimeUnit.Days),probabilityCurve, recoveryRate,discountCurve)); calculatedNpv = cds.NPV(); calculatedFairRate = cds.fairSpread(); tolerance = 1.0e-5; if (Math.Abs(calculatedNpv - npv) > notional*tolerance*10) Assert.Fail( "Failed to reproduce NPV with integral engine " + "(step = 1 day)\n" + " calculated NPV: " + calculatedNpv + "\n" + " expected NPV: " + npv); if (Math.Abs(calculatedFairRate - fairRate) > tolerance) Assert.Fail( "Failed to reproduce fair rate with integral engine " + "(step = 1 day)\n" + " calculated fair rate: " + calculatedFairRate + "\n" + " expected fair rate: " + fairRate); cds.setPricingEngine(new IntegralCdsEngine(new Period(1,TimeUnit.Weeks),probabilityCurve,recoveryRate,discountCurve)); calculatedNpv = cds.NPV(); calculatedFairRate = cds.fairSpread(); tolerance = 1.0e-5; if (Math.Abs(calculatedNpv - npv) > notional*tolerance*10) Assert.Fail( "Failed to reproduce NPV with integral engine " +"(step = 1 week)\n" + " calculated NPV: " + calculatedNpv + "\n" + " expected NPV: " + npv); if (Math.Abs(calculatedFairRate - fairRate) > tolerance) Assert.Fail( "Failed to reproduce fair rate with integral engine " +"(step = 1 week)\n" + " calculated fair rate: " + calculatedFairRate + "\n" + " expected fair rate: " + fairRate); }