/// <summary>
/// Calibrates the SABR engine for the Caplet smile at the particular
/// expiry.
/// Exception: System.Exception
/// </summary>
/// <param name="logger">The logger.</param>
/// <param name="cache">The cache.</param>
/// <param name="nameSpace">The clients namespace</param>
/// <param name="expiry">Caplet expiry.</param>
private void CalibrateSABREngine(ILogger logger, ICoreCache cache, string nameSpace, DateTime expiry)
{
// Set the inputs for the SABR calibration engine.
SetStrikesForSABREngine();
SetVolatilitiesForSABREngine(expiry);
SetExerciseTimeForSABREngine(expiry);
SetATMDataForSABREngine(logger, cache, nameSpace, expiry);
// Calibrate the SABR engine.
_sabrEngine = new SABRCalibrationEngine
(SABREngineHandle,
_sabrSettings,
_sabrStrikes,
_sabrVolatilities,
_assetPrice,
_excerciseTime);
_sabrEngine.CalibrateSABRModel();
// Check the status of the SABR calibration.
if (_sabrEngine.IsSABRModelCalibrated)
{
}
else
{
var errorMessage =
"SABR calibration failed at Caplet expiry: " +
expiry;
throw new Exception(errorMessage);
}
}
/// <summary>
/// Create a full calibration model.This version uses the volatility grid to generate an engine
/// for each swap tenor (row values)
/// </summary>
/// <param name="volatilityGrid">The vols grid</param>
/// <param name="assetGrid">The asset grid</param>
/// <param name="settings">The SABR settings</param>
/// <param name="calibrationEngineId">The id of this engine</param>
/// <param name="optionExpiry">The ATM pointer</param>
private static SortedDictionary <SABRKey, SABRCalibrationEngine> BuildEngineCollection(SwaptionDataMatrix volatilityGrid,
ForwardRatesMatrix assetGrid, SABRCalibrationSettings settings, string calibrationEngineId, string optionExpiry)
{
var engineCollection = new SortedDictionary <SABRKey, SABRCalibrationEngine>(new SABRKey());
// Generate a new entry in the engineCollection for each row in the volatility grid
foreach (string tenor in volatilityGrid.GetTenors())
{
var assetPrice = assetGrid.GetAssetPrice(optionExpiry, tenor);
var exerciseTime = (decimal)SABRHelper.GenerateDayValue(optionExpiry, 365.0d);
// Generate the Vols and Strikes lists for the engine
List <decimal> vols = volatilityGrid.GetVolatility(tenor).ToList();
List <decimal> strikes = volatilityGrid.GetStrikes().Select(strike => assetPrice + strike).ToList();
// Only add a new Calibration Engine (and Calibrate it) if the vols are greater than 0
if (!SABRHelper.ValidateData(vols))
{
continue;
}
// Create a new instance of the engine
var calibrationEngine =
new SABRCalibrationEngine(calibrationEngineId, settings, strikes, vols, assetPrice, exerciseTime);
// Calibrate the engine
calibrationEngine.CalibrateSABRModel();
// Add the new engine to our collection
var key = new SABRKey(optionExpiry, tenor);
engineCollection.Add(key, calibrationEngine);
}
return(engineCollection);
}
/// <summary>
/// Initialises the specified strikes.
/// </summary>
/// <param name="strikes">The strikes.</param>
/// <param name="volatilities">The volatilities.</param>
public void Initialize(double[] strikes, double[] volatilities)
{
// Convert the x-array to the Decimal data type.
var strikeValues = new List <decimal>();
InitHandles(ExpiryTime);
decimal expiry = Convert.ToDecimal(ExpiryTime);
var vols = new List <Decimal>();
int n = volatilities.Length;
for (int jdx = 0; jdx < n; jdx++)
{
if (volatilities[jdx] > 0)
{
strikeValues.Add((decimal)strikes[jdx] * AssetPrice);
vols.Add(Convert.ToDecimal(volatilities[jdx]));
}
}
// Calibrate and cache SABR handle for each expiry.
CalibrationEngine = new SABRCalibrationEngine(SettingsHandle,
CalibrationSettings, strikeValues, vols, AssetPrice, expiry);
CalibrationEngine.CalibrateSABRModel();
string expiryTime = ExpiryTime + "Y";
EngineHandles.Add(new SABRKey(expiryTime, Tenor), CalibrationEngine);
IsCalibrated = CalibrationEngine.IsSABRModelCalibrated;
}
public void TestCalibrateSABRModel()
{
DateTime start = DateTime.Now;
_calibrationEngine.CalibrateSABRModel();
DateTime end = DateTime.Now;
double x = end.Subtract(start).Seconds;
Debug.Print("%d seconds", x);
// Test: calibration status.
Assert.IsTrue(_calibrationEngine.IsSABRModelCalibrated);
// Test: Calculation of the ATM slope.
_expected = -0.2724637m;
_actual = _calibrationEngine.ATMSlope;
Assert.AreEqual(decimal.ToDouble(_expected),
decimal.ToDouble(_actual),
decimal.ToDouble(_tolerance));
// Test: Initial guess for the transformed SABR parameter theta.
_expected = 1.85616576m;
_actual = _calibrationEngine.ThetaGuess;
Assert.AreEqual(decimal.ToDouble(_expected),
decimal.ToDouble(_actual),
decimal.ToDouble(_tolerance));
// Test: Initial guess for the transformed SABR parameter mu.
_expected = 0.99883966m;
_actual = _calibrationEngine.MuGuess;
Assert.AreEqual(decimal.ToDouble(_expected),
decimal.ToDouble(_actual),
decimal.ToDouble(_tolerance));
// Test: SABR parameter alpha.
_expected = 0.5477212m;
_actual = _calibrationEngine.GetSABRParameters.Alpha;
Assert.AreEqual(decimal.ToDouble(_expected),
decimal.ToDouble(_actual),
decimal.ToDouble(_tolerance));
// Test: SABR parameter beta.
_expected = 0.85m;
_actual = _calibrationEngine.GetSABRParameters.Beta;
Assert.AreEqual(decimal.ToDouble(_expected),
decimal.ToDouble(_actual));
// Test: SABR parameter nu.
_expected = 1.23498996m;
_actual = _calibrationEngine.GetSABRParameters.Nu;
_nu = _actual;
Assert.AreEqual(decimal.ToDouble(_expected),
decimal.ToDouble(_actual),
decimal.ToDouble(_tolerance));
// Test: SABR parameter rho.
_expected = -0.2724164m;
_actual = _calibrationEngine.GetSABRParameters.Rho;
_rho = _actual;
Assert.AreEqual(decimal.ToDouble(_expected),
decimal.ToDouble(_actual),
decimal.ToDouble(_tolerance));
}
