public double CZNewton(double start, double v0, double v1, double mat, double kappa, double theta, double lambda, double rho, double sigma,
double K, double r, double q, double[] xs, double[] ws, double[] xt, double[] wt, int Nt, double B0, double B1, int ACNum, double tol,
double A, double B, double C, double D, string DoubleType)
{
// Parameters
HParam param0;
param0.kappa = kappa;
param0.theta = theta;
param0.sigma = sigma;
param0.v0 = v0;
param0.rho = rho;
param0.lambda = lambda;
HParam param1;
param1.kappa = kappa;
param1.theta = theta;
param1.sigma = sigma;
param1.v0 = v1;
param1.rho = rho;
param1.lambda = lambda;
double db = 0.001;
double diff = 1.1 * tol;
double g0, g, g_, b0, b1, CallA1, CallA0;
double[] Prices = new double[2];
double b_new = 0.0;
// Set the first value to the starting value
double b = start;
// Set the upper time-integration range to the maturity increment
B = mat;
CZPrices CZ = new CZPrices();
while (Math.Abs(diff) > tol)
{
if (ACNum == 1)
{
// First set of functions and derivative
Prices = CZ.CZAmerCall(Math.Exp(B0 + b * v0), mat, param0, K, r, q, xs, ws, xt, wt, Nt, B0, b, A, B, C, D, DoubleType);
CallA1 = Prices[0];
g0 = (Math.Log(CallA1 + K) - B0) / v0 - b;
Prices = CZ.CZAmerCall(Math.Exp(B0 + (b + db) * v0), mat, param0, K, r, q, xs, ws, xt, wt, Nt, B0, b + db, A, B, C, D, DoubleType);
CallA1 = Prices[0];
g = (Math.Log(CallA1 + K) - B0) / v0 - (b + db);
Prices = CZ.CZAmerCall(Math.Exp(B0 + (b - db) * v0), mat, param0, K, r, q, xs, ws, xt, wt, Nt, B0, b - db, A, B, C, D, DoubleType);
CallA1 = Prices[0];
g_ = (Math.Log(CallA1 + K) - B0) / v0 - (b - db);
}
else
{
// Second set of functions and derivatives
Prices = CZ.CZAmerCall(Math.Exp(b + B1 * v1), mat, param1, K, r, q, xs, ws, xt, wt, Nt, b, B1, A, B, C, D, DoubleType);
CallA0 = Prices[0];
g0 = (Math.Log(CallA0 + K) - v1 * B1) - b;
Prices = CZ.CZAmerCall(Math.Exp(b + db + B1 * v1), mat, param1, K, r, q, xs, ws, xt, wt, Nt, b + db, B1, A, B, C, D, DoubleType);
CallA0 = Prices[0];
g = (Math.Log(CallA0 + K) - v1 * B1) - (b + db);
Prices = CZ.CZAmerCall(Math.Exp(b - db + B1 * v1), mat, param1, K, r, q, xs, ws, xt, wt, Nt, b - db, B1, A, B, C, D, DoubleType);
CallA0 = Prices[0];
g_ = (Math.Log(CallA0 + K) - v1 * B1) - (b - db);
}
// The derivative
double dg = (g - g_) / 2.0 / db;
// Newton's method
b_new = b - g0 / dg;
diff = b_new - b;
b = b_new;
}
return(b);
}
static void Main(string[] args)
{
// 32-point Gauss-Laguerre Abscissas and weights
double[] xs = new double[32];
double[] ws = new double[32];
using (TextReader reader = File.OpenText("../../GaussLaguerre32.txt"))
for (int k = 0; k <= 31; k++)
{
string text = reader.ReadLine();
string[] bits = text.Split(' ');
xs[k] = double.Parse(bits[0]);
ws[k] = double.Parse(bits[1]);
}
// 32-point Gauss-Legendre Abscissas and weights
double[] xt = new double[32];
double[] wt = new double[32];
using (TextReader reader = File.OpenText("../../GaussLegendre32.txt"))
for (int k = 0; k <= 31; k++)
{
string text = reader.ReadLine();
string[] bits = text.Split(' ');
xt[k] = double.Parse(bits[0]);
wt[k] = double.Parse(bits[1]);
}
// Option settings
double S0 = 100.0;
double K = 100.0;
double tau = 0.25;
double r = 0.01;
double q = 0.12;
int trap = 1;
// Option settings into the structure
OPSet opset = new OPSet();
opset.S = S0;
opset.K = K;
opset.r = r;
opset.q = q;
// Heston parameters
HParam param = new HParam();
param.kappa = 4.0;
param.theta = 0.09;
param.sigma = 0.1;
param.v0 = 0.04;
param.rho = 0.0;
param.lambda = 0.0;
// Time integration limits
double a = 1e-10;
double b = tau;
// Price integration limits
double c = 1e-10;
double d = 150;
// Number of points for double trapezoidal rule
int Nt = 50;
// Choose double integration "GLe" or "Trapz"
string DoubleType = "GLe";
// Closed form European price
HestonPrices HP = new HestonPrices();
double EuroClosed = HP.HestonPriceGaussLaguerre(param, opset, "C", tau, trap, xs, ws);
// Starting values for v0[n], v1[n], b0[n], and b1[n]
findBfunctions FB = new findBfunctions();
double Evt = FB.EV(param.v0, param.theta, param.kappa, tau, tau);
double V00 = Evt + param.sigma / Math.Abs(param.kappa) * Math.Sqrt(param.kappa * param.theta / 2.0);
double V10 = Evt - param.sigma / Math.Abs(param.kappa) * Math.Sqrt(param.kappa * param.theta / 2.0);
double b00 = Math.Log(K);
double b10 = 0.0;
// Tolerance and maximum number of steps
double tol0 = 0.005;
double tol1 = 0.005;
int Ntau = 25;
double Ntol = 1e-8;
// Vectors B0[n] and B1[n] from the Chiarella algorithm
BVec bvector = FB.findB(tau, param, K, r, q, V00, V10, b00, b10, xs, ws, xt, wt, Nt, Ntau, tol0, tol1, Ntol, a, b, c, d, DoubleType);
double[] B0 = bvector.B0;
double[] B1 = bvector.B1;
int Nb = B0.Length;
// Last values of the vectors go into the American Call price
double b0 = B0[Nb - 1];
double b1 = B1[Nb - 1];
// Compute the call prices with b0 and b1 returned from the optimization
CZPrices CZ = new CZPrices();
double[] CallPrices = new double[2];
CallPrices = CZ.CZAmerCall(S0, tau, param, K, r, q, xs, ws, xt, wt, Nt, b0, b1, a, b, c, d, DoubleType);
double AmerCZ = CallPrices[0];
double EuroCZ = CallPrices[1];
// Prices from the Explicit Method, wUsing a Non-Uniform Grid
// Minimum and maximum values for the Stock Price, Volatility, and Maturity
double Smin = 0.0; double Smax = 2.0 * K;
double Vmin = 0.0; double Vmax = 0.5;
double Tmin = 0.0; double Tmax = tau;
// Number of grid points for the stock, volatility, and maturity
int nS = 89; // Stock price
int nV = 49; // Volatility
int nT = 5000; // Maturity
// The maturity time increment and grid
double dt = (Tmax - Tmin) / Convert.ToDouble(nT);
double[] T = new double[nT + 1];
for (int i = 0; i <= nT; i++)
{
T[i] = Convert.ToDouble(i) * dt;
}
// The stock price grid
Interpolation IP = new Interpolation();
double cc = K / 5.0;
double dz = 1.0 / nS * (IP.aSinh((Smax - K) / cc) - IP.aSinh(-K / cc));
double[] z = new double[nS + 1];
double[] S = new double[nS + 1];
for (int i = 0; i <= nS; i++)
{
z[i] = IP.aSinh(-K / cc) + Convert.ToDouble(i) * dz;
S[i] = K + cc * Math.Sinh(z[i]);
}
S[0] = 0;
// The volatility grid
double dd = Vmax / 500.0;
double dn = IP.aSinh(Vmax / dd) / nV;
double[] n = new double[nV + 1];
double[] V = new double[nV + 1];
for (int j = 0; j <= nV; j++)
{
n[j] = Convert.ToDouble(j) * dn;
V[j] = dd * Math.Sinh(n[j]);
}
// Solve the PDE using the Explicit Method
//double[,] AmerU = HestonExplicitPDENonUniformGrid(param,K,r,q,S,V,T,"C","A");
//double[,] EuroU = HestonExplicitPDENonUniformGrid(param,K,r,q,S,V,T,"C","E");
// Obtain the American and European price by 2-D interpolation
//double AmerPDE = interp2(V,S,AmerU,param.v0,S0);
//double EuroPDE = interp2(V,S,EuroU,param.v0,S0);
// Obtain the control variate price from the PDE
double AmerPDE = 3.730064;
double EuroPDE = 3.508536;
double AmerCV = EuroClosed + (AmerPDE - EuroPDE);
// LSM prices
//AmerLSM = 3.729049;
//EuroLSM = 3.501443;
//AmerCV = 3.733422;
// Output the results
Console.WriteLine("------------------------------------------------------------");
Console.WriteLine(" b0 b1");
Console.WriteLine(" {0,10:F5} {1,10:F5}", b0, b1);
Console.WriteLine("-----------------------------");
Console.WriteLine(" European American AmericanCV");
Console.WriteLine("-------------------------------------------------");
Console.WriteLine("Closed {0,10:F6} ", EuroClosed);
Console.WriteLine("Explicit {0,10:F6} {1,10:F6} {2,10:F6}", EuroPDE, AmerPDE, AmerCV);
Console.WriteLine("Chiarella {0,10:F6} {1,10:F6} ", EuroCZ, AmerCZ);
Console.WriteLine("-------------------------------------------------");
}
