static void Main(string[] args)
{
// Classes
Interpolation IP = new Interpolation();
BuildDerivativesNU BNU = new BuildDerivativesNU();
BuildDerivativesU BU = new BuildDerivativesU();
HestonPrice HP = new HestonPrice();
MatrixOps MO = new MatrixOps();
WeightedPriceAlgo WP = new WeightedPriceAlgo();
// Settings for the option price calculation
// 32-point Gauss-Laguerre Abscissas and weights
double[] X = new double[32];
double[] W = 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(' ');
X[k] = double.Parse(bits[0]);
W[k] = double.Parse(bits[1]);
}
// Strike price, risk free rate, dividend yield, and maturity
double K = 100.0;
double r = 0.02;
double q = 0.05;
double Mat = 0.15;
// Settings for the option price
double S0 = 101.52;
double V0 = 0.05412;
// Heston parameters. Case 1 of Hout and Foulon (Table 1)
HParam param;
param.kappa = 1.50;
param.theta = 0.04;
param.sigma = 0.30;
param.rho = -0.90;
param.v0 = V0;
param.lambda = 0.00;
// Obtain the Exact Price
string PutCall = "C";
int trap = 1;
double HPrice = HP.HestonPriceGaussLaguerre(param, S0, K, r, q, Mat, trap, PutCall, X, W);
// Minimum and maximum values for the Stock Price, Volatility, and Maturity
double Smin = 0.0; double Smax = 2.5 * K;
double Vmin = 0.0; double Vmax = 0.5;
double Tmin = 0.0; double Tmax = Mat;
// Points for stock, vol, maturity
double[] S, V;
int nS = 29;
int nV = 29;
int nT = 19;
int NS, NV, NT;
// Select the grid type
string GridType = "NonUniform";
if (GridType == "Uniform")
{
// Increment for Stock Price, Volatility, and Maturity
double ds = (Smax - Smin) / Convert.ToDouble(nS);
double dv = (Vmax - Vmin) / Convert.ToDouble(nV);
// Grid Vectors for the Stock Price, Volatility, and Maturity
NS = nS + 1;
NV = nV + 1;
S = new double[NS];
V = new double[NV];
for (int s = 0; s <= NS - 1; s++)
{
S[s] = Convert.ToDouble(s) * ds;
}
for (int v = 0; v <= NV - 1; v++)
{
V[v] = Convert.ToDouble(v) * dv;
}
}
else //if (GridType == "NonUniform")
{
// The stock price grid
double c = K / 5.0;
double dz = 1.0 / nS * (IP.aSinh((Smax - K) / c) - IP.aSinh(-K / c));
double[] z = new double[nS + 1];
S = new double[nS + 1];
for (int i = 0; i <= nS; i++)
{
z[i] = IP.aSinh(-K / c) + Convert.ToDouble(i) * dz;
S[i] = K + c * Math.Sinh(z[i]);
}
S[0] = 0.0;
// The volatility grid
double d = Vmax / 10.0;
double dn = IP.aSinh(Vmax / d) / nV;
double[] n = new double[nV + 1];
V = new double[nV + 1];
for (int j = 0; j <= nV; j++)
{
n[j] = Convert.ToDouble(j) * dn;
V[j] = d * Math.Sinh(n[j]);
}
NS = nS + 1;
NV = nV + 1;
}
// The maturity time increment and grid
NT = nT + 1;
double[] T = new double[NT];
double dt = (Tmax - Tmin) / Convert.ToDouble(nT);
for (int i = 0; i <= nT; i++)
{
T[i] = Convert.ToDouble(i) * dt;
}
// Obtain the submatrices of L
LMatrices LMat;
if (GridType == "Uniform")
{
LMat = BU.BuildDerivatives(S, V, T);
}
else
{
LMat = BNU.BuildDerivativesNonUniform(S, V, T);
}
double[,] derS = LMat.derS;
double[,] derSS = LMat.derSS;
double[,] derV1 = LMat.derV1;
double[,] derV2 = LMat.derV2;
double[,] derVV = LMat.derVV;
double[,] derSV = LMat.derSV;
double[,] R = LMat.R;
// Build the L matrix
int N = NS * NV;
double[,] L = new double[N, N];
for (int i = 0; i <= N - 1; i++)
{
for (int j = 0; j <= N - 1; j++)
{
L[i, j] = (r - q) * derS[i, j] + param.kappa * param.theta * derV1[i, j] - param.kappa * derV2[i, j] + 0.5 * derSS[i, j]
+ 0.5 * param.sigma * param.sigma * derVV[i, j] + param.rho * param.sigma * derSV[i, j] - r * R[i, j];
}
}
// Identity and A and B matrix
double[,] I = new double[N, N];
double[,] A = new double[N, N];
double[,] B = new double[N, N];
double[,] invA = new double[N, N];
for (int i = 0; i <= N - 1; i++)
{
I[i, i] = 1.0;
}
// Settings for the clock
Stopwatch sw = new Stopwatch();
TimeSpan ts = sw.Elapsed;
// Obtain the Explicit, Implicit, and Crank-Nicolson prices
double[] thet = { 0.0, 1.0, 0.5 };
double[] Price = new double[3];
double[] Error = new double[3];
for (int k = 0; k <= 2; k++)
{
for (int i = 0; i <= N - 1; i++)
{
for (int j = 0; j <= N - 1; j++)
{
A[i, j] = I[i, j] - thet[k] * dt * L[i, j];
B[i, j] = I[i, j] + (1.0 - thet[k]) * dt * L[i, j];
}
}
sw.Reset();
sw.Start();
if (thet[k] == 0.0)
{
invA = MO.CreateI(N);
}
else
{
invA = MO.MInvLU(A);
}
ts = sw.Elapsed;
Console.WriteLine("Calculated the inverse in {0:0}-{1:0}-{2:0} min-sec-msec", ts.Minutes, ts.Seconds, ts.Milliseconds);
Price[k] = WP.WeightedPrice(thet[k], L, S0, V0, K, r, q, Mat, S, V, T, A, invA, B);
Error[k] = Price[k] - HPrice;
}
// Output the results
Console.WriteLine("-------------------------------------------------");
Console.WriteLine("Grid type : {0}", GridType);
Console.WriteLine("-------------------------------------------------");
Console.WriteLine("Stock price grid size of {0:0} ", NS);
Console.WriteLine("Volatility grid size of {0:0} ", NV);
Console.WriteLine("Number of time steps {0:0} ", NT);
Console.WriteLine("-------------------------------------------------");
Console.WriteLine("Method Price Dollar Error");
Console.WriteLine("-------------------------------------------------");
Console.WriteLine("Closed form {0,5:F4}", HPrice);
Console.WriteLine("Explicit method {0,5:F4} {1,10:F4}", Price[0], Error[0]);
Console.WriteLine("Implicit method {0,5:F4} {1,10:F4}", Price[1], Error[1]);
Console.WriteLine("Crank Nicolson {0,5:F4} {1,10:F4}", Price[2], Error[2]);
Console.WriteLine("-------------------------------------------------");
}
public double WeightedPrice(double thet, double[,] L, double S0, double V0, double K, double r, double q, double Mat, double[] S, double[] V, double[] T, double[,] A, double[,] invA, double[,] B)
{
// Heston Call price using the Weighted Method
// Requires a uniform grid for the stock price, volatility, and maturity
// INPUTS
// thet = theta parameter for the Weighted method
// L = operator matrix for the Heston model
// params = vector of Heston parameters
// S0 = Spot price at which to price the call
// V0 = variance at which to price the call
// K = Strike price
// r = risk free rate
// q = dividend yield
// Mat = maturity
// S = uniform grid for the stock price
// V = uniform grid for the volatility
// T = uniform grid for the maturity
// A = "A" matrix for weighted method
// invA = A inverse
// B = "B" matrix for weighted method
// OUTPUT
// y = 2-D interpolated European Call price
MatrixOps MO = new MatrixOps();
Interpolation IP = new Interpolation();
// Required vector lengths and time increment
int NS = S.Length;
int NV = V.Length;
int NT = T.Length;
double dt = T[1] - T[0];
// Identity matrix
int N = NS * NV;
double[,] I = MO.CreateI(N);
// Initialize the U and u vectors
double[] U = new double[N];
double[] u = new double[N];
// U(0) vector - value of U(T) at maturity
double[] Si = new double[N];
int k = 0;
for (int v = 0; v <= NV - 1; v++)
{
for (int s = 0; s <= NS - 1; s++)
{
Si[k] = S[s];
U[k] = Math.Max(Si[k] - K, 0.0);
k += 1;
}
}
// Loop through the time increments, updating U(t) to U(t+1) at each step
for (int t = 2; t <= NT; t++)
{
for (k = 0; k <= N - 1; k++)
{
u[k] = U[k];
}
if (thet == 0.0)
{
U = MO.MVMult(B, u); // Explicit Method
}
else if (thet == 1.0)
{
U = MO.MVMult(invA, u); // Implicit Method
}
else
{
U = MO.MVMult(invA, MO.MVMult(B, u)); // Weighted Methods
}
}
// Restack the U vector to output a matrix
double[,] UU = new double[NS, NV];
k = 0;
for (int v = 0; v <= NV - 1; v++)
{
for (int s = 0; s <= NS - 1; s++)
{
UU[s, v] = U[k];
k += 1;
}
}
// Interpolate to get the price at S0 and v0
return(IP.interp2(V, S, UU, V0, S0));
}