public void testImpliedVolatility()
{
//"Testing implied volatility for swaptions...";
CommonVars vars=new CommonVars();
int maxEvaluations = 100;
double tolerance = 1.0e-08;
Settlement.Type[] types = { Settlement.Type.Physical, Settlement.Type.Cash };
// test data
double[] strikes = { 0.02, 0.03, 0.04, 0.05, 0.06, 0.07 };
double[] vols = { 0.01, 0.05, 0.10, 0.20, 0.30, 0.70, 0.90 };
for (int i = 0; i < exercises.Length; i++)
{
for (int j = 0; j < lengths.Length; j++)
{
Date exerciseDate = vars.calendar.advance(vars.today, exercises[i]);
Date startDate = vars.calendar.advance(exerciseDate,
vars.settlementDays, TimeUnit.Days);
Date maturity = vars.calendar.advance(startDate, lengths[j],
vars.floatingConvention);
for (int t = 0; t < strikes.Length; t++)
{
for (int k = 0; k < type.Length; k++)
{
VanillaSwap swap = new MakeVanillaSwap(lengths[j], vars.index, strikes[t])
.withEffectiveDate(startDate)
.withFloatingLegSpread(0.0)
.withType(type[k]);
for (int h = 0; h < types.Length; h++)
{
for (int u = 0; u < vols.Length; u++)
{
Swaption swaption = vars.makeSwaption(swap, exerciseDate,
vols[u], types[h]);
// Black price
double value = swaption.NPV();
double implVol = 0.0;
try
{
implVol =
swaption.impliedVolatility(value,
vars.termStructure,
0.10,
tolerance,
maxEvaluations);
}
catch (System.Exception e)
{
// couldn't bracket?
swaption.setPricingEngine(vars.makeEngine(0.0));
double value2 = swaption.NPV();
if (Math.Abs(value - value2) < tolerance)
{
// ok, just skip:
continue;
}
// otherwise, report error
Assert.Fail("implied vol failure: " +
exercises[i] + "x" + lengths[j] + " " + type[k] +
"\nsettlement: " + types[h] +
"\nstrike " + strikes[t] +
"\natm level: " + swap.fairRate() +
"\nvol: " + vols[u] +
"\nprice: " + value +
"\n" + e.Message.ToString());
}
if (Math.Abs(implVol - vols[u]) > tolerance)
{
// the difference might not matter
swaption.setPricingEngine(vars.makeEngine(implVol));
double value2 = swaption.NPV();
if (Math.Abs(value - value2) > tolerance)
{
Assert.Fail("implied vol failure: " +
exercises[i] + "x" + lengths[j] + " " + type[k] +
"\nsettlement: " + types[h] +
"\nstrike " + strikes[t] +
"\natm level: " + swap.fairRate() +
"\nvol: " + vols[u] +
"\nprice: " + value +
"\nimplied vol: " + implVol +
"\nimplied price: " + value2);
}
}
}
}
}
}
}
}
}
