public void testSpreadTreatment()
{
//"Testing swaption treatment of spread...";
CommonVars vars = new CommonVars();
double[] spreads = { -0.002, -0.001, 0.0, 0.001, 0.002 };
for (int i=0; i<exercises.Length; i++) {
for (int j=0; j<lengths.Length ; j++) {
for (int k=0; k<type.Length ; k++) {
Date exerciseDate = vars.calendar.advance(vars.today,
exercises[i]);
Date startDate =
vars.calendar.advance(exerciseDate,
vars.settlementDays,TimeUnit.Days);
for (int l=0; l<spreads.Length ; l++) {
VanillaSwap swap =
new MakeVanillaSwap(lengths[j], vars.index, 0.06)
.withEffectiveDate(startDate)
.withFloatingLegSpread(spreads[l])
.withType(type[k]);
// FLOATING_POINT_EXCEPTION
double correction = spreads[l] *
swap.floatingLegBPS() /
swap.fixedLegBPS();
VanillaSwap equivalentSwap =
new MakeVanillaSwap(lengths[j], vars.index, 0.06+correction)
.withEffectiveDate(startDate)
.withFloatingLegSpread(0.0)
.withType(type[k]);
Swaption swaption1 =
vars.makeSwaption(swap,exerciseDate,0.20);
Swaption swaption2 =
vars.makeSwaption(equivalentSwap,exerciseDate,0.20);
Swaption swaption1_cash =
vars.makeSwaption(swap,exerciseDate,0.20,
Settlement.Type.Cash);
Swaption swaption2_cash =
vars.makeSwaption(equivalentSwap,exerciseDate,0.20,
Settlement.Type.Cash);
if (Math.Abs(swaption1.NPV()-swaption2.NPV()) > 1.0e-6)
Assert.Fail("wrong spread treatment:" +
"\nexercise: " + exerciseDate +
"\nlength: " + lengths[j] +
"\ntype " + type[k] +
"\nspread: " + spreads[l] +
"\noriginal swaption value: " + swaption1.NPV() +
"\nequivalent swaption value: " + swaption2.NPV());
if (Math.Abs(swaption1_cash.NPV()-swaption2_cash.NPV()) > 1.0e-6)
Assert.Fail("wrong spread treatment:" +
"\nexercise date: " + exerciseDate +
"\nlength: " + lengths[j] +
//"\npay " + (type[k] ? "fixed" : "floating") +
"\nspread: " + spreads[l] +
"\nvalue of original swaption: " + swaption1_cash.NPV() +
"\nvalue of equivalent swaption: " + swaption2_cash.NPV());
}
}
}
}
}
