FixFloatEuropeanOption.java

  1. package org.drip.product.option;

  3. /*
  4.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  5.  */

  7. /*!
  8.  * Copyright (C) 2020 Lakshmi Krishnamurthy
  9.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  10.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  11.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  12.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  13.  * Copyright (C) 2015 Lakshmi Krishnamurthy
  14.  * Copyright (C) 2014 Lakshmi Krishnamurthy
  15.  * 
  16.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  17.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  18.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  19.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  20.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  21.  *      and computational support.
  22.  *  
  23.  *      https://lakshmidrip.github.io/DROP/
  24.  *  
  25.  *  DROP is composed of three modules:
  26.  *  
  27.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  28.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  29.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  30.  * 
  31.  *  DROP Product Core implements libraries for the following:
  32.  *  - Fixed Income Analytics
  33.  *  - Loan Analytics
  34.  *  - Transaction Cost Analytics
  35.  * 
  36.  *  DROP Portfolio Core implements libraries for the following:
  37.  *  - Asset Allocation Analytics
  38.  *  - Asset Liability Management Analytics
  39.  *  - Capital Estimation Analytics
  40.  *  - Exposure Analytics
  41.  *  - Margin Analytics
  42.  *  - XVA Analytics
  43.  * 
  44.  *  DROP Computational Core implements libraries for the following:
  45.  *  - Algorithm Support
  46.  *  - Computation Support
  47.  *  - Function Analysis
  48.  *  - Model Validation
  49.  *  - Numerical Analysis
  50.  *  - Numerical Optimizer
  51.  *  - Spline Builder
  52.  *  - Statistical Learning
  53.  * 
  54.  *  Documentation for DROP is Spread Over:
  55.  * 
  56.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  57.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  58.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  59.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  60.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  61.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  62.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  63.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  64.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  65.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  66.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  67.  * 
  68.  *  Licensed under the Apache License, Version 2.0 (the "License");
  69.  *      you may not use this file except in compliance with the License.
  70.  *   
  71.  *  You may obtain a copy of the License at
  72.  *      http://www.apache.org/licenses/LICENSE-2.0
  73.  *  
  74.  *  Unless required by applicable law or agreed to in writing, software
  75.  *      distributed under the License is distributed on an "AS IS" BASIS,
  76.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  77.  *  
  78.  *  See the License for the specific language governing permissions and
  79.  *      limitations under the License.
  80.  */

  82. /**
  83.  * <i>FixFloatEuropeanOption</i> implements the Payer/Receiver European Option on the Fix-Float Swap.
  84.  * 
  85.  * <br><br>
  86.  *  <ul>
  87.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
  88.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics</a></li>
  89.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/product/README.md">Product Components/Baskets for Credit, FRA, FX, Govvie, Rates, and Option AssetClasses</a></li>
  90.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/product/option/README.md">Options on Fixed Income Components</a></li>
  91.  *  </ul>
  92.  * <br><br>
  93.  *
  94.  * @author Lakshmi Krishnamurthy
  95.  */

  97. public class FixFloatEuropeanOption extends org.drip.product.option.OptionComponent {
  98.     private boolean _bIsReceiver = false;
  99.     private org.drip.product.rates.FixFloatComponent _stir = null;

  101.     /**
  102.      * FixFloatEuropeanOption constructor
  103.      * 
  104.      * @param strName Name
  105.      * @param stir The Underlying STIR Future Component
  106.      * @param strManifestMeasure Measure of the Underlying Component
  107.      * @param bIsReceiver Is the STIR Option a Receiver/Payer? TRUE - Receiver
  108.      * @param dblStrike Strike of the Underlying Component's Measure
  109.      * @param dblNotional Option Notional
  110.      * @param ltds Last Trading Date Setting
  111.      * @param csp Cash Settle Parameters
  112.      * 
  113.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  114.      */

  116.     public FixFloatEuropeanOption (
  117.         final java.lang.String strName,
  118.         final org.drip.product.rates.FixFloatComponent stir,
  119.         final java.lang.String strManifestMeasure,
  120.         final boolean bIsReceiver,
  121.         final double dblStrike,
  122.         final double dblNotional,
  123.         final org.drip.product.params.LastTradingDateSetting ltds,
  124.         final org.drip.param.valuation.CashSettleParams csp)
  125.         throws java.lang.Exception
  126.     {
  127.         super (strName, stir, strManifestMeasure, dblStrike, dblNotional, ltds, csp);

  129.         _stir = stir;
  130.         _bIsReceiver = bIsReceiver;
  131.     }

  133.     @Override public org.drip.analytics.support.CaseInsensitiveTreeMap<java.lang.String> couponCurrency()
  134.     {
  135.         return _stir.couponCurrency();
  136.     }

  138.     @Override public java.lang.String payCurrency()
  139.     {
  140.         return _stir.payCurrency();
  141.     }

  143.     @Override public java.lang.String principalCurrency()
  144.     {
  145.         return _stir.principalCurrency();
  146.     }

  148.     @Override public org.drip.analytics.support.CaseInsensitiveTreeMap<java.lang.Double> value (
  149.         final org.drip.param.valuation.ValuationParams valParams,
  150.         final org.drip.param.pricer.CreditPricerParams pricerParams,
  151.         final org.drip.param.market.CurveSurfaceQuoteContainer csqs,
  152.         final org.drip.param.valuation.ValuationCustomizationParams quotingParams)
  153.     {
  154.         if (null == valParams) return null;

  156.         int iValueDate = valParams.valueDate();

  158.         int iExerciseDate = exerciseDate().julian();

  160.         org.drip.analytics.date.JulianDate dtEffective = _stir.effectiveDate();

  162.         org.drip.product.params.LastTradingDateSetting ltds = lastTradingDateSetting();

  164.         try {
  165.             if (null != ltds && iValueDate >= ltds.lastTradingDate (dtEffective.julian(),
  166.                 _stir.referenceStream().calendar()))
  167.                 return null;
  168.         } catch (java.lang.Exception e) {
  169.             e.printStackTrace();

  171.             return null;
  172.         }

  174.         java.lang.String strPayCurrency = _stir.payCurrency();

  176.         org.drip.state.discount.MergedDiscountForwardCurve dcFunding = csqs.fundingState
  177.             (org.drip.state.identifier.FundingLabel.Standard (strPayCurrency));

  179.         if (null == dcFunding) return null;

  181.         long lStart = System.nanoTime();

  183.         org.drip.analytics.support.CaseInsensitiveTreeMap<java.lang.Double> mapSTIROutput = _stir.value
  184.             (valParams, pricerParams, csqs, quotingParams);

  186.         java.lang.String strManifestMeasure = manifestMeasure();

  188.         if (null == mapSTIROutput || !mapSTIROutput.containsKey (strManifestMeasure)) return null;

  190.         double dblFixedCleanDV01 = mapSTIROutput.get ("CleanFixedDV01");

  192.         double dblATMManifestMeasure = mapSTIROutput.get (strManifestMeasure);

  194.         if (!org.drip.numerical.common.NumberUtil.IsValid (dblATMManifestMeasure)) return null;

  196.         try {
  197.             double dblSTIRIntegratedSurfaceVariance =
  198.                 org.drip.analytics.support.OptionHelper.IntegratedSurfaceVariance (csqs.customVolatility
  199.                     (org.drip.state.identifier.CustomLabel.Standard (_stir.name() + "_" +
  200.                         strManifestMeasure)), iValueDate, iExerciseDate);

  202.             if (!org.drip.numerical.common.NumberUtil.IsValid (dblSTIRIntegratedSurfaceVariance)) return null;

  204.             double dblSTIRIntegratedSurfaceVolatility = java.lang.Math.sqrt
  205.                 (dblSTIRIntegratedSurfaceVariance);

  207.             double dblStrike = strike();

  209.             double dblMoneynessFactor = dblATMManifestMeasure / dblStrike;

  211.             double dblLogMoneynessFactor = java.lang.Math.log (dblMoneynessFactor);

  213.             double dblForwardIntrinsic = java.lang.Double.NaN;
  214.             double dblForwardATMIntrinsic = java.lang.Double.NaN;
  215.             double dblManifestMeasurePriceTransformer = java.lang.Double.NaN;
  216.             double dblManifestMeasureIntrinsic = _bIsReceiver ? dblATMManifestMeasure - dblStrike : dblStrike
  217.                 - dblATMManifestMeasure;
  218.             double dblATMDPlus = 0.5 * dblSTIRIntegratedSurfaceVariance / dblSTIRIntegratedSurfaceVolatility;
  219.             double dblATMDMinus = -1. * dblATMDPlus;
  220.             double dblDPlus = (dblLogMoneynessFactor + 0.5 * dblSTIRIntegratedSurfaceVariance) /
  221.                 dblSTIRIntegratedSurfaceVolatility;
  222.             double dblDMinus = (dblLogMoneynessFactor - 0.5 * dblSTIRIntegratedSurfaceVariance) /
  223.                 dblSTIRIntegratedSurfaceVolatility;

  225.             if (strManifestMeasure.equalsIgnoreCase ("Price") || strManifestMeasure.equalsIgnoreCase ("PV"))
  226.                 dblManifestMeasurePriceTransformer = dcFunding.df (iExerciseDate);
  227.             else if (strManifestMeasure.equalsIgnoreCase ("FairPremium") ||
  228.                 strManifestMeasure.equalsIgnoreCase ("SwapRate") || strManifestMeasure.equalsIgnoreCase
  229.                     ("Rate"))
  230.                 dblManifestMeasurePriceTransformer = 10000. * dblFixedCleanDV01;

  232.             if (!org.drip.numerical.common.NumberUtil.IsValid (dblManifestMeasurePriceTransformer)) return null;

  234.             if (_bIsReceiver) {
  235.                 dblForwardIntrinsic = dblATMManifestMeasure * org.drip.measure.gaussian.NormalQuadrature.CDF
  236.                     (dblDPlus) - dblStrike * org.drip.measure.gaussian.NormalQuadrature.CDF (dblDMinus);

  238.                 dblForwardATMIntrinsic = dblATMManifestMeasure * org.drip.measure.gaussian.NormalQuadrature.CDF
  239.                     (dblATMDPlus) - dblStrike * org.drip.measure.gaussian.NormalQuadrature.CDF (dblATMDMinus);
  240.             } else {
  241.                 dblForwardIntrinsic = dblStrike * org.drip.measure.gaussian.NormalQuadrature.CDF (-dblDMinus) -
  242.                     dblATMManifestMeasure * org.drip.measure.gaussian.NormalQuadrature.CDF (-dblDPlus);

  244.                 dblForwardATMIntrinsic = dblStrike * org.drip.measure.gaussian.NormalQuadrature.CDF (-dblATMDMinus)
  245.                     - dblATMManifestMeasure * org.drip.measure.gaussian.NormalQuadrature.CDF (-dblATMDPlus);
  246.             }

  248.             org.drip.analytics.support.CaseInsensitiveTreeMap<java.lang.Double> mapResult = new
  249.                 org.drip.analytics.support.CaseInsensitiveTreeMap<java.lang.Double>();

  251.             double dblSpotPrice = dblForwardIntrinsic * dblManifestMeasurePriceTransformer;

  253.             mapResult.put ("ATMSwapRate", dblATMManifestMeasure);

  255.             mapResult.put ("CalcTime", (System.nanoTime() - lStart) * 1.e-09);

  257.             mapResult.put ("ForwardATMIntrinsic", dblForwardATMIntrinsic);

  259.             mapResult.put ("ForwardIntrinsic", dblForwardIntrinsic);

  261.             mapResult.put ("IntegratedSurfaceVariance", dblSTIRIntegratedSurfaceVariance);

  263.             mapResult.put ("ManifestMeasureIntrinsic", dblManifestMeasureIntrinsic);

  265.             mapResult.put ("ManifestMeasureIntrinsicValue", dblManifestMeasureIntrinsic *
  266.                 dblManifestMeasurePriceTransformer);

  268.             mapResult.put ("MoneynessFactor", dblMoneynessFactor);

  270.             mapResult.put ("Price", dblSpotPrice);

  272.             mapResult.put ("PV", dblSpotPrice);

  274.             org.drip.market.otc.SwapOptionSettlement sos =
  275.                 org.drip.market.otc.SwapOptionSettlementContainer.ConventionFromJurisdiction
  276.                     (strPayCurrency);

  278.             if (null != sos) {
  279.                 int iSettlementType = sos.settlementType();

  281.                 int iSettlementQuote = sos.settlementQuote();

  283.                 mapResult.put ("SettleType", (double) iSettlementType);

  285.                 mapResult.put ("SettleQuote", (double) iSettlementQuote);

  287.                 if (org.drip.market.otc.SwapOptionSettlement.SETTLEMENT_TYPE_CASH_SETTLED == iSettlementType)
  288.                 {
  289.                     if (org.drip.market.otc.SwapOptionSettlement.SETTLEMENT_QUOTE_EXACT_CURVE ==
  290.                         iSettlementQuote)
  291.                         mapResult.put ("SettleAmount", dblSpotPrice);
  292.                     else if (org.drip.market.otc.SwapOptionSettlement.SETTLEMENT_QUOTE_IRR ==
  293.                         iSettlementQuote && (strManifestMeasure.equalsIgnoreCase ("FairPremium") ||
  294.                             strManifestMeasure.equalsIgnoreCase ("SwapRate") ||
  295.                                 strManifestMeasure.equalsIgnoreCase ("Rate"))) {
  296.                         org.drip.product.rates.Stream streamDerived = _stir.derivedStream();

  298.                         if (csqs.setFundingState
  299.                             (org.drip.state.creator.ScenarioDiscountCurveBuilder.CreateFromFlatYield
  300.                                 (dtEffective, strPayCurrency, dblATMManifestMeasure,
  301.                                     streamDerived.couponDC(), streamDerived.freq())) && null !=
  302.                                         (mapSTIROutput = _stir.value (valParams, pricerParams, csqs,
  303.                                             quotingParams)))
  304.                                 mapResult.put ("SettleAmount", dblForwardIntrinsic * 10000. *
  305.                                     mapSTIROutput.get ("CleanFixedDV01"));
  306.                     }
  307.                 }
  308.             } else
  309.                 mapResult.put ("SettleAmount", dblSpotPrice);

  311.             mapResult.put ("SpotPrice", dblSpotPrice);

  313.             mapResult.put ("Upfront", dblSpotPrice);

  315.             return mapResult;
  316.         } catch (java.lang.Exception e) {
  317.             e.printStackTrace();
  318.         }

  320.         return null;
  321.     }

  323.     @Override public java.util.Set<java.lang.String> measureNames()
  324.     {
  325.         java.util.Set<java.lang.String> setstrMeasureNames = new java.util.TreeSet<java.lang.String>();

  327.         setstrMeasureNames.add ("ATMSwapRate");

  329.         setstrMeasureNames.add ("CalcTime");

  331.         setstrMeasureNames.add ("ForwardATMIntrinsic");

  333.         setstrMeasureNames.add ("ForwardIntrinsic");

  335.         setstrMeasureNames.add ("IntegratedSurfaceVariance");

  337.         setstrMeasureNames.add ("ManifestMeasureIntrinsic");

  339.         setstrMeasureNames.add ("ManifestMeasureIntrinsicValue");

  341.         setstrMeasureNames.add ("MoneynessFactor");

  343.         setstrMeasureNames.add ("Price");

  345.         setstrMeasureNames.add ("PV");

  347.         setstrMeasureNames.add ("SettleAmount");

  349.         setstrMeasureNames.add ("SettleQuote");

  351.         setstrMeasureNames.add ("SettleType");

  353.         setstrMeasureNames.add ("SpotPrice");

  355.         setstrMeasureNames.add ("Upfront");

  357.         return setstrMeasureNames;
  358.     }

  360.     @Override public double pv (
  361.         final org.drip.param.valuation.ValuationParams valParams,
  362.         final org.drip.param.pricer.CreditPricerParams pricerParams,
  363.         final org.drip.param.market.CurveSurfaceQuoteContainer csqs,
  364.         final org.drip.param.valuation.ValuationCustomizationParams quotingParams)
  365.         throws java.lang.Exception
  366.     {
  367.         if (null == valParams)
  368.             throw new java.lang.Exception ("FixFloatEuropeanOption::pv => Invalid Inputs");

  370.         int iValueDate = valParams.valueDate();

  372.         int iExerciseDate = exerciseDate().julian();

  374.         org.drip.product.params.LastTradingDateSetting ltds = lastTradingDateSetting();

  376.         if (null != ltds && iValueDate >= ltds.lastTradingDate (_stir.effectiveDate().julian(),
  377.             _stir.referenceStream().calendar()))
  378.             throw new java.lang.Exception ("FixFloatEuropeanOption::pv => Invalid Inputs");;

  380.         java.lang.String strPayCurrency = _stir.payCurrency();

  382.         org.drip.state.discount.MergedDiscountForwardCurve dcFunding = csqs.fundingState
  383.             (org.drip.state.identifier.FundingLabel.Standard (strPayCurrency));

  385.         if (null == dcFunding)
  386.             throw new java.lang.Exception ("FixFloatEuropeanOption::pv => Invalid Inputs");

  388.         org.drip.analytics.support.CaseInsensitiveTreeMap<java.lang.Double> mapSTIROutput = _stir.value
  389.             (valParams, pricerParams, csqs, quotingParams);

  391.         java.lang.String strManifestMeasure = manifestMeasure();

  393.         if (null == mapSTIROutput || !mapSTIROutput.containsKey (strManifestMeasure))
  394.             throw new java.lang.Exception ("FixFloatEuropeanOption::pv => Invalid Inputs");

  396.         double dblFixedCleanDV01 = mapSTIROutput.get ("CleanFixedDV01");

  398.         double dblATMManifestMeasure = mapSTIROutput.get (strManifestMeasure);

  400.         if (!org.drip.numerical.common.NumberUtil.IsValid (dblATMManifestMeasure))
  401.             throw new java.lang.Exception ("FixFloatEuropeanOption::pv => Invalid Inputs");

  403.         double dblSTIRIntegratedSurfaceVariance =
  404.             org.drip.analytics.support.OptionHelper.IntegratedSurfaceVariance (csqs.customVolatility
  405.                 (org.drip.state.identifier.CustomLabel.Standard (_stir.name() + "_" + strManifestMeasure)),
  406.                     iValueDate, iExerciseDate);

  408.         if (!org.drip.numerical.common.NumberUtil.IsValid (dblSTIRIntegratedSurfaceVariance))
  409.             throw new java.lang.Exception ("FixFloatEuropeanOption::pv => Invalid Inputs");

  411.         double dblSTIRIntegratedSurfaceVolatility = java.lang.Math.sqrt (dblSTIRIntegratedSurfaceVariance);

  413.         double dblStrike = strike();

  415.         double dblMoneynessFactor = dblATMManifestMeasure / dblStrike;

  417.         double dblLogMoneynessFactor = java.lang.Math.log (dblMoneynessFactor);

  419.         double dblForwardIntrinsic = java.lang.Double.NaN;
  420.         double dblManifestMeasurePriceTransformer = java.lang.Double.NaN;
  421.         double dblDPlus = (dblLogMoneynessFactor + 0.5 * dblSTIRIntegratedSurfaceVariance) /
  422.             dblSTIRIntegratedSurfaceVolatility;
  423.         double dblDMinus = (dblLogMoneynessFactor - 0.5 * dblSTIRIntegratedSurfaceVariance) /
  424.             dblSTIRIntegratedSurfaceVolatility;

  426.         if (strManifestMeasure.equalsIgnoreCase ("Price") || strManifestMeasure.equalsIgnoreCase ("PV"))
  427.             dblManifestMeasurePriceTransformer = dcFunding.df (iExerciseDate);
  428.         else if (strManifestMeasure.equalsIgnoreCase ("FairPremium") ||
  429.             strManifestMeasure.equalsIgnoreCase ("SwapRate") || strManifestMeasure.equalsIgnoreCase
  430.                 ("Rate"))
  431.             dblManifestMeasurePriceTransformer = 10000. * dblFixedCleanDV01;

  433.         if (!org.drip.numerical.common.NumberUtil.IsValid (dblManifestMeasurePriceTransformer))
  434.             throw new java.lang.Exception ("FixFloatEuropeanOption::pv => Invalid Inputs");

  436.         if (_bIsReceiver)
  437.             dblForwardIntrinsic = dblATMManifestMeasure * org.drip.measure.gaussian.NormalQuadrature.CDF
  438.                 (dblDPlus) - dblStrike * org.drip.measure.gaussian.NormalQuadrature.CDF (dblDMinus);
  439.         else
  440.             dblForwardIntrinsic = dblStrike * org.drip.measure.gaussian.NormalQuadrature.CDF (-dblDMinus) -
  441.                 dblATMManifestMeasure * org.drip.measure.gaussian.NormalQuadrature.CDF (-dblDPlus);

  443.         return dblForwardIntrinsic * dblManifestMeasurePriceTransformer;
  444.     }

  446.     @Override public org.drip.product.calib.ProductQuoteSet calibQuoteSet (
  447.         final org.drip.state.representation.LatentStateSpecification[] aLSS)
  448.     {
  449.         try {
  450.             return new org.drip.product.calib.ProductQuoteSet (aLSS);
  451.         } catch (java.lang.Exception e) {
  452.             e.printStackTrace();
  453.         }

  455.         return null;
  456.     }

  458.     @Override public org.drip.state.estimator.PredictorResponseWeightConstraint volatilityPRWC (
  459.         final org.drip.param.valuation.ValuationParams valParams,
  460.         final org.drip.param.pricer.CreditPricerParams pricerParams,
  461.         final org.drip.param.market.CurveSurfaceQuoteContainer csqs,
  462.         final org.drip.param.valuation.ValuationCustomizationParams quotingParams,
  463.         final org.drip.product.calib.ProductQuoteSet pqs)
  464.     {
  465.         return null;
  466.     }
  467. }
Created with JaCoCo 0.7.9.201702052155