HestonAMSTPayoffTransform.java

package org.drip.sample.stochasticvolatility;

import org.drip.numerical.common.FormatUtil;
import org.drip.numerical.fourier.PhaseAdjuster;
import org.drip.param.pricer.HestonOptionPricerParams;
import org.drip.pricer.option.*;

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

/*!
 * Copyright (C) 2018 Lakshmi Krishnamurthy
 * Copyright (C) 2017 Lakshmi Krishnamurthy
 * Copyright (C) 2016 Lakshmi Krishnamurthy
 * Copyright (C) 2015 Lakshmi Krishnamurthy
 * Copyright (C) 2014 Lakshmi Krishnamurthy
 * 
 *  This file is part of DRIP, a free-software/open-source library for buy/side financial/trading model
 *      libraries targeting analysts and developers
 *      https://lakshmidrip.github.io/DRIP/
 *  
 *  DRIP is composed of four main libraries:
 *  
 *  - DRIP Fixed Income - https://lakshmidrip.github.io/DRIP-Fixed-Income/
 *  - DRIP Asset Allocation - https://lakshmidrip.github.io/DRIP-Asset-Allocation/
 *  - DRIP Numerical Optimizer - https://lakshmidrip.github.io/DRIP-Numerical-Optimizer/
 *  - DRIP Statistical Learning - https://lakshmidrip.github.io/DRIP-Statistical-Learning/
 * 
 *  - DRIP Fixed Income: Library for Instrument/Trading Conventions, Treasury Futures/Options,
 *      Funding/Forward/Overnight Curves, Multi-Curve Construction/Valuation, Collateral Valuation and XVA
 *      Metric Generation, Calibration and Hedge Attributions, Statistical Curve Construction, Bond RV
 *      Metrics, Stochastic Evolution and Option Pricing, Interest Rate Dynamics and Option Pricing, LMM
 *      Extensions/Calibrations/Greeks, Algorithmic Differentiation, and Asset Backed Models and Analytics.
 * 
 *  - DRIP Asset Allocation: Library for model libraries for MPT framework, Black Litterman Strategy
 *      Incorporator, Holdings Constraint, and Transaction Costs.
 * 
 *  - DRIP Numerical Optimizer: Library for Numerical Optimization and Spline Functionality.
 * 
 *  - DRIP Statistical Learning: Library for Statistical Evaluation and Machine Learning.
 * 
 *  Licensed under the Apache License, Version 2.0 (the "License");
 *      you may not use this file except in compliance with the License.
 *   
 *  You may obtain a copy of the License at
 *      http://www.apache.org/licenses/LICENSE-2.0
 *  
 *  Unless required by applicable law or agreed to in writing, software
 *      distributed under the License is distributed on an "AS IS" BASIS,
 *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
 *  
 *  See the License for the specific language governing permissions and
 *      limitations under the License.
 */

/**
 * HestonAMSTPayoffTransform contains an Comparison of the two ways of computing the Fourier convolution of
 *  the terminal payoff - the original Heston (1993) method, and the Albrecher, Mayer, Schoutens, and
 *  Tistaert tweak (2007).
 * 
 * @author Lakshmi Krishnamurthy
 */

public class HestonAMSTPayoffTransform {
    public static final double TestPayoffScheme (
        final double dblTimeToExpiry,
        final int iPayoffTransformScheme,
        final boolean bProb1)
        throws Exception
    {
        double dblRho = 0.3;
        double dblKappa = 1.;
        double dblSigma = 0.5;
        double dblTheta = 0.2;
        double dblLambda = 0.;

        HestonOptionPricerParams fphp = new HestonOptionPricerParams (
            iPayoffTransformScheme,
            dblRho,
            dblKappa,
            dblSigma,
            dblTheta,
            dblLambda,
            PhaseAdjuster.MULTI_VALUE_BRANCH_POWER_PHASE_TRACKER_KAHL_JACKEL
        );

        HestonStochasticVolatilityAlgorithm hsva = new HestonStochasticVolatilityAlgorithm (fphp);

        double dblStrike = 1.;
        double dblRiskFreeRate = 0.0;
        double dblSpot = 1.;
        double dblSpotVolatility = 0.1;

        Greeks greeks = hsva.greeks (
            dblStrike,
            dblTimeToExpiry,
            dblRiskFreeRate,
            dblSpot,
            false,
            false,
            dblSpotVolatility
        );

        return bProb1 ? greeks.prob1() : greeks.prob2();
    }

    public static final void main (
        final String[] astrArgs)
        throws Exception
    {
        double[] adblTTE = new double[] {
            0.5, 1., 2., 3., 4., 5., 7., 10., 12., 15., 20., 25., 30.
        };

        System.out.println ("\n\t|---------------------------|");

        System.out.println ("\t|     Prob 1 Comparison     |");

        System.out.println ("\t|---------------------------|");

        System.out.println ("\t|  TTE  =   HSTN  |   AMST  |");

        System.out.println ("\t|---------------------------|");

        for (double dblTTE : adblTTE) {
            System.out.println ("\t|" + FormatUtil.FormatDouble (dblTTE, 2, 2, 1.) + " = " +
                FormatUtil.FormatDouble (TestPayoffScheme (dblTTE,
                    HestonStochasticVolatilityAlgorithm.PAYOFF_TRANSFORM_SCHEME_HESTON_1993, true), 1, 4, 1.) + " | "  +
                FormatUtil.FormatDouble (TestPayoffScheme (dblTTE,
                    HestonStochasticVolatilityAlgorithm.PAYOFF_TRANSFORM_SCHEME_AMST_2007, true), 1, 4, 1.) + " |");
        }

        System.out.println ("\t|---------------------------|");

        System.out.println ("\n\t|---------------------------|");

        System.out.println ("\t|     Prob 2 Comparison     |");

        System.out.println ("\t|---------------------------|");

        System.out.println ("\t|  TTE  =   HSTN  |   AMST  |");

        System.out.println ("\t|---------------------------|");

        for (double dblTTE : adblTTE) {
            System.out.println ("\t|" + FormatUtil.FormatDouble (dblTTE, 2, 2, 1.) + " = " +
                FormatUtil.FormatDouble (TestPayoffScheme (dblTTE,
                    HestonStochasticVolatilityAlgorithm.PAYOFF_TRANSFORM_SCHEME_HESTON_1993, false), 1, 4, 1.) + " | "  +
                FormatUtil.FormatDouble (TestPayoffScheme (dblTTE,
                    HestonStochasticVolatilityAlgorithm.PAYOFF_TRANSFORM_SCHEME_AMST_2007, false), 1, 4, 1.) + " |");
        }

        System.out.println ("\t|---------------------------|");
    }
}