net.finmath.montecarlo.interestrate.products

Class SwaptionSingleCurveAnalyticApproximation

java.lang.Object

net.finmath.montecarlo.AbstractMonteCarloProduct

net.finmath.montecarlo.interestrate.products.AbstractLIBORMonteCarloProduct

net.finmath.montecarlo.interestrate.products.SwaptionSingleCurveAnalyticApproximation

All Implemented Interfaces:

Product, Swaption, TermStructureMonteCarloProduct, MonteCarloProduct

public class SwaptionSingleCurveAnalyticApproximation
extends AbstractLIBORMonteCarloProduct
implements Swaption

This class implements an analytic swaption valuation formula under a LIBOR market model. The algorithm implemented here is taken from ISBN 0470047224. The approximation assumes that the forward rates (LIBOR) follow a log normal model and that the model provides the integrated instantaneous covariance of the log-forward rates. The getValue method calculates the approximated integrated instantaneous variance of the swap rate, using the approximation d log(S(t))/d log(L(t)) = d log(S(0))/d log(L(0)). The valuation can be performed in terms of value or implied volatility.

Version:

1.0

Author:

Christian Fries

Nested Class Summary

Nested classes/interfaces inherited from interface net.finmath.modelling.products.Swaption

Swaption.ValueUnit

Constructor Summary

Constructors

Constructor and Description
SwaptionSingleCurveAnalyticApproximation(double swaprate, double[] swapTenor, Swaption.ValueUnit valueUnit) Create an analytic swaption approximation product for log normal forward rate model.
SwaptionSingleCurveAnalyticApproximation(double swaprate, TimeDiscretization swapTenor) Create an analytic swaption approximation product for log normal forward rate model.

Method Summary

Modifier and Type	Method and Description
static double[][][]	getIntegratedLIBORCovariance(LIBORMarketModelFromCovarianceModel model)
static Map<String,double[]>	getLogSwaprateDerivative(TimeDiscretization liborPeriodDiscretization, ForwardCurve forwardCurve, double[] swapTenor) This function calculate the partial derivative d log(S) / d log(Lk) for a given swap rate with respect to a vector of forward rates (on a given forward rate tenor).
RandomVariable	getValue(double evaluationTime, LIBORModelMonteCarloSimulationModel model) This method returns the value random variable of the product within the specified model, evaluated at a given evalutationTime.
RandomVariable	getValues(double evaluationTime, LIBORMarketModel model) Calculates the approximated integrated instantaneous variance of the swap rate, using the approximation d log(S(t))/d log(L(t)) = d log(S(0))/d log(L(0)).

Methods inherited from class net.finmath.montecarlo.interestrate.products.AbstractLIBORMonteCarloProduct

getFactorDrift, getValue, getValueForModifiedData, getValues

Methods inherited from class net.finmath.montecarlo.AbstractMonteCarloProduct

getCurrency, getValue, getValue, getValues, getValues, getValues, getValuesForModifiedData, getValuesForModifiedData, getValuesForModifiedData, getValuesForModifiedData, toString

Methods inherited from class java.lang.Object

clone, equals, finalize, getClass, hashCode, notify, notifyAll, wait, wait, wait

Methods inherited from interface net.finmath.montecarlo.MonteCarloProduct

getCurrency, getValue, getValue, getValues, getValues, getValues, getValuesForModifiedData, getValuesForModifiedData, getValuesForModifiedData, getValuesForModifiedData

Constructor Detail

SwaptionSingleCurveAnalyticApproximation

public SwaptionSingleCurveAnalyticApproximation(double swaprate,
                                                TimeDiscretization swapTenor)

Create an analytic swaption approximation product for log normal forward rate model. Note: It is implicitly assumed that swapTenor.getTime(0) is the exercise date (no forward starting).

Parameters:

swaprate - The strike swap rate of the swaption.

swapTenor - The swap tenor in doubles.

SwaptionSingleCurveAnalyticApproximation

public SwaptionSingleCurveAnalyticApproximation(double swaprate,
                                                double[] swapTenor,
                                                Swaption.ValueUnit valueUnit)

Create an analytic swaption approximation product for log normal forward rate model. Note: It is implicitly assumed that swapTenor[0] is the exercise date (no forward starting).

Parameters:

swaprate - The strike swap rate of the swaption.

swapTenor - The swap tenor in doubles.

valueUnit - The unit of the quantity returned by the getValues method.

Method Detail

getValue

public RandomVariable getValue(double evaluationTime,
                               LIBORModelMonteCarloSimulationModel model)

Description copied from interface: TermStructureMonteCarloProduct

This method returns the value random variable of the product within the specified model, evaluated at a given evalutationTime. Note: For a lattice this is often the value conditional to evalutationTime, for a Monte-Carlo simulation this is the (sum of) value discounted to evaluation time. Cashflows prior evaluationTime are not considered.

Specified by:

getValue in interface TermStructureMonteCarloProduct

Specified by:

getValue in class AbstractLIBORMonteCarloProduct

Parameters:

evaluationTime - The time on which this products value should be observed.

model - The model used to price the product.

Returns:

The random variable representing the value of the product discounted to evaluation time

getValues

public RandomVariable getValues(double evaluationTime,
                                LIBORMarketModel model)

Calculates the approximated integrated instantaneous variance of the swap rate, using the approximation d log(S(t))/d log(L(t)) = d log(S(0))/d log(L(0)).

Parameters:

evaluationTime - Time at which the product is evaluated.

model - A model implementing the LIBORModelMonteCarloSimulationModel

Returns:

Depending on the value of value unit, the method returns either the approximated integrated instantaneous variance of the swap rate (ValueUnit.INTEGRATEDVARIANCE) or the value using the Black formula (ValueUnit.VALUE).

To dos:

make initial values an arg and use evaluation time.

getLogSwaprateDerivative

public static Map<String,double[]> getLogSwaprateDerivative(TimeDiscretization liborPeriodDiscretization,
                                                            ForwardCurve forwardCurve,
                                                            double[] swapTenor)

This function calculate the partial derivative d log(S) / d log(L_k) for a given swap rate with respect to a vector of forward rates (on a given forward rate tenor). It also returns some useful other quantities like the corresponding discount factors and swap annuities.

Parameters:

liborPeriodDiscretization - The libor period discretization.

forwardCurve - The forward curve.

swapTenor - The swap tenor.

Returns:

A map containing the partial derivatives (key "value"), the discount factors (key "discountFactors") and the annuities (key "annuities") as vectors of double[] (indexed by forward rate tenor index starting at swap start)

getIntegratedLIBORCovariance

public static double[][][] getIntegratedLIBORCovariance(LIBORMarketModelFromCovarianceModel model)