blackvariancecurve.cpp

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/*
 Copyright (C) 2016 Quaternion Risk Management Ltd
 All rights reserved.
 
 This file is part of ORE, a free-software/open-source library
 for transparent pricing and risk analysis - http://opensourcerisk.org
 
 ORE is free software: you can redistribute it and/or modify it
 under the terms of the Modified BSD License.  You should have received a
 copy of the license along with this program.
 The license is also available online at <http://opensourcerisk.org>
 
 This program is distributed on the basis that it will form a useful
 contribution to risk analytics and model standardisation, but WITHOUT
 ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or
 FITNESS FOR A PARTICULAR PURPOSE. See the license for more details.
*/
 
#include "toplevelfixture.hpp"
#include <boost/make_shared.hpp>
#include <boost/test/unit_test.hpp>
#include <ql/quotes/simplequote.hpp>
#include <ql/termstructures/volatility/equityfx/blackvariancecurve.hpp>
#include <ql/time/calendars/target.hpp>
#include <ql/time/daycounters/actualactual.hpp>
#include <qle/termstructures/blackvariancecurve3.hpp>
 
using namespace boost::unit_test_framework;
using namespace QuantLib;
using namespace QuantExt;
using namespace std;
 
BOOST_FIXTURE_TEST_SUITE(QuantExtTestSuite, qle::test::TopLevelFixture)
 
BOOST_AUTO_TEST_SUITE(BlackVarianceCurveTest)
 
BOOST_AUTO_TEST_CASE(testBlackVarianceCurve) {
 
    BOOST_TEST_MESSAGE("Testing QuantExt::BlackVarianceCurve3...");
 
    SavedSettings backup;
    Settings::instance().evaluationDate() = Date(1, Dec, 2015);
    Date today = Settings::instance().evaluationDate();
 
    Natural settlementDays = 0;
    Calendar cal = TARGET();
    BusinessDayConvention bdc = Following;
    DayCounter dc = ActualActual(ActualActual::ISDA);
 
    vector<Time> times;
    vector<Date> dates;
    vector<Volatility> vols;
    vector<QuantLib::ext::shared_ptr<SimpleQuote> > simpleQuotes;
    vector<Handle<Quote> > quotes;
 
    Size numYears = 10;
    for (Size i = 1; i < numYears; i++) {
 
        Volatility vol = 0.1 + (0.01 * i); // 11% at 1Y, 12% at 2Y
        vols.push_back(vol);
 
        simpleQuotes.push_back(QuantLib::ext::make_shared<SimpleQuote>(vol));
        quotes.push_back(Handle<Quote>(simpleQuotes.back()));
 
        dates.push_back(Date(1, Dec, today.year() + i));
        times.push_back(dc.yearFraction(today, dates.back()));
    }
 
    // Build a QuantLib::BlackVarianceCurve
    BlackVarianceCurve bvcBase(today, dates, vols, dc);
    bvcBase.enableExtrapolation();
 
    // Build a QuantExt::BlackVarianceCurve3
    BlackVarianceCurve3 bvcTest(settlementDays, cal, bdc, dc, times, quotes);
    bvcTest.enableExtrapolation();
 
    Real strike = 1.0; // this is all ATM so we don't care
 
    // Check that bvcTest returns the expected values
    for (Size i = 0; i < times.size(); ++i) {
        BOOST_CHECK_CLOSE(bvcTest.blackVol(times[i], strike), vols[i], 1e-12);
        BOOST_CHECK_CLOSE(bvcTest.blackVol(dates[i], strike), vols[i], 1e-12);
    }
 
    // Now check that they give the same vols (including extrapolation)
    for (Time t = 0.1; t < numYears + 10.0; t += 0.1) {
        BOOST_CHECK_CLOSE(bvcBase.blackVol(t, strike), bvcTest.blackVol(t, strike), 1e-12);
    }
 
    // Now double the quotes
    for (Size i = 0; i < simpleQuotes.size(); ++i) {
        simpleQuotes[i]->setValue(simpleQuotes[i]->value() * 2.0);
    }
    // and check again
    for (Time t = 0.1; t < numYears + 10.0; t += 0.1) {
        BOOST_CHECK_CLOSE(bvcBase.blackVol(t, strike), 0.5 * bvcTest.blackVol(t, strike), 1e-12);
    }
}
 
BOOST_AUTO_TEST_SUITE_END()
 
BOOST_AUTO_TEST_SUITE_END()