commodityspreadoptionengine.hpp

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/*
 Copyright (C) 2022 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.
*/
 
/*! \file qle/pricingengines/commodityspreadoptionengine.hpp
    \brief commodity spread option engine
    \ingroup engines
*/
 
#pragma once
 
#include <qle/instruments/commodityspreadoption.hpp>
#include <qle/methods/multipathgeneratorbase.hpp>
#include <qle/models/blackscholesmodelwrapper.hpp>
 
#include <ql/termstructures/volatility/equityfx/blackvoltermstructure.hpp>
#include <ql/termstructures/yieldtermstructure.hpp>
#include <qle/termstructures/correlationtermstructure.hpp>
 
namespace QuantExt {
 
/*! Commodity Spread Option Engine
    Uses the Kirk Approximation described in Iain J. Clark - Commodity Option Pricing - Section 2.9
    Rho is the correlation between two commodities and for asian future spreads the
    intra-asset correlation between two future contracts are parametrized as \f$\rho(s, t) = \exp(-\beta * \abs(s -
   t))\f$ where \f$s\f$ and \f$t\f$ are times to futures expiry.
 */
class CommoditySpreadOptionAnalyticalEngine : public CommoditySpreadOption::engine {
public:
    CommoditySpreadOptionAnalyticalEngine(const QuantLib::Handle<QuantLib::YieldTermStructure>& discountCurve,
                                          const QuantLib::Handle<QuantLib::BlackVolTermStructure>& volTSLongAsset,
                                          const QuantLib::Handle<QuantLib::BlackVolTermStructure>& volTSShortAsset,
                                          const QuantLib::Handle<QuantExt::CorrelationTermStructure>& rho,
                                          Real beta = 0.0);
    void calculate() const override;
 
private:
    struct PricingParameter {
        Time tn;
        Real atm;
        Real sigma;
        Real accruals;
        std::vector<QuantLib::Date> pricingDates;
        std::vector<std::string> indexNames;
        std::vector<Real> fixings;
        std::vector<QuantLib::Date> expiries;
    };
 
    PricingParameter derivePricingParameterFromFlow(const ext::shared_ptr<CommodityCashFlow>& flow,
                                                    const ext::shared_ptr<BlackVolTermStructure>& vol,
                                                    const ext::shared_ptr<FxIndex>& fxIndex) const;
 
    //! Return the correlation between two future expiry dates \p ed_1 and \p ed_2
    double intraAssetCorrelation(const QuantLib::Date& e1, const QuantLib::Date& e2,
                                  const ext::shared_ptr<BlackVolTermStructure>& vol) const;
 
    double rho() const;
 
protected:
    QuantLib::Handle<QuantLib::YieldTermStructure> discountCurve_;
    QuantLib::Handle<QuantLib::BlackVolTermStructure> volTSLongAsset_;
    QuantLib::Handle<QuantLib::BlackVolTermStructure> volTSShortAsset_;
    const QuantLib::Handle<QuantExt::CorrelationTermStructure> rho_;
    QuantLib::Real beta_;
};
 
} // namespace QuantExt