quantocouponpricer.cpp

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/*
 Copyright (C) 2018 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.
*/
 
/*
 Copyright (C) 2008 Toyin Akin
 
 This file is part of QuantLib, a free-software/open-source library
 for financial quantitative analysts and developers - http://quantlib.org/
 
 QuantLib is free software: you can redistribute it and/or modify it
 under the terms of the QuantLib license.  You should have received a
 copy of the license along with this program; if not, please email
 <quantlib-dev@lists.sf.net>. The license is also available online at
 <http://quantlib.org/license.shtml>.
 
 This program is distributed in the hope that it will be useful, but WITHOUT
 ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS
 FOR A PARTICULAR PURPOSE.  See the license for more details.
*/
 
#include <qle/cashflows/quantocouponpricer.hpp>
 
#include <ql/cashflows/capflooredcoupon.hpp>
#include <ql/cashflows/digitalcmscoupon.hpp>
#include <ql/cashflows/digitalcoupon.hpp>
#include <ql/cashflows/digitaliborcoupon.hpp>
#include <ql/cashflows/rangeaccrual.hpp>
#include <ql/indexes/interestrateindex.hpp>
#include <ql/pricingengines/blackformula.hpp>
 
using namespace QuantLib;
 
namespace QuantExt {
 
Rate BlackIborQuantoCouponPricer::adjustedFixing(Real fixing) const {
 
    if (fixing == Null<Rate>())
        fixing = coupon_->indexFixing();
 
    // Here we apply the quanto adjustment first, then delegate to
    // the parent class
    Date d1 = coupon_->fixingDate(), referenceDate = capletVolatility()->referenceDate();
 
    if (d1 > referenceDate) {
        Time t1 = capletVolatility()->timeFromReference(d1);
        Volatility fxsigma = fxRateBlackVolatility_->blackVol(d1, fixing, true);
        Volatility sigma = capletVolatility()->volatility(d1, fixing);
        Real rho = underlyingFxCorrelation_->value();
 
        // Apply Quanto Adjustment.
        // Hull 6th Edition, page 642, generalised to
        // shifted lognormal and normal volatilities
        if (capletVolatility()->volatilityType() == ShiftedLognormal) {
            Real dQuantoAdj = std::exp(sigma * fxsigma * rho * t1);
            Real shift = capletVolatility()->displacement();
            fixing = (fixing + shift) * dQuantoAdj - shift;
        } else {
            Real dQuantoAdj = sigma * fxsigma * rho * t1;
            fixing += dQuantoAdj;
        }
    }
 
    return BlackIborCouponPricer::adjustedFixing(fixing);
}
 
} // namespace QuantExt