blackvolsurfacedelta.cpp

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/*
 Copyright (C) 2019 Quaternion Risk Management Ltd
 Copyright (C) 2020 Skandinaviska Enskilda Banken AB (publ)
 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/yield/flatforward.hpp>
#include <ql/time/calendars/target.hpp>
#include <ql/time/daycounters/actualactual.hpp>
#include <qle/termstructures/blackvolsurfacedelta.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(BlackVolSurfaceDeltaTest)
 
BOOST_AUTO_TEST_CASE(testBlackVolSurfaceDeltaConstantVol) {
 
    BOOST_TEST_MESSAGE("Testing QuantExt::BlackVolatilitySurfaceDelta...");
 
    Volatility constVol = 0.10; // 10%
 
    Date refDate(1, Jan, 2010);
    Settings::instance().evaluationDate() = refDate;
 
    // Setup a 2x2
    vector<Date> dates = { Date(1, Jan, 2011), Date(1, Jan, 2012) };
    vector<Real> putDeltas = { -0.25 };
    vector<Real> callDeltas = { 0.25 };
    bool hasAtm = false;
    Matrix blackVolMatrix(2, 2, constVol);
 
    // dummy spot and zero yield curve
    Handle<Quote> spot(QuantLib::ext::make_shared<SimpleQuote>(1.0));
    Handle<YieldTermStructure> dts(QuantLib::ext::make_shared<FlatForward>(0, TARGET(), 0.011, ActualActual(ActualActual::ISDA)));
    Handle<YieldTermStructure> fts(QuantLib::ext::make_shared<FlatForward>(0, TARGET(), 0.012, ActualActual(ActualActual::ISDA)));
 
    // build a vol surface
    BOOST_TEST_MESSAGE("Build Surface");
    BlackVolatilitySurfaceDelta surface(refDate, dates, putDeltas, callDeltas, hasAtm, blackVolMatrix, ActualActual(ActualActual::ISDA),
                                        TARGET(), spot, dts, fts);
 
    // ask for volatility at lots of points, should be constVol at every point
    // make sure we ask for vols outside 25D and 2Y
    for (Time t : { 0.25, 0.5, 1.0, 1.5, 2.0, 2.5, 10.0 }) {
        for (Real k = 0.5; k < 2.0; k += 0.05) {
            Volatility vol = surface.blackVol(t, k);
            BOOST_CHECK_EQUAL(vol, constVol);
        }
    }
}
 
BOOST_AUTO_TEST_CASE(testInterpolatedSmileSectionConstruction) {
 
    BOOST_TEST_MESSAGE("Testing QuantExt::InterpolatedSmileSection...");
    // Set up the parameters with some arbitrary data
    Real spot = 100;
    Real rd = 0.05;
    Real rf = 0.03;
    Time t = 1.0;
    vector<Real> strikes = { 90, 100, 110 };
    vector<Volatility> vols = { 0.15, 0.1, 0.15 };
    vector<InterpolatedSmileSection::InterpolationMethod> methods = {
        InterpolatedSmileSection::InterpolationMethod::Linear,
        InterpolatedSmileSection::InterpolationMethod::FinancialCubic,
        InterpolatedSmileSection::InterpolationMethod::NaturalCubic,
        InterpolatedSmileSection::InterpolationMethod::CubicSpline
    };
 
    // Construct the smile section
    QuantLib::ext::shared_ptr<InterpolatedSmileSection> section;
    for (auto method : methods) {
        BOOST_TEST_MESSAGE("Trying to construct InterpolatedSmileSection with interpolation method: " << Integer(method) << ".");
        BOOST_CHECK_NO_THROW(section =
                                 QuantLib::ext::make_shared<InterpolatedSmileSection>(spot, rd, rf, t, strikes, vols, method));
        BOOST_CHECK_EQUAL(section->volatility(strikes.at(1)), vols.at(1));
    }
}
 
BOOST_AUTO_TEST_SUITE_END()
 
BOOST_AUTO_TEST_SUITE_END()