dynamicswaptionvolmatrix.cpp

Go to the documentation of this file.

/*
 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 "utilities.hpp"
#include <boost/test/unit_test.hpp>
 
#include <qle/termstructures/dynamicswaptionvolmatrix.hpp>
 
#include <ql/quotes/simplequote.hpp>
#include <ql/termstructures/volatility/swaption/swaptionvolmatrix.hpp>
#include <ql/time/calendars/target.hpp>
 
#include <ql/time/daycounters/actual365fixed.hpp>
 
using namespace QuantExt;
using namespace QuantLib;
using namespace boost::unit_test_framework;
 
namespace {
 
struct TestData {
 
    TestData() : origRefDate(20, Jan, 2016), atmVols(2, 2) {
 
        Settings::instance().evaluationDate() = origRefDate;
 
        optionTenors.push_back(3 * Months);
        optionTenors.push_back(5 * Years);
        swapTenors.push_back(1 * Years);
        swapTenors.push_back(2 * Years);
        //    sw 1Y                   sw 2Y
        atmVols[0][0] = 0.0050;
        atmVols[0][1] = 0.0060; // opt 3m
        atmVols[1][0] = 0.0100;
        atmVols[1][1] = 0.0160; // opt 2y
 
        // atm surface
        atmSurface = QuantLib::ext::make_shared<SwaptionVolatilityMatrix>(origRefDate, TARGET(), Following, optionTenors,
                                                                  swapTenors, atmVols, Actual365Fixed(), false, Normal);
    }
 
    SavedSettings backup;
    const Date origRefDate;
    QuantLib::ext::shared_ptr<SwaptionVolatilityStructure> atmSurface;
    std::vector<Period> optionTenors, swapTenors;
    Matrix atmVols;
};
 
} // anonymous namespace
 
BOOST_FIXTURE_TEST_SUITE(QuantExtTestSuite, qle::test::TopLevelFixture)
 
BOOST_AUTO_TEST_SUITE(DynamicSwaptionVolMatrixTest)
 
BOOST_AUTO_TEST_CASE(testConstantVariance) {
 
    BOOST_TEST_MESSAGE("Testing constant variance dynamics of "
                       "DynamicSwaptionVolatilityMatrix...");
 
    TestData d;
 
    QuantLib::ext::shared_ptr<SwaptionVolatilityStructure> dyn =
        QuantLib::ext::make_shared<DynamicSwaptionVolatilityMatrix>(d.atmSurface, 0, TARGET(), ConstantVariance);
 
    dyn->enableExtrapolation();
 
    Real tol = 1.0E-8;
 
    Real strike = 0.05; // dummy strike
 
    // initially we should get the same volatilities
 
    BOOST_CHECK_CLOSE(dyn->volatility(1 * Months, 1 * Years, strike),
                      d.atmSurface->volatility(1 * Months, 1 * Years, strike), tol);
    BOOST_CHECK_CLOSE(dyn->volatility(1 * Months, 2 * Years, strike),
                      d.atmSurface->volatility(1 * Months, 2 * Years, strike), tol);
    BOOST_CHECK_CLOSE(dyn->volatility(1 * Years, 1 * Years, strike),
                      d.atmSurface->volatility(1 * Years, 1 * Years, strike), tol);
    BOOST_CHECK_CLOSE(dyn->volatility(1 * Years, 2 * Years, strike),
                      d.atmSurface->volatility(1 * Years, 2 * Years, strike), tol);
 
    // move forward in time, we expect a constant surface
 
    Settings::instance().evaluationDate() = TARGET().advance(d.origRefDate, 5 * Months);
 
    BOOST_CHECK_CLOSE(dyn->volatility(0.1, 1.0, strike), d.atmSurface->volatility(0.1, 1.0, strike), tol);
    BOOST_CHECK_CLOSE(dyn->volatility(0.1, 2.0, strike), d.atmSurface->volatility(0.1, 2.0, strike), tol);
    BOOST_CHECK_CLOSE(dyn->volatility(1.0, 1.0, strike), d.atmSurface->volatility(1.0, 1.0, strike), tol);
    BOOST_CHECK_CLOSE(dyn->volatility(1.0, 2.0, strike), d.atmSurface->volatility(1.0, 2.0, strike), tol);
 
} // testConstantVariance
 
BOOST_AUTO_TEST_CASE(testForwardForwardVariance) {
 
    BOOST_TEST_MESSAGE("Testing forward forward variance dynamics of "
                       "DynamicSwaptionVolatilityMatrix");
    TestData d;
 
    QuantLib::ext::shared_ptr<SwaptionVolatilityStructure> dyn =
        QuantLib::ext::make_shared<DynamicSwaptionVolatilityMatrix>(d.atmSurface, 0, TARGET(), ForwardForwardVariance);
 
    dyn->enableExtrapolation();
 
    Real tol = 1.0E-8;
 
    Real strike = 0.05; // dummy strike
 
    // initially we should get the same volatilities again
 
    BOOST_CHECK_CLOSE(dyn->volatility(1 * Months, 1 * Years, strike),
                      d.atmSurface->volatility(1 * Months, 1 * Years, strike), tol);
    BOOST_CHECK_CLOSE(dyn->volatility(1 * Months, 2 * Years, strike),
                      d.atmSurface->volatility(1 * Months, 2 * Years, strike), tol);
    BOOST_CHECK_CLOSE(dyn->volatility(1 * Years, 1 * Years, strike),
                      d.atmSurface->volatility(1 * Years, 1 * Years, strike), tol);
    BOOST_CHECK_CLOSE(dyn->volatility(1 * Years, 2 * Years, strike),
                      d.atmSurface->volatility(1 * Years, 2 * Years, strike), tol);
 
    // move forward in time, we expect the forward forward variance
 
    Settings::instance().evaluationDate() = TARGET().advance(d.origRefDate, 5 * Months);
    Real tf = d.atmSurface->timeFromReference(Settings::instance().evaluationDate());
 
    BOOST_CHECK_CLOSE(dyn->blackVariance(0.1, 1.0, strike),
                      d.atmSurface->blackVariance(tf + 0.1, 1.0, strike) - d.atmSurface->blackVariance(tf, 1.0, strike),
                      tol);
    BOOST_CHECK_CLOSE(dyn->blackVariance(0.1, 2.0, strike),
                      d.atmSurface->blackVariance(tf + 0.1, 2.0, strike) - d.atmSurface->blackVariance(tf, 2.0, strike),
                      tol);
    BOOST_CHECK_CLOSE(dyn->blackVariance(1.0, 1.0, strike),
                      d.atmSurface->blackVariance(tf + 1.0, 1.0, strike) - d.atmSurface->blackVariance(tf, 1.0, strike),
                      tol);
    BOOST_CHECK_CLOSE(dyn->blackVariance(1.0, 2.0, strike),
                      d.atmSurface->blackVariance(tf + 1.0, 2.0, strike) - d.atmSurface->blackVariance(tf, 2.0, strike),
                      tol);
 
} // testForwardForwardVariance
 
BOOST_AUTO_TEST_SUITE_END()
 
BOOST_AUTO_TEST_SUITE_END()