Logo
Fully annotated reference manual - version 1.8.12
Loading...
Searching...
No Matches
swaptionvolconstantspread.cpp
Go to the documentation of this file.
1/*
2 Copyright (C) 2017 Quaternion Risk Management Ltd
3 All rights reserved.
4
5 This file is part of ORE, a free-software/open-source library
6 for transparent pricing and risk analysis - http://opensourcerisk.org
7
8 ORE is free software: you can redistribute it and/or modify it
9 under the terms of the Modified BSD License. You should have received a
10 copy of the license along with this program.
11 The license is also available online at <http://opensourcerisk.org>
12
13 This program is distributed on the basis that it will form a useful
14 contribution to risk analytics and model standardisation, but WITHOUT
15 ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or
16 FITNESS FOR A PARTICULAR PURPOSE. See the license for more details.
17*/
18
19#include "swaptionmarketdata.hpp"
20#include "toplevelfixture.hpp"
21#include "yieldcurvemarketdata.hpp"
22#include <boost/test/unit_test.hpp>
23#include <qle/termstructures/swaptionvolatilityconverter.hpp>
24#include <qle/termstructures/swaptionvolconstantspread.hpp>
25#include <qle/termstructures/swaptionvolcube2.hpp>
26
27#include <ql/indexes/swap/euriborswap.hpp>
28
29#include <boost/assign/list_of.hpp>
30
31using namespace QuantExt;
32using namespace QuantLib;
33using namespace boost::unit_test_framework;
34using namespace boost::assign;
35
36namespace {
37// Variables to be used in the test
38struct CommonVars {
39 // Constructor
40 CommonVars(Size expiryIndex = 0, Size termIndex = 0, Real atmVolShift = 0) : referenceDate(5, Feb, 2016) {
41
42 // Reference date
43 Settings::instance().evaluationDate() = referenceDate;
44
45 // Link ibor index to correct forward curve
46 QuantLib::ext::shared_ptr<IborIndex> iborIndex = conventions.floatIndex->clone(yieldCurves.forward6M);
47 QuantLib::ext::shared_ptr<SwapIndex> swapIndex =
48 conventions.swapIndex->clone(yieldCurves.forward6M, yieldCurves.forward6M);
49 QuantLib::ext::shared_ptr<SwapIndex> shortSwapIndex =
50 conventions.shortSwapIndex->clone(yieldCurves.forward6M, yieldCurves.forward6M);
51
52 // Create underlying swap conventions
53 swapConventions = QuantLib::ext::make_shared<SwapConventions>(conventions.settlementDays, conventions.fixedTenor,
54 conventions.fixedCalendar, conventions.fixedConvention,
55 conventions.fixedDayCounter, iborIndex);
56
57 // Set up the various swaption matrices
58 Matrix shiftedAtmVols = atmVols.nVols;
59 QL_REQUIRE(expiryIndex < atmVols.optionTenors.size(), "expiryIndex out of range");
60 QL_REQUIRE(termIndex < atmVols.swapTenors.size(), "termIndex out of range");
61 shiftedAtmVols[expiryIndex][termIndex] += atmVolShift;
62 atmNormalVolMatrix = QuantLib::ext::make_shared<SwaptionVolatilityMatrix>(
63 referenceDate, conventions.fixedCalendar, conventions.fixedConvention, atmVols.optionTenors,
64 atmVols.swapTenors, shiftedAtmVols, Actual365Fixed(), true, Normal);
65
66 atmLogNormalVolMatrix = QuantLib::ext::make_shared<SwaptionVolatilityMatrix>(
67 referenceDate, conventions.fixedCalendar, conventions.fixedConvention, atmVols.optionTenors,
68 atmVols.swapTenors, shiftedAtmVols, Actual365Fixed(), true, ShiftedLognormal);
69
70 // QuantLib::ext::make_shared can only handle 9 parameters
71 atmShiftedLogNormalVolMatrix_1 = QuantLib::ext::shared_ptr<SwaptionVolatilityMatrix>(new SwaptionVolatilityMatrix(
72 referenceDate, conventions.fixedCalendar, conventions.fixedConvention, atmVols.optionTenors,
73 atmVols.swapTenors, shiftedAtmVols, Actual365Fixed(), true, ShiftedLognormal, atmVols.shifts_1));
74
75 atmShiftedLogNormalVolMatrix_2 = QuantLib::ext::shared_ptr<SwaptionVolatilityMatrix>(new SwaptionVolatilityMatrix(
76 referenceDate, conventions.fixedCalendar, conventions.fixedConvention, atmVols.optionTenors,
77 atmVols.swapTenors, atmVols.slnVols_2, Actual365Fixed(), true, ShiftedLognormal, atmVols.shifts_2));
78
79 normalVolCube = QuantLib::ext::shared_ptr<SwaptionVolCube2>(new SwaptionVolCube2(
80 Handle<QuantLib::SwaptionVolatilityStructure>(atmNormalVolMatrix), atmVols.optionTenors, atmVols.swapTenors,
81 atmVols.strikeSpreads, atmVols.nVolSpreads, swapIndex, shortSwapIndex, false, true));
82 logNormalVolCube = QuantLib::ext::shared_ptr<SwaptionVolCube2>(new SwaptionVolCube2(
83 Handle<QuantLib::SwaptionVolatilityStructure>(atmLogNormalVolMatrix), atmVols.optionTenors,
84 atmVols.swapTenors, atmVols.strikeSpreads, atmVols.lnVolSpreads, swapIndex, shortSwapIndex, false, true));
85 shiftedLogNormalVolCube = QuantLib::ext::shared_ptr<SwaptionVolCube2>(new SwaptionVolCube2(
86 Handle<QuantLib::SwaptionVolatilityStructure>(atmShiftedLogNormalVolMatrix_1), atmVols.optionTenors,
87 atmVols.swapTenors, atmVols.strikeSpreads, atmVols.slnVolSpreads, swapIndex, shortSwapIndex, false, true));
88
89 normalVolCubeConstantSpread = QuantLib::ext::shared_ptr<SwaptionVolatilityConstantSpread>(
90 new SwaptionVolatilityConstantSpread(Handle<QuantLib::SwaptionVolatilityStructure>(atmNormalVolMatrix),
91 Handle<QuantLib::SwaptionVolatilityStructure>(normalVolCube)));
92
93 logNormalVolCubeConstantSpread = QuantLib::ext::shared_ptr<SwaptionVolatilityConstantSpread>(
94 new SwaptionVolatilityConstantSpread(Handle<QuantLib::SwaptionVolatilityStructure>(atmLogNormalVolMatrix),
95 Handle<QuantLib::SwaptionVolatilityStructure>(logNormalVolCube)));
96
97 shiftedLogNormalVolCubeConstantSpread =
98 QuantLib::ext::shared_ptr<SwaptionVolatilityConstantSpread>(new SwaptionVolatilityConstantSpread(
99 Handle<QuantLib::SwaptionVolatilityStructure>(atmShiftedLogNormalVolMatrix_1),
100 Handle<QuantLib::SwaptionVolatilityStructure>(shiftedLogNormalVolCube)));
101 }
102
103 // Members
104 Date referenceDate;
105 SwaptionConventionsEUR conventions;
106 SwaptionVolatilityEUR atmVols;
107 YieldCurveEUR yieldCurves;
108 QuantLib::ext::shared_ptr<SwapConventions> swapConventions;
109 QuantLib::ext::shared_ptr<SwaptionVolatilityStructure> atmNormalVolMatrix;
110 QuantLib::ext::shared_ptr<SwaptionVolatilityStructure> atmLogNormalVolMatrix;
111 QuantLib::ext::shared_ptr<SwaptionVolatilityStructure> atmShiftedLogNormalVolMatrix_1;
112 QuantLib::ext::shared_ptr<SwaptionVolatilityStructure> atmShiftedLogNormalVolMatrix_2;
113 QuantLib::ext::shared_ptr<SwaptionVolatilityStructure> normalVolCube, normalVolCubeConstantSpread;
114 QuantLib::ext::shared_ptr<SwaptionVolatilityStructure> logNormalVolCube, logNormalVolCubeConstantSpread;
115 QuantLib::ext::shared_ptr<SwaptionVolatilityStructure> shiftedLogNormalVolCube, shiftedLogNormalVolCubeConstantSpread;
116
117 SavedSettings backup;
118};
119} // namespace
120
121BOOST_FIXTURE_TEST_SUITE(QuantExtTestSuite, qle::test::TopLevelFixture)
122
123BOOST_AUTO_TEST_SUITE(SwaptionVolConstantSpreadTest)
124BOOST_AUTO_TEST_CASE(testAtmNormalVolShiftPropagation) {
125 BOOST_TEST_MESSAGE("Testing ATM normal vol shift propagation...");
126
127 CommonVars vars1;
128 Real tolerance = 0.000001;
129 Real shift = 0.0050;
130 for (Size i = 0; i < vars1.atmVols.optionTenors.size(); ++i) {
131 for (Size j = 0; j < vars1.atmVols.swapTenors.size(); ++j) {
132 CommonVars vars2(i, j, shift);
133 Period expiry = vars1.atmVols.optionTenors[i];
134 Period term = vars1.atmVols.swapTenors[j];
135
136 Real atmVol = vars1.atmNormalVolMatrix->volatility(expiry, term, 0.0);
137 Real shiftedAtmVol = vars2.atmNormalVolMatrix->volatility(expiry, term, 0.0);
138 BOOST_CHECK_SMALL(shiftedAtmVol - atmVol - shift, tolerance);
139
140 // check that shift propagates to all strikes for this expiry/term
141 for (Real strike = 0.01; strike <= 0.08; strike += 0.005) {
142 Real otmVol = vars1.normalVolCubeConstantSpread->volatility(expiry, term, strike);
143 Real shiftedOtmVol = vars2.normalVolCubeConstantSpread->volatility(expiry, term, strike);
144 // BOOST_TEST_MESSAGE(i << "/" << j << "/" << strike << " : ATM Vol " << atmVol << " OTM Vol " << otmVol
145 // << " ATM Vol Shift " << shiftedAtmVol - atmVol << " OTM Vol Shift "
146 // << shiftedOtmVol - otmVol);
147 BOOST_CHECK_SMALL(shiftedOtmVol - otmVol - shift, tolerance);
148 }
149
150 // check that there is no shift in any other expiry/term
151 for (Size ii = 0; ii < vars1.atmVols.optionTenors.size(); ++ii) {
152 if (i == ii)
153 continue;
154 for (Size jj = 0; jj < vars1.atmVols.swapTenors.size(); ++jj) {
155 if (j == jj)
156 continue;
157 Period expiry = vars1.atmVols.optionTenors[ii];
158 Period term = vars1.atmVols.swapTenors[jj];
159 Real atmVol = vars1.atmNormalVolMatrix->volatility(expiry, term, 0.0);
160 Real shiftedAtmVol = vars2.atmNormalVolMatrix->volatility(expiry, term, 0.0);
161 BOOST_CHECK_SMALL(shiftedAtmVol - atmVol, tolerance);
162 for (Real strike = 0.01; strike <= 0.08; strike += 0.005) {
163 Real otmVol = vars1.normalVolCubeConstantSpread->volatility(expiry, term, strike);
164 Real shiftedOtmVol = vars2.normalVolCubeConstantSpread->volatility(expiry, term, strike);
165 BOOST_CHECK_SMALL(shiftedOtmVol - otmVol, tolerance);
166 }
167 }
168 }
169 }
170 }
171}
172
173BOOST_AUTO_TEST_CASE(testAtmLogNormalVolShiftPropagation) {
174 BOOST_TEST_MESSAGE("Testing ATM log-normal vol shift propagation...");
175
176 CommonVars vars1;
177 Real tolerance = 0.000001;
178 Real shift = 0.1;
179 for (Size i = 0; i < vars1.atmVols.optionTenors.size(); ++i) {
180 for (Size j = 0; j < vars1.atmVols.swapTenors.size(); ++j) {
181 CommonVars vars2(i, j, shift);
182 Period expiry = vars1.atmVols.optionTenors[i];
183 Period term = vars1.atmVols.swapTenors[j];
184
185 Real atmVol = vars1.atmLogNormalVolMatrix->volatility(expiry, term, 0.0);
186 Real shiftedAtmVol = vars2.atmLogNormalVolMatrix->volatility(expiry, term, 0.0);
187 BOOST_CHECK_SMALL(shiftedAtmVol - atmVol - shift, tolerance);
188
189 // check that shift propagates to all strikes for this expiry/term
190 for (Real strike = 0.01; strike <= 0.08; strike += 0.005) {
191 Real otmVol = vars1.normalVolCubeConstantSpread->volatility(expiry, term, strike);
192 Real shiftedOtmVol = vars2.normalVolCubeConstantSpread->volatility(expiry, term, strike);
193 // BOOST_TEST_MESSAGE(i << "/" << j << "/" << strike << " : ATM Vol " << atmVol << " OTM Vol " << otmVol
194 // << " ATM Vol Shift " << shiftedAtmVol - atmVol << " OTM Vol Shift "
195 // << shiftedOtmVol - otmVol);
196 BOOST_CHECK_SMALL(shiftedOtmVol - otmVol - shift, tolerance);
197 }
198
199 // check that there is no shift in any other expiry/term
200 for (Size ii = 0; ii < vars1.atmVols.optionTenors.size(); ++ii) {
201 if (i == ii)
202 continue;
203 for (Size jj = 0; jj < vars1.atmVols.swapTenors.size(); ++jj) {
204 if (j == jj)
205 continue;
206 Period expiry = vars1.atmVols.optionTenors[ii];
207 Period term = vars1.atmVols.swapTenors[jj];
208 Real atmVol = vars1.atmLogNormalVolMatrix->volatility(expiry, term, 0.0);
209 Real shiftedAtmVol = vars2.atmLogNormalVolMatrix->volatility(expiry, term, 0.0);
210 BOOST_CHECK_SMALL(shiftedAtmVol - atmVol, tolerance);
211 for (Real strike = 0.01; strike <= 0.08; strike += 0.005) {
212 Real otmVol = vars1.logNormalVolCubeConstantSpread->volatility(expiry, term, strike);
213 Real shiftedOtmVol = vars2.logNormalVolCubeConstantSpread->volatility(expiry, term, strike);
214 BOOST_CHECK_SMALL(shiftedOtmVol - otmVol, tolerance);
215 }
216 }
217 }
218 }
219 }
220}
221
222BOOST_AUTO_TEST_SUITE_END()
223
224BOOST_AUTO_TEST_SUITE_END()
QuantExt::SwaptionVolatilityConstantSpread
Swaption cube that combines an ATM matrix and vol spreads from a cube.
Definition: swaptionvolconstantspread.hpp:69
swaptionmarketdata.hpp
structs containing swaption market data that can be used in tests
swaptionvolatilityconverter.hpp
Convert swaption volatilities from one type to another.
swaptionvolconstantspread.hpp
swaption cube that combines an ATM matrix and vol spreads from a cube
swaptionvolcube2.hpp
Swaption volatility cube, fit-later-interpolate-early approach.
BOOST_AUTO_TEST_CASE
BOOST_AUTO_TEST_CASE(testAtmNormalVolShiftPropagation)
Definition: swaptionvolconstantspread.cpp:124
toplevelfixture.hpp
Fixture that can be used at top level.
yieldcurvemarketdata.hpp
structs containing yield curve market data that can be used in tests
Generated by Doxygen 1.9.5