riskybondengine.cpp

/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
 
/*
 Copyright (C) 2008 Roland Lichters
 Copyright (C) 2021 Lew Wei Hao
 
 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 <ql/pricingengines/bond/riskybondengine.hpp>
#include <ql/cashflows/cashflows.hpp>
#include <ql/cashflows/coupon.hpp>
#include <utility>
 
 
namespace QuantLib {
 
    RiskyBondEngine::RiskyBondEngine(Handle<DefaultProbabilityTermStructure> defaultTS,
                                     Real recoveryRate,
                                     Handle<YieldTermStructure> yieldTS)
    : defaultTS_(std::move(defaultTS)), 
      recoveryRate_(recoveryRate), 
      yieldTS_(std::move(yieldTS)) {
        registerWith(defaultTS_);
        registerWith(yieldTS_);
    }
 
    void RiskyBondEngine::calculate() const {
        Date npvDate = yieldTS()->referenceDate();
        Date settlementDate = arguments_.settlementDate;
        Date startDate = CashFlows::startDate(arguments_.cashflows);
        Date d1 = std::max(npvDate, startDate);
 
        Real NPV = 0.0;
        Real settlementValue = 0.0;
        for (auto& cf : arguments_.cashflows) {
            Date d2 = cf->date();
            if (d2 > npvDate) {
 
                Real weightedCouponAmount = cf->amount() * defaultTS()->survivalProbability(d2);
                NPV += weightedCouponAmount * yieldTS()->discount(d2);
                if (d2 > settlementDate)
                    settlementValue += weightedCouponAmount * yieldTS()->discount(d2);
 
                auto coupon = ext::dynamic_pointer_cast<Coupon>(cf);
                if (coupon != nullptr) {
                    Date defaultDate = d1 + (d2 - d1) / 2;
                    Real weightedRecovery = coupon->nominal() * recoveryRate() *
                                    (defaultTS()->survivalProbability(d1) -
                                     defaultTS()->survivalProbability(d2)); 
                    NPV += weightedRecovery * yieldTS()->discount(defaultDate);
                    if (d2 > settlementDate)
                        settlementValue += weightedRecovery * yieldTS()->discount(defaultDate);
 
                    d1 = d2;
                }
            }
        }
 
        results_.value = NPV;
        results_.settlementValue = settlementValue / yieldTS()->discount(settlementDate);
        results_.valuationDate = npvDate;
    }
 
}