riskynotional.hpp

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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
 
/*
 Copyright (C) 2012, 2013 Grzegorz Andruszkiewicz
 
 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.
*/
 
/*! \file riskynotional.hpp
    \brief classes to track the notional of a cat bond
*/
 
#ifndef quantlib_risky_notional_hpp
#define quantlib_risky_notional_hpp
 
#include <ql/errors.hpp>
#include <ql/shared_ptr.hpp>
#include <ql/time/date.hpp>
#include <algorithm>
#include <utility>
#include <vector>
 
namespace QuantLib {
 
    class EventPaymentOffset {
      public:
        virtual ~EventPaymentOffset() = default;
        virtual Date paymentDate(const Date& eventDate) = 0;
    };
 
    class NoOffset : public EventPaymentOffset {
      public:
        Date paymentDate(const Date& eventDate) override { return eventDate; }
    };
 
    class NotionalPath {
      public:
        NotionalPath();
 
        Rate notionalRate(const Date& date) const; //The fraction of the original notional left on a given date
 
        void reset();
 
        void addReduction(const Date &date, Rate newRate);
 
        Real loss();
 
      private:
        std::vector<std::pair<Date, Real> > notionalRate_;
    };
 
    class NotionalRisk {
    public:
      explicit NotionalRisk(ext::shared_ptr<EventPaymentOffset> paymentOffset)
      : paymentOffset_(std::move(paymentOffset)) {}
      virtual ~NotionalRisk() = default;
 
      virtual void updatePath(const std::vector<std::pair<Date, Real> >& events,
                              NotionalPath& path) const = 0;
 
    protected:
      ext::shared_ptr<EventPaymentOffset> paymentOffset_;       
    };
 
    class DigitalNotionalRisk : public NotionalRisk {
      public:
        DigitalNotionalRisk(const ext::shared_ptr<EventPaymentOffset>& paymentOffset,
                            Real threshold)
        : NotionalRisk(paymentOffset), threshold_(threshold) {}
 
        void updatePath(const std::vector<std::pair<Date, Real> >& events,
                        NotionalPath& path) const override;
 
      protected:
        Real threshold_;
    };
 
 
    class ProportionalNotionalRisk : public NotionalRisk
    {
    public:
      ProportionalNotionalRisk(const ext::shared_ptr<EventPaymentOffset>& paymentOffset,
                               Real attachement,
                               Real exhaustion)
      : NotionalRisk(paymentOffset), attachement_(attachement), exhaustion_(exhaustion) {
          QL_REQUIRE(attachement < exhaustion,
                     "exhaustion level needs to be greater than attachement");
        }
 
        void updatePath(const std::vector<std::pair<Date, Real> >& events,
                        NotionalPath& path) const override {
            path.reset();
            Real losses = 0;
            Real previousNotional = 1;
            for (const auto& event : events) {
                losses += event.second;
                if(losses>attachement_ && previousNotional>0)
                {
                    previousNotional = std::max(0.0, (exhaustion_-losses)/(exhaustion_-attachement_));
                    path.addReduction(paymentOffset_->paymentDate(event.first), previousNotional);
                }
            }
        }
 
    protected:
        Real attachement_;
        Real exhaustion_;
    };
 
}
 
#endif