coxingersollross.hpp

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/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
 
/*
 Copyright (C) 2001, 2002, 2003 Sadruddin Rejeb
 Copyright (C) 2021 Magnus Mencke
 
 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 coxingersollross.hpp
    \brief Cox-Ingersoll-Ross model
*/
 
#ifndef quantlib_cox_ingersoll_ross_hpp
#define quantlib_cox_ingersoll_ross_hpp
 
#include <ql/models/shortrate/onefactormodel.hpp>
#include <ql/processes/coxingersollrossprocess.hpp>
 
namespace QuantLib {
 
    //! Cox-Ingersoll-Ross model class.
    /*! This class implements the Cox-Ingersoll-Ross model defined by
        \f[
            dr(t) = k(\theta - r(t))dt + \sigma \sqrt{r(t)} dW(t)
        \f]
 
        \bug this class was not tested enough to guarantee
             its functionality.
 
        \ingroup shortrate
    */
    class CoxIngersollRoss : public OneFactorAffineModel {
      public:
        CoxIngersollRoss(Rate r0 = 0.05,
                         Real theta = 0.1,
                         Real k = 0.1,
                         Real sigma = 0.1,
                         bool withFellerConstraint = true);
 
        Real discountBondOption(Option::Type type,
                                Real strike,
                                Time maturity,
                                Time bondMaturity) const override;
 
        ext::shared_ptr<ShortRateDynamics> dynamics() const override;
 
        ext::shared_ptr<Lattice> tree(const TimeGrid& grid) const override;
 
 
        class Dynamics;
      protected:
        Real A(Time t, Time T) const override;
        Real B(Time t, Time T) const override;
 
        Real theta() const { return theta_(0.0); }
        Real k() const { return k_(0.0); }
        Real sigma() const { return sigma_(0.0); }
        Real x0() const { return r0_(0.0); }
 
      private:
        class VolatilityConstraint;
 
        Parameter& theta_;
        Parameter& k_;
        Parameter& sigma_;
        Parameter& r0_;
    };
 
    //! %Dynamics of the short-rate under the Cox-Ingersoll-Ross model
    /*! The short-rate is simulated directly using the Quadratic Exponential
        discretization scheme as described in Leif Andersen,
        Efficient Simulation of the Heston Stochastic Volatility Model.
    */
    class CoxIngersollRoss::Dynamics :
        public OneFactorModel::ShortRateDynamics {
      public:
        Dynamics(Real theta,
                 Real k,
                 Real sigma,
                 Real x0)
        : ShortRateDynamics(ext::shared_ptr<StochasticProcess1D>(
                        new CoxIngersollRossProcess(k, sigma, x0, theta))) {}
 
        Real variable(Time, Rate r) const override { return r; }
        Real shortRate(Time, Real y) const override { return y; }
    };
 
}
 
 
#endif