lsstrategy.cpp

Go to the documentation of this file.

/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
 
/*
 Copyright (C) 2006 Mark Joshi
 
 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/models/marketmodels/callability/lsstrategy.hpp>
#include <ql/models/marketmodels/curvestate.hpp>
#include <ql/models/marketmodels/discounter.hpp>
#include <ql/models/marketmodels/evolutiondescription.hpp>
#include <ql/models/marketmodels/utilities.hpp>
#include <utility>
 
namespace QuantLib {
 
    typedef MarketModelMultiProduct::CashFlow CashFlow;
 
    LongstaffSchwartzExerciseStrategy::LongstaffSchwartzExerciseStrategy(
        Clone<MarketModelBasisSystem> basisSystem,
        std::vector<std::vector<Real> > basisCoefficients,
        const EvolutionDescription& evolution,
        const std::vector<Size>& numeraires,
        Clone<MarketModelExerciseValue> exercise,
        Clone<MarketModelExerciseValue> control)
    : basisSystem_(std::move(basisSystem)), basisCoefficients_(std::move(basisCoefficients)),
      exercise_(std::move(exercise)), control_(std::move(control)), numeraires_(numeraires) {
 
        checkCompatibility(evolution, numeraires);
        relevantTimes_ = evolution.evolutionTimes();
 
        isBasisTime_.resize(relevantTimes_.size());
        isBasisTime_ = isInSubset(relevantTimes_,
                                  basisSystem_->evolution().evolutionTimes());
        isRebateTime_.resize(relevantTimes_.size());
        isRebateTime_ = isInSubset(relevantTimes_,
                                   exercise_->evolution().evolutionTimes());
        isControlTime_.resize(relevantTimes_.size());
        isControlTime_ = isInSubset(relevantTimes_,
                                    control_->evolution().evolutionTimes());
 
        exerciseIndex_ = std::vector<Size>(relevantTimes_.size());
        isExerciseTime_.resize(relevantTimes_.size(), false);
        std::valarray<bool> v = exercise_->isExerciseTime();
        Size exercises = 0, idx = 0;
        Size i;
        for (i=0; i<relevantTimes_.size(); ++i) {
            exerciseIndex_[i] = exercises;
            if (isRebateTime_[i]) {
                isExerciseTime_[i] = v[idx++];
                if (isExerciseTime_[i]) {
                    exerciseTimes_.push_back(relevantTimes_[i]);
                    ++exercises;
                }
            }
        }
 
        const std::vector<Time>& rateTimes = evolution.rateTimes();
        std::vector<Time> rebateTimes = exercise_->possibleCashFlowTimes();
        rebateDiscounters_.reserve(rebateTimes.size());
        for (i=0; i<rebateTimes.size(); ++i)
            rebateDiscounters_.emplace_back(rebateTimes[i], rateTimes);
 
        std::vector<Time> controlTimes = control_->possibleCashFlowTimes();
        controlDiscounters_.reserve(controlTimes.size());
        for (i=0; i<controlTimes.size(); ++i)
            controlDiscounters_.emplace_back(controlTimes[i], rateTimes);
 
        std::vector<Size> basisSizes = basisSystem_->numberOfFunctions();
        basisValues_.resize(basisSystem_->numberOfExercises());
        for (i=0; i<basisValues_.size(); ++i)
            basisValues_[i].resize(basisSizes[i]);
    }
 
    std::vector<Time>
    LongstaffSchwartzExerciseStrategy::exerciseTimes() const {
        return exerciseTimes_;
    }
 
    std::vector<Time>
    LongstaffSchwartzExerciseStrategy::relevantTimes() const {
        return relevantTimes_;
    }
 
    void LongstaffSchwartzExerciseStrategy::reset() {
        exercise_->reset();
        control_->reset();
        basisSystem_->reset();
        currentIndex_ = 0;
        principalInNumerairePortfolio_ = newPrincipal_ = 1.0;
    }
 
    bool LongstaffSchwartzExerciseStrategy::exercise(
                                      const CurveState& currentState) const {
 
        Size exerciseIndex = exerciseIndex_[currentIndex_-1];
 
        CashFlow exerciseCF = exercise_->value(currentState);
        Real exerciseValue = exerciseCF.amount *
            rebateDiscounters_[exerciseCF.timeIndex]
                .numeraireBonds(currentState,
                                numeraires_[currentIndex_-1]) /
            principalInNumerairePortfolio_;
 
        CashFlow controlCF = control_->value(currentState);
        Real controlValue = controlCF.amount *
            controlDiscounters_[controlCF.timeIndex]
                .numeraireBonds(currentState,
                                numeraires_[currentIndex_-1]) /
            principalInNumerairePortfolio_;
 
        basisSystem_->values(currentState,
                             basisValues_[exerciseIndex]);
 
        const std::vector<Real>& alphas = basisCoefficients_[exerciseIndex];
        Real continuationValue =
            std::inner_product(alphas.begin(), alphas.end(),
                               basisValues_[exerciseIndex].begin(),
                               controlValue);
 
        return exerciseValue >= continuationValue;
    }
 
    void LongstaffSchwartzExerciseStrategy::nextStep(
                                            const CurveState& currentState) {
        principalInNumerairePortfolio_ = newPrincipal_;
 
        if (isRebateTime_[currentIndex_])
            exercise_->nextStep(currentState);
        if (isControlTime_[currentIndex_])
            control_->nextStep(currentState);
        if (isBasisTime_[currentIndex_])
            basisSystem_->nextStep(currentState);
 
        if (currentIndex_ < numeraires_.size()-1) {
            Size numeraire = numeraires_[currentIndex_];
            Size nextNumeraire = numeraires_[currentIndex_+1];
            newPrincipal_ *=
                currentState.discountRatio(numeraire, nextNumeraire);
        }
 
        ++currentIndex_;
    }
 
    std::unique_ptr<ExerciseStrategy<CurveState>>
    LongstaffSchwartzExerciseStrategy::clone() const {
        return std::unique_ptr<ExerciseStrategy<CurveState>>(new LongstaffSchwartzExerciseStrategy(*this));
    }
 
}