RiskyBondEngine Class Reference

Risky pricing engine for bonds. More...

#include <riskybondengine.hpp>

Inheritance diagram for RiskyBondEngine:

Collaboration diagram for RiskyBondEngine:

Public Member Functions
	RiskyBondEngine (Handle< DefaultProbabilityTermStructure > defaultTS, Real recoveryRate, Handle< YieldTermStructure > yieldTS)
void	calculate () const override
Handle< DefaultProbabilityTermStructure >	defaultTS () const
Real	recoveryRate () const
Handle< YieldTermStructure >	yieldTS () const
Public Member Functions inherited from GenericEngine< Bond::arguments, Bond::results >
PricingEngine::arguments *	getArguments () const override
const PricingEngine::results *	getResults () const override
void	reset () override
void	update () override
Public Member Functions inherited from PricingEngine
	~PricingEngine () override=default
virtual arguments *	getArguments () const =0
virtual const results *	getResults () const =0
virtual void	reset ()=0
virtual void	calculate () const =0
Public Member Functions inherited from Observable
	Observable ()
	Observable (const Observable &)
Observable &	operator= (const Observable &)
	Observable (Observable &&)=delete
Observable &	operator= (Observable &&)=delete
virtual	~Observable ()=default
void	notifyObservers ()
Public Member Functions inherited from Observer
	Observer ()=default
	Observer (const Observer &)
Observer &	operator= (const Observer &)
virtual	~Observer ()
std::pair< iterator, bool >	registerWith (const ext::shared_ptr< Observable > &)
void	registerWithObservables (const ext::shared_ptr< Observer > &)
Size	unregisterWith (const ext::shared_ptr< Observable > &)
void	unregisterWithAll ()
virtual void	update ()=0
virtual void	deepUpdate ()

Private Attributes
Handle< DefaultProbabilityTermStructure >	defaultTS_
Real	recoveryRate_
Handle< YieldTermStructure >	yieldTS_

Additional Inherited Members
Public Types inherited from Observer
typedef set_type::iterator	iterator
Protected Attributes inherited from GenericEngine< Bond::arguments, Bond::results >
Bond::arguments	arguments_
Bond::results	results_

Detailed Description

Risky pricing engine for bonds.

The value of each cashflow is contingent to survival, i.e., the knockout probability is considered.

In each of the $n$ coupon periods, we can calculate the value in the case of survival and default, assuming that the issuer can only default in the middle of a coupon period. We denote this time $T_{i}^{mid}=\frac{T_{i-1}+T_{i}}{2}$.

Given survival we receive the full cash flow (both coupons and notional). The time $t$ value of these payments are given by

$$\sum_{i=1}^{n}CF_{i}P(t,T_{i})Q(T_{i}<\tau)$$

where $P(t,T)$ is the time $T$ discount bond and $Q(T<\tau)$ is the time $T$ survival probability. $n$ is the number of coupon periods. This takes care of the payments in the case of survival.

Given default we receive only a fraction of the notional at default.

$$\sum_{i=1}^{n}Rec N(T_{i}^{mid}) P(t,T_{i}^{mid})Q(T_{i-1}<\tau\leq T_{i})$$

where $Rec$ is the recovery rate and $N(T)$ is the time T notional. The default probability can be rewritten as

$$Q(T_{i-1}<\tau\leq T_{i})=Q(T_{i}<\tau)-Q(T_{i-1}<\tau)=(1-Q(T_{i}\geq\tau))-(1-Q(T_{i-1}\geq\tau))=Q(T_{i-1}\geq\tau)-Q(T_{i}\geq\tau)$$

Definition at line 64 of file riskybondengine.hpp.

Constructor & Destructor Documentation

RiskyBondEngine()

RiskyBondEngine	(	Handle< DefaultProbabilityTermStructure >	defaultTS,
		Real	recoveryRate,
		Handle< YieldTermStructure >	yieldTS
	)

Definition at line 29 of file riskybondengine.cpp.

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Member Function Documentation

calculate()

void calculate ( ) const

overridevirtual

Implements PricingEngine.

Definition at line 39 of file riskybondengine.cpp.

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defaultTS()

Handle< DefaultProbabilityTermStructure > defaultTS

(

)

const

Definition at line 80 of file riskybondengine.hpp.

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recoveryRate()

Real recoveryRate

(

)

const

Definition at line 84 of file riskybondengine.hpp.

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yieldTS()

Handle< YieldTermStructure > yieldTS

(

)

const

Definition at line 86 of file riskybondengine.hpp.

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Member Data Documentation

defaultTS_

Handle<DefaultProbabilityTermStructure> defaultTS_

private

Definition at line 74 of file riskybondengine.hpp.

recoveryRate_

Real recoveryRate_

private

Definition at line 75 of file riskybondengine.hpp.

yieldTS_

Handle<YieldTermStructure> yieldTS_

private

Definition at line 76 of file riskybondengine.hpp.