discretizedswaption.cpp

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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) 2004, 2007 StatPro Italia srl
 Copyright (C) 2021, 2022 Ralf Konrad Eckel
 
 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/cashflows/fixedratecoupon.hpp>
#include <ql/pricingengines/swap/discretizedswap.hpp>
#include <ql/pricingengines/swaption/discretizedswaption.hpp>
 
namespace QuantLib {
 
    namespace {
 
        bool withinPreviousWeek(const Date& d1, const Date& d2) { return d2 >= d1 - 7 && d2 <= d1; }
 
        bool withinNextWeek(const Date& d1, const Date& d2) { return d2 >= d1 && d2 <= d1 + 7; }
 
        bool withinOneWeek(const Date& d1, const Date& d2) {
            return withinPreviousWeek(d1, d2) || withinNextWeek(d1, d2);
        }
    }
 
    DiscretizedSwaption::DiscretizedSwaption(const Swaption::arguments& args,
                                             const Date& referenceDate,
                                             const DayCounter& dayCounter)
    : DiscretizedOption(
          ext::shared_ptr<DiscretizedAsset>(), args.exercise->type(), std::vector<Time>()),
      arguments_(args) {
 
        // Date adjustments can get time vectors out of synch.
        // Here, we try and collapse similar dates which could cause
        // a mispricing.
        Swaption::arguments snappedArgs;
        std::vector<CouponAdjustment> fixedCouponAdjustments;
        std::vector<CouponAdjustment> floatingCouponAdjustments;
 
        prepareSwaptionWithSnappedDates(arguments_, referenceDate, dayCounter, snappedArgs,
                                        fixedCouponAdjustments, floatingCouponAdjustments);
 
        exerciseTimes_.resize(snappedArgs.exercise->dates().size());
        for (Size i = 0; i < exerciseTimes_.size(); ++i)
            exerciseTimes_[i] =
                dayCounter.yearFraction(referenceDate, snappedArgs.exercise->date(i));
 
        Time lastFixedPayment =
            dayCounter.yearFraction(referenceDate, snappedArgs.fixedPayDates.back());
        Time lastFloatingPayment =
            dayCounter.yearFraction(referenceDate, snappedArgs.floatingPayDates.back());
        lastPayment_ = std::max(lastFixedPayment, lastFloatingPayment);
 
        underlying_ =
            ext::make_shared<DiscretizedSwap>(snappedArgs, referenceDate, dayCounter,
                                              fixedCouponAdjustments, floatingCouponAdjustments);
    }
 
    void DiscretizedSwaption::reset(Size size) {
        underlying_->initialize(method(), lastPayment_);
        DiscretizedOption::reset(size);
    }
 
    void DiscretizedSwaption::prepareSwaptionWithSnappedDates(
        const Swaption::arguments& args,
        const Date& referenceDate,
        const DayCounter& dayCounter,
        PricingEngine::arguments& snappedArgs,
        std::vector<CouponAdjustment>& fixedCouponAdjustments,
        std::vector<CouponAdjustment>& floatingCouponAdjustments) {
 
        std::vector<Date> fixedDates = args.swap->fixedSchedule().dates();
        std::vector<Date> floatDates = args.swap->floatingSchedule().dates();
 
        fixedCouponAdjustments.resize(args.swap->fixedLeg().size(),
                                      CouponAdjustment::pre);
        floatingCouponAdjustments.resize(args.swap->floatingLeg().size(),
                                         CouponAdjustment::pre);
 
        for (const auto& exerciseDate : args.exercise->dates()) {
            for (Size j = 0; j < fixedDates.size() - 1; j++) {
                auto unadjustedDate = fixedDates[j];
                if (exerciseDate != unadjustedDate && withinOneWeek(exerciseDate, unadjustedDate)) {
                    fixedDates[j] = exerciseDate;
                    if (withinPreviousWeek(exerciseDate, unadjustedDate))
                        fixedCouponAdjustments[j] = CouponAdjustment::post;
                }
            }
 
            for (Size j = 0; j < floatDates.size() - 1; j++) {
                auto unadjustedDate = floatDates[j];
                if (exerciseDate != unadjustedDate && withinOneWeek(exerciseDate, unadjustedDate)) {
                    floatDates[j] = exerciseDate;
                    if (withinPreviousWeek(exerciseDate, unadjustedDate))
                        floatingCouponAdjustments[j] = CouponAdjustment::post;
                }
            }
        }
 
        Schedule snappedFixedSchedule(fixedDates);
        Schedule snappedFloatSchedule(floatDates);
 
        auto snappedSwap = ext::make_shared<VanillaSwap>(
            args.swap->type(), args.swap->nominal(), snappedFixedSchedule, args.swap->fixedRate(),
            args.swap->fixedDayCount(), snappedFloatSchedule, args.swap->iborIndex(),
            args.swap->spread(), args.swap->floatingDayCount(), args.swap->paymentConvention());
 
        Swaption snappedSwaption(snappedSwap, args.exercise, args.settlementType,
                                 args.settlementMethod);
 
        snappedSwaption.setupArguments(&snappedArgs);
    }
}