void OptionletStripperTest::testFlatTermVolatilityStripping1() {
BOOST_TEST_MESSAGE(
"Testing forward/forward vol stripping from flat term vol "
"surface using OptionletStripper1 class...");
CommonVars vars;
Settings::instance().evaluationDate() = Date(28, October, 2013);
vars.setFlatTermVolSurface();
shared_ptr<IborIndex> iborIndex(new Euribor6M(vars.yieldTermStructure));
boost::shared_ptr<OptionletStripper> optionletStripper1(new
OptionletStripper1(vars.flatTermVolSurface,
iborIndex,
Null<Rate>(),
vars.accuracy));
boost::shared_ptr<StrippedOptionletAdapter> strippedOptionletAdapter(new
StrippedOptionletAdapter(optionletStripper1));
Handle<OptionletVolatilityStructure> vol(strippedOptionletAdapter);
vol->enableExtrapolation();
boost::shared_ptr<BlackCapFloorEngine> strippedVolEngine(new
BlackCapFloorEngine(vars.yieldTermStructure,
vol));
boost::shared_ptr<CapFloor> cap;
for (Size tenorIndex=0; tenorIndex<vars.optionTenors.size(); ++tenorIndex) {
for (Size strikeIndex=0; strikeIndex<vars.strikes.size(); ++strikeIndex) {
cap = MakeCapFloor(CapFloor::Cap,
vars.optionTenors[tenorIndex],
iborIndex,
vars.strikes[strikeIndex],
0*Days)
.withPricingEngine(strippedVolEngine);
Real priceFromStrippedVolatility = cap->NPV();
boost::shared_ptr<PricingEngine> blackCapFloorEngineConstantVolatility(new
BlackCapFloorEngine(vars.yieldTermStructure,
vars.termV[tenorIndex][strikeIndex]));
cap->setPricingEngine(blackCapFloorEngineConstantVolatility);
Real priceFromConstantVolatility = cap->NPV();
Real error = std::fabs(priceFromStrippedVolatility - priceFromConstantVolatility);
if (error>vars.tolerance)
BOOST_FAIL("\noption tenor: " << vars.optionTenors[tenorIndex] <<
"\nstrike: " << io::rate(vars.strikes[strikeIndex]) <<
"\nstripped vol price: " << io::rate(priceFromStrippedVolatility) <<
"\nconstant vol price: " << io::rate(priceFromConstantVolatility) <<
"\nerror: " << io::rate(error) <<
"\ntolerance: " << io::rate(vars.tolerance));
}
}
}
void OptionletStripperTest::testFlatTermVolatilityStripping2() {
BOOST_TEST_MESSAGE(
"Testing forward/forward vol stripping from flat term vol "
"surface using OptionletStripper2 class...");
CommonVars vars;
Settings::instance().evaluationDate() = Date::todaysDate();
vars.setFlatTermVolCurve();
vars.setFlatTermVolSurface();
shared_ptr<IborIndex> iborIndex(new Euribor6M(vars.yieldTermStructure));
// optionletstripper1
shared_ptr<OptionletStripper1> optionletStripper1(new
OptionletStripper1(vars.flatTermVolSurface,
iborIndex,
Null<Rate>(),
vars.accuracy));
boost::shared_ptr<StrippedOptionletAdapter> strippedOptionletAdapter1(new
StrippedOptionletAdapter(optionletStripper1));
Handle<OptionletVolatilityStructure> vol1(strippedOptionletAdapter1);
vol1->enableExtrapolation();
// optionletstripper2
shared_ptr<OptionletStripper> optionletStripper2(new
OptionletStripper2(optionletStripper1, vars.flatTermVolCurve));
shared_ptr<StrippedOptionletAdapter> strippedOptionletAdapter2(new
StrippedOptionletAdapter(optionletStripper2));
Handle<OptionletVolatilityStructure> vol2(strippedOptionletAdapter2);
vol2->enableExtrapolation();
// consistency check: diff(stripped vol1-stripped vol2)
for (Size strikeIndex=0; strikeIndex<vars.strikes.size(); ++strikeIndex) {
for (Size tenorIndex=0; tenorIndex<vars.optionTenors.size(); ++tenorIndex) {
Volatility strippedVol1 = vol1->volatility(vars.optionTenors[tenorIndex],
vars.strikes[strikeIndex], true);
Volatility strippedVol2 = vol2->volatility(vars.optionTenors[tenorIndex],
vars.strikes[strikeIndex], true);
// vol from flat vol surface (for comparison only)
Volatility flatVol = vars.flatTermVolSurface->volatility(vars.optionTenors[tenorIndex],
vars.strikes[strikeIndex], true);
Real error = std::fabs(strippedVol1-strippedVol2);
if (error>vars.tolerance)
BOOST_FAIL("\noption tenor: " << vars.optionTenors[tenorIndex] <<
"\nstrike: " << io::rate(vars.strikes[strikeIndex]) <<
"\nstripped vol1: " << io::rate(strippedVol1) <<
"\nstripped vol2: " << io::rate(strippedVol2) <<
"\nflat vol: " << io::rate(flatVol) <<
"\nerror: " << io::rate(error) <<
"\ntolerance: " << io::rate(vars.tolerance));
}
}
}
