void OptionletStripperTest::testTermVolatilityStripping1() {
BOOST_TEST_MESSAGE(
"Testing forward/forward vol stripping from non-flat term "
"vol surface using optionletstripper1...");
CommonVars vars;
vars.setCapFloorTermVolSurface();
shared_ptr<IborIndex> iborIndex(new Euribor6M(vars.yieldTermStructure));
boost::shared_ptr<OptionletStripper> optionletStripper1(new
OptionletStripper1(vars.capFloorVolSurface,
iborIndex,
Null<Rate>(),
vars.accuracy));
boost::shared_ptr<StrippedOptionletAdapter> strippedOptionletAdapter =
boost::shared_ptr<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::testSwitchStrike() {
BOOST_TEST_MESSAGE("Testing switch strike level and recalibration of level "
"in case of curve relinking...");
CommonVars vars;
Settings::instance().evaluationDate() = Date(28, October, 2013);
vars.setCapFloorTermVolSurface();
RelinkableHandle< YieldTermStructure > yieldTermStructure;
yieldTermStructure.linkTo(boost::shared_ptr< FlatForward >(
new FlatForward(0, vars.calendar, 0.03, vars.dayCounter)));
shared_ptr< IborIndex > iborIndex(new Euribor6M(yieldTermStructure));
boost::shared_ptr< OptionletStripper1 > optionletStripper1(
new OptionletStripper1(vars.capFloorVolSurface, iborIndex,
Null< Rate >(), vars.accuracy));
#if defined(QL_USE_INDEXED_COUPON)
Real expected = 0.02981258;
#else
Real expected = 0.02981223;
#endif
Real error = std::fabs(optionletStripper1->switchStrike() - expected);
if (error > vars.tolerance)
BOOST_FAIL("\nSwitchstrike not correctly computed: "
<< "\nexpected switch strike: " << io::rate(expected)
<< "\ncomputed switch strike: "
<< io::rate(optionletStripper1->switchStrike())
<< "\nerror: " << io::rate(error)
<< "\ntolerance: " << io::rate(vars.tolerance));
yieldTermStructure.linkTo(boost::shared_ptr< FlatForward >(
new FlatForward(0, vars.calendar, 0.05, vars.dayCounter)));
#if defined(QL_USE_INDEXED_COUPON)
expected = 0.0499381;
#else
expected = 0.0499371;
#endif
error = std::fabs(optionletStripper1->switchStrike() - expected);
if (error > vars.tolerance)
BOOST_FAIL("\nSwitchstrike not correctly computed: "
<< "\nexpected switch strike: " << io::rate(expected)
<< "\ncomputed switch strike: "
<< io::rate(optionletStripper1->switchStrike())
<< "\nerror: " << io::rate(error)
<< "\ntolerance: " << io::rate(vars.tolerance));
}
void OptionletStripperTest::testTermVolatilityStripping2() {
BOOST_TEST_MESSAGE(
"Testing forward/forward vol stripping from non-flat term vol "
"surface using OptionletStripper2 class...");
CommonVars vars;
Settings::instance().evaluationDate() = Date::todaysDate();
vars.setCapFloorTermVolCurve();
vars.setCapFloorTermVolSurface();
shared_ptr<IborIndex> iborIndex(new Euribor6M(vars.yieldTermStructure));
// optionletstripper1
boost::shared_ptr<OptionletStripper1> optionletStripper1(new
OptionletStripper1(vars.capFloorVolSurface,
iborIndex,
Null<Rate>(),
vars.accuracy));
boost::shared_ptr<StrippedOptionletAdapter> strippedOptionletAdapter1 =
boost::shared_ptr<StrippedOptionletAdapter>(new
StrippedOptionletAdapter(optionletStripper1));
Handle<OptionletVolatilityStructure> vol1(strippedOptionletAdapter1);
vol1->enableExtrapolation();
// optionletstripper2
boost::shared_ptr<OptionletStripper> optionletStripper2(new
OptionletStripper2(optionletStripper1,
vars.capFloorVolCurve));
boost::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.capFloorVolSurface->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));
}
}
}