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discretizedswaption.cpp

/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */

/*
 Copyright (C) 2001, 2002, 2003 Sadruddin Rejeb
 Copyright (C) 2004 StatPro Italia srl

 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/reference/license.html>.

 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/PricingEngines/Swaption/discretizedswaption.hpp>

namespace QuantLib {

    DiscretizedSwap::DiscretizedSwap(const SimpleSwap::arguments& args)
    : arguments_(args) {}

00028     void DiscretizedSwap::reset(Size size) {
        values_ = Array(size, 0.0);
        adjustValues();
    }

00033     std::vector<Time> DiscretizedSwap::mandatoryTimes() const {
        std::vector<Time> times;
        Time t;
        Size i;
        for (i=0; i<arguments_.fixedResetTimes.size(); i++) {
            t = arguments_.fixedResetTimes[i];
            if (t >= 0.0)
                times.push_back(t);
        }
        for (i=0; i<arguments_.fixedPayTimes.size(); i++) {
            t = arguments_.fixedPayTimes[i];
            if (t >= 0.0)
                times.push_back(t);
        }
        for (i=0; i<arguments_.floatingResetTimes.size(); i++) {
            t = arguments_.floatingResetTimes[i];
            if (t >= 0.0)
                times.push_back(t);
        }
        for (i=0; i<arguments_.floatingPayTimes.size(); i++) {
            t = arguments_.floatingPayTimes[i];
            if (t >= 0.0)
                times.push_back(t);
        }
        return times;
    }

00060     void DiscretizedSwap::preAdjustValuesImpl() {
        Size i;
        // floating payments
        for (i=0; i<arguments_.floatingResetTimes.size(); i++) {
            Time t = arguments_.floatingResetTimes[i];
            if (t >= 0.0 && isOnTime(t)) {
                DiscretizedDiscountBond bond;
                bond.initialize(method(), arguments_.floatingPayTimes[i]);
                bond.rollback(time_);

                Real nominal = arguments_.nominal;
                for (Size j=0; j<values_.size(); j++) {
                    Real coupon = nominal*(1.0 - bond.values()[j]);
                    if (arguments_.payFixed)
                        values_[j] += coupon;
                    else
                        values_[j] -= coupon;
                }
            }
        }
        // fixed payments
        for (i=0; i<arguments_.fixedResetTimes.size(); i++) {
            Time t = arguments_.fixedResetTimes[i];
            if (t >= 0.0 && isOnTime(t)) {
                DiscretizedDiscountBond bond;
                bond.initialize(method(),arguments_.fixedPayTimes[i]);
                bond.rollback(time_);

                Real fixedCoupon = arguments_.fixedCoupons[i];
                for (Size j=0; j<values_.size(); j++) {
                    Real coupon = fixedCoupon*bond.values()[j];
                    if (arguments_.payFixed)
                        values_[j] -= coupon;
                    else
                        values_[j] += coupon;
                }
            }
        }
    }

00100     void DiscretizedSwap::postAdjustValuesImpl() {
        // fixed coupons whose reset time is in the past won't be managed
        // in preAdjustValues()
        for (Size i=0; i<arguments_.fixedPayTimes.size(); i++) {
            Time t = arguments_.fixedPayTimes[i];
            Time reset = arguments_.fixedResetTimes[i];
            if (t >= 0.0 && isOnTime(t) && reset < 0.0) {
                Real fixedCoupon = arguments_.fixedCoupons[i];
                if (arguments_.payFixed)
                    values_ -= fixedCoupon;
                else
                    values_ += fixedCoupon;
            }
        }
        // the same applies to floating payments whose rate is already fixed
        if (arguments_.currentFloatingCoupon != Null<Real>()) {
            for (Size i=0; i<arguments_.floatingPayTimes.size(); i++) {
                Time t = arguments_.floatingPayTimes[i];
                Time reset = arguments_.floatingResetTimes[i];
                if (t >= 0.0 && isOnTime(t) && reset < 0.0) {
                    if (arguments_.payFixed)
                        values_ += arguments_.currentFloatingCoupon;
                    else
                        values_ -= arguments_.currentFloatingCoupon;
                }
            }
        }
    }


    namespace {

        bool withinPreviousWeek(Time t1, Time t2) {
            static const Time dt = 1.0/52;
            return t1-dt <= t2 && t2 <= t1;
        }

        bool withinNextWeek(Time t1, Time t2) {
            static const Time dt = 1.0/52;
            return t1 <= t2 && t2 <= t1+dt;
        }

    }

    DiscretizedSwaption::DiscretizedSwaption(const Swaption::arguments& args)
    : DiscretizedOption(boost::shared_ptr<DiscretizedAsset>(),
                        args.exercise->type(),
                        args.stoppingTimes),
      arguments_(args) {

        // Date adjustments can get time vectors out of synch.
        // Here, we try and collapse similar dates which could cause
        // a mispricing.
        for (Size i=0; i<arguments_.stoppingTimes.size(); i++) {
            Time exercise = arguments_.stoppingTimes[i];
            Size j;
            for (j=0; j<arguments_.fixedPayTimes.size(); j++) {
                if (withinNextWeek(exercise, arguments_.fixedPayTimes[j])
                    // coupons in the future are dealt with below
                    && arguments_.fixedResetTimes[j] < 0.0)
                    arguments_.fixedPayTimes[j] = exercise;
            }
            for (j=0; j<arguments_.fixedResetTimes.size(); j++) {
                if (withinPreviousWeek(exercise,
                                       arguments_.fixedResetTimes[j]))
                    arguments_.fixedResetTimes[j] = exercise;
            }
            for (j=0; j<arguments_.floatingResetTimes.size(); j++) {
                if (withinPreviousWeek(exercise,
                                       arguments_.floatingResetTimes[j]))
                    arguments_.floatingResetTimes[j] = exercise;
            }
        }

        underlying_ = boost::shared_ptr<DiscretizedAsset>(
                                             new DiscretizedSwap(arguments_));
    }

00178     void DiscretizedSwaption::reset(Size size) {
        Time lastFixedPay = arguments_.fixedPayTimes.back();
        Time lastFloatPay = arguments_.floatingPayTimes.back();
        underlying_->initialize(method(),std::max(lastFixedPay,lastFloatPay));
        DiscretizedOption::reset(size);
    }

}

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