Examples of com.opengamma.analytics.financial.forex.definition.ForexOptionDigitalDefinition

Package com.opengamma.analytics.financial.forex.definition

Examples of com.opengamma.analytics.financial.forex.definition.ForexOptionDigitalDefinition

com.opengamma.analytics.financial.forex.definition.ForexOptionDigitalDefinition
Class describing a digital foreign exchange European option. The implied strike is the absolute value of ratio of the domestic currency (currency 2) amount and the foreign currency amount (currency1). When the option is a call, it pays the absolute value of the payment currency amount when the spot rate is above the strike and nothing otherwise. When the option is a put, it pays the absolute value of the payment currency amount when the spot rate is below the strike and nothing otherwise.

    final double notional = 100000000;
    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final double timeToExpiry = TimeCalculator.getTimeBetween(REFERENCE_DATE, expDate);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition forexOptionDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong, payDomestic);
    final ForexOptionDigital forexOption = forexOptionDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final double dfDomestic = CURVES.getCurve(CURVES_NAME[0]).getDiscountFactor(forexOption.getUnderlyingForex().getPaymentTime());
    final double dfForeign = CURVES.getCurve(CURVES_NAME[1]).getDiscountFactor(forexOption.getUnderlyingForex().getPaymentTime());
    final double forward = 1 / SPOT * dfForeign / dfDomestic;
    final double volatility = SMILE_TERM.getVolatility(new Triple<>(timeToExpiry, 1.0 / forward, 1.0 / forward));
    final double sigmaRootT = volatility * Math.sqrt(forexOption.getExpirationTime());

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    final boolean isCall = true;
    final boolean isLong = true;
    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, 1.0, strike);
    final ForexOptionDigitalDefinition forexOptionDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong, false);
    final ForexOptionDigital forexOption = forexOptionDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final int nbSpot = 50;
    final double range = 0.75;
    final double[] spot = new double[nbSpot + 1];
    final double[] pv = new double[nbSpot + 1];
    for (int loopspot = 0; loopspot <= nbSpot; loopspot++) {

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    final boolean isLong = true;
    final double notional = 100000000;
    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition callDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong);
    final ForexOptionDigitalDefinition putDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, !isCall, isLong);
    final ForexOptionDigital call = callDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final ForexOptionDigital put = putDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final MultipleCurrencyAmount pvCall = METHOD_BLACK_DIGITAL.presentValue(call, SMILE_BUNDLE);
    final MultipleCurrencyAmount pvPut = METHOD_BLACK_DIGITAL.presentValue(put, SMILE_BUNDLE);
    final Double pvCash = put.getUnderlyingForex().getPaymentCurrency2().accept(PVC, CURVES);
    assertEquals("Forex Digital option: present value", pvCall.getAmount(USD) + pvPut.getAmount(USD), Math.abs(pvCash), TOLERANCE_PV);
  }

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    final boolean isLong = true;
    final double notional = 100000000;
    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition forexOptionDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong);
    final InstrumentDerivative forexOption = forexOptionDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final MultipleCurrencyAmount pvMethod = METHOD_BLACK_DIGITAL.presentValue(forexOption, SMILE_BUNDLE);
    final MultipleCurrencyAmount pvCalculator = forexOption.accept(PVC_BLACK, SMILE_BUNDLE);
    assertEquals("Forex Digital option: present value Method vs Calculator", pvMethod.getAmount(USD), pvCalculator.getAmount(USD), 1E-2);
  }

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  @Test
  /**
   * Tests the present value long/short parity.
   */
  public void presentValueLongShort() {
    final ForexOptionDigitalDefinition forexOptionShortDefinition = new ForexOptionDigitalDefinition(FOREX_DEFINITION, OPTION_EXP_DATE, IS_CALL, !IS_LONG);
    final InstrumentDerivative forexOptionShort = forexOptionShortDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final MultipleCurrencyAmount pvShort = METHOD_BLACK_DIGITAL.presentValue(forexOptionShort, SMILE_BUNDLE);
    final MultipleCurrencyAmount pvLong = METHOD_BLACK_DIGITAL.presentValue(FOREX_DIGITAL_CALL_DOM, SMILE_BUNDLE);
    assertEquals("Forex Digital option: present value long/short parity", pvLong.getAmount(USD), -pvShort.getAmount(USD), 1E-2);
    final MultipleCurrencyAmount ceShort = METHOD_BLACK_DIGITAL.currencyExposure(forexOptionShort, SMILE_BUNDLE);
    final MultipleCurrencyAmount ceLong = METHOD_BLACK_DIGITAL.currencyExposure(FOREX_DIGITAL_CALL_DOM, SMILE_BUNDLE);

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    final double notional = 100000000;
    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final double timeToExpiry = TimeCalculator.getTimeBetween(REFERENCE_DATE, expDate);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition forexOptionDefinitionCall = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong);
    final ForexOptionDigitalDefinition forexOptionDefinitionPut = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, !isCall, isLong);
    final ForexOptionDigital forexOptionCall = forexOptionDefinitionCall.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final ForexOptionDigital forexOptionPut = forexOptionDefinitionPut.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final double dfDomestic = CURVES.getCurve(CURVES_NAME[1]).getDiscountFactor(TimeCalculator.getTimeBetween(REFERENCE_DATE, payDate)); // USD
    final double dfForeign = CURVES.getCurve(CURVES_NAME[0]).getDiscountFactor(TimeCalculator.getTimeBetween(REFERENCE_DATE, payDate)); // EUR
    final double forward = SPOT * dfForeign / dfDomestic;
    final double volatility = SMILE_TERM.getVolatility(new Triple<>(timeToExpiry, forward, forward));
    final double sigmaRootT = volatility * Math.sqrt(forexOptionCall.getExpirationTime());

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    final boolean isLong = true;
    final double notional = 100000000;
    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition forexOptionDefinitionCall = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong);
    final ForexOptionDigitalDefinition forexOptionDefinitionPut = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, !isCall, isLong);
    final ForexOptionDigital forexOptionCall = forexOptionDefinitionCall.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final ForexOptionDigital forexOptionPut = forexOptionDefinitionPut.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final MultipleCurrencyAmount currencyExposureCall = METHOD_BLACK_DIGITAL.currencyExposure(forexOptionCall, SMILE_BUNDLE);
    final MultipleCurrencyAmount currencyExposurePut = METHOD_BLACK_DIGITAL.currencyExposure(forexOptionPut, SMILE_BUNDLE);
    final Double pvCash = forexOptionPut.getUnderlyingForex().getPaymentCurrency2().accept(PVC, CURVES);
    assertEquals("Forex Digital option: currency exposure put/call parity foreign", 0, currencyExposureCall.getAmount(EUR) + currencyExposurePut.getAmount(EUR), TOLERANCE_PV);
    assertEquals("Forex Digital option: currency exposure put/call parity domestic", Math.abs(pvCash), currencyExposureCall.getAmount(USD) + currencyExposurePut.getAmount(USD), TOLERANCE_PV);

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    final boolean isLong = true;
    final double notional = 100000000;
    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition forexOptionDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong);
    final InstrumentDerivative forexOption = forexOptionDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final MultipleCurrencyAmount ceMethod = METHOD_BLACK_DIGITAL.currencyExposure(forexOption, SMILE_BUNDLE);
    final MultipleCurrencyAmount ceCalculator = forexOption.accept(CEC_BLACK, SMILE_BUNDLE);
    assertEquals("Forex Digital option: currency exposure Method vs Calculator", ceMethod.getAmount(EUR), ceCalculator.getAmount(EUR), 1E-2);
    assertEquals("Forex Digital option: currency exposure Method vs Calculator", ceMethod.getAmount(USD), ceCalculator.getAmount(USD), 1E-2);
  }

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    final boolean isLong = true;
    final double notional = 100000000;
    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition forexOptionDefinitionCall = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong);
    final ForexOptionDigital forexOptionCall = forexOptionDefinitionCall.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final Forex forexForward = forexUnderlyingDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final MultipleCurrencyInterestRateCurveSensitivity sensi = METHOD_BLACK_DIGITAL.presentValueCurveSensitivity(forexOptionCall, SMILE_BUNDLE);
    final double dfDomestic = CURVES.getCurve(CURVES_NAME[1]).getDiscountFactor(forexForward.getPaymentTime());
    final double dfForeign = CURVES.getCurve(CURVES_NAME[0]).getDiscountFactor(forexForward.getPaymentTime());
    final double forward = SPOT * dfForeign / dfDomestic;

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    final double sigmaRootTMinus = (volatility - shift) * Math.sqrt(FOREX_DIGITAL_CALL_DOM.getExpirationTime());
    final double dMMinus = Math.log(forward / strike) / sigmaRootTMinus - 0.5 * sigmaRootTMinus;
    final double pvMinus = Math.abs(FOREX_DIGITAL_CALL_DOM.getUnderlyingForex().getPaymentCurrency2().getAmount()) * dfDomestic * NORMAL.getCDF(omega * dMMinus)
        * (FOREX_DIGITAL_CALL_DOM.isLong() ? 1.0 : -1.0);
    assertEquals("Forex Digital option: vega", (pvPlus - pvMinus) / (2 * shift), sensi.getVega().getMap().get(point), TOLERANCE_PV);
    final ForexOptionDigitalDefinition optionShortDefinition = new ForexOptionDigitalDefinition(FOREX_DEFINITION, OPTION_EXP_DATE, IS_CALL, !IS_LONG);
    final ForexOptionDigital optionShort = optionShortDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final PresentValueForexBlackVolatilitySensitivity sensiShort = METHOD_BLACK_DIGITAL.presentValueBlackVolatilitySensitivity(optionShort, SMILE_BUNDLE);
    assertEquals("Forex Digital option: vega short", -sensi.getVega().getMap().get(point), sensiShort.getVega().getMap().get(point));
    // Put/call parity
    final ForexOptionDigitalDefinition optionShortPutDefinition = new ForexOptionDigitalDefinition(FOREX_DEFINITION, OPTION_EXP_DATE, !IS_CALL, IS_LONG);
    final ForexOptionDigital optionShortPut = optionShortPutDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final PresentValueForexBlackVolatilitySensitivity sensiShortPut = METHOD_BLACK_DIGITAL.presentValueBlackVolatilitySensitivity(optionShortPut, SMILE_BUNDLE);
    assertEquals("Forex Digital option: vega short", sensiShortPut.getVega().getMap().get(point) + sensi.getVega().getMap().get(point), 0.0, TOLERANCE_PV);
  }

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