Examples of com.opengamma.analytics.financial.forex.derivative.ForexOptionDigital

Package com.opengamma.analytics.financial.forex.derivative

Examples of com.opengamma.analytics.financial.forex.derivative.ForexOptionDigital

com.opengamma.analytics.financial.forex.derivative.ForexOptionDigital
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 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);
    final ForexOptionDigital forexOption = forexOptionDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final double dfDomestic = CURVES.getCurve(CURVES_NAME[1]).getDiscountFactor(forexOption.getUnderlyingForex().getPaymentTime());
    final double dfForeign = CURVES.getCurve(CURVES_NAME[0]).getDiscountFactor(forexOption.getUnderlyingForex().getPaymentTime());
    final double rDomestic = CURVES.getCurve(CURVES_NAME[1]).getInterestRate(forexOption.getUnderlyingForex().getPaymentTime());
    final double rForeign = CURVES.getCurve(CURVES_NAME[0]).getInterestRate(forexOption.getUnderlyingForex().getPaymentTime());
    final double forward = SPOT * dfForeign / dfDomestic;
    final double volatility = SMILE_TERM.getVolatility(new Triple<>(timeToExpiry, forward, forward));
    final double sigmaRootT = volatility * Math.sqrt(forexOption.getExpirationTime());
    final double dM = Math.log(forward / strike) / sigmaRootT - 0.5 * sigmaRootT;
    final int omega = isCall ? 1 : -1;


    final double pvExpected = Math.abs(forexOption.getUnderlyingForex().getPaymentCurrency1().getAmount()) * dfDomestic * NORMAL.getCDF(omega * dM) * (isLong ? 1.0 : -1.0);
    final double price = Math.abs(forexOption.getUnderlyingForex().getPaymentCurrency1().getAmount()) *
        DigitalOptionFunction.price(SPOT, strike, forexOption.getUnderlyingForex().getPaymentTime(), volatility, rDomestic, rDomestic - rForeign, isCall);
    assertEquals(price, pvExpected, pvExpected * 1.e-14);
  }

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    final boolean isLong = true;
    final double notional = 100000000;
    final ZonedDateTime expiryDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofYears(1), BUSINESS_DAY, CALENDAR, true);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, ScheduleCalculator.getAdjustedDate(expiryDate, SETTLEMENT_DAYS, CALENDAR), notional, strike);
    final ForexOptionDigitalDefinition forexOptionDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expiryDate, isCall, isLong);
    final ForexOptionDigital forexOption = forexOptionDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final double dfDomestic = CURVES.getCurve(CURVES_NAME[1]).getDiscountFactor(forexOption.getUnderlyingForex().getPaymentTime());
    final double dfForeign = CURVES.getCurve(CURVES_NAME[0]).getDiscountFactor(forexOption.getUnderlyingForex().getPaymentTime());
    final double forward = SPOT * dfForeign / dfDomestic;
    final double volatility = SMILE_TERM.getVolatility(new Triple<>(TimeCalculator.getTimeBetween(REFERENCE_DATE, expiryDate), forward, forward));
    final double sigmaRootT = volatility * Math.sqrt(forexOption.getExpirationTime());
    final double dM = Math.log(forward / strike) / sigmaRootT - 0.5 * sigmaRootT;
    final int omega = isCall ? 1 : -1;
    final double pvExpected = Math.abs(forexOption.getUnderlyingForex().getPaymentCurrency2().getAmount()) * dfDomestic * NORMAL.getCDF(omega * dM) * (isLong ? 1.0 : -1.0);
    final MultipleCurrencyAmount pvComputed = METHOD_BLACK_DIGITAL.presentValue(forexOption, SMILE_BUNDLE);
    assertEquals("Forex Digital option: present value", pvExpected, pvComputed.getAmount(USD), TOLERANCE_PV);
  }

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    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);
    final ForexOptionDigital forexOption = forexOptionDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final double dfDomestic = CURVES.getCurve(CURVES_NAME[1]).getDiscountFactor(forexOption.getUnderlyingForex().getPaymentTime());
    final double dfForeign = CURVES.getCurve(CURVES_NAME[0]).getDiscountFactor(forexOption.getUnderlyingForex().getPaymentTime());
    final double forward = SPOT * dfForeign / dfDomestic;
    final double volatility = SMILE_TERM.getVolatility(new Triple<>(timeToExpiry, forward, forward));
    final double sigmaRootT = volatility * Math.sqrt(forexOption.getExpirationTime());
    final double dM = Math.log(forward / strike) / sigmaRootT - 0.5 * sigmaRootT;
    final int omega = isCall ? 1 : -1;
    final double pvExpected = Math.abs(forexOption.getUnderlyingForex().getPaymentCurrency2().getAmount()) * dfDomestic * NORMAL.getCDF(omega * dM) * (isLong ? 1.0 : -1.0);
    final MultipleCurrencyAmount pvComputed = METHOD_BLACK_DIGITAL.presentValue(forexOption, SMILE_BUNDLE);
    assertEquals("Forex Digital option: present value", pvExpected, pvComputed.getAmount(USD), TOLERANCE_PV);
  }

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    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, strike);
    final ForexOptionDigitalDefinition forexOptionDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong);
    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 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());
    final double dM = Math.log(forward * strike) / sigmaRootT - 0.5 * sigmaRootT;
    final double omega = isCall ? -1.0 : 1.0;
    final double pvExpected = Math.abs(forexOption.getUnderlyingForex().getPaymentCurrency1().getAmount()) * dfDomestic * NORMAL.getCDF(omega * dM) * (isLong ? 1.0 : -1.0);
    final MultipleCurrencyAmount pvComputed = METHOD_BLACK_DIGITAL.presentValue(forexOption, SMILE_BUNDLE);
    assertEquals("Forex Digital option: present value", pvExpected, pvComputed.getAmount(EUR), TOLERANCE_PV);
  }

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    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 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 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 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 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);
    final ForexOptionDigital put = putDefinition.toDerivative(REFERENCE_DATE);
    final MultipleCurrencyAmount pvCall = METHOD_DIGITAL_SPREAD.presentValue(call, SMILE_MULTICURVES);
    final MultipleCurrencyAmount pvPut = METHOD_DIGITAL_SPREAD.presentValue(put, SMILE_MULTICURVES);
    final Double pvCash = Math.abs(put.getUnderlyingForex().getPaymentCurrency2().accept(PVDC, MULTICURVES).getAmount(USD));
    assertEquals("Forex Digital option: call spread method - present value", pvCall.getAmount(USD) + pvPut.getAmount(USD), Math.abs(pvCash), TOLERANCE_PV_FLAT);
  }

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