/**
* Copyright (C) 2013 - present by OpenGamma Inc. and the OpenGamma group of companies
*
* Please see distribution for license.
*/
package com.opengamma.analytics.financial.interestrate.inflation.provider;
import java.util.ArrayList;
import java.util.HashMap;
import java.util.List;
import java.util.Map;
import com.opengamma.analytics.financial.interestrate.inflation.derivative.CouponInflationZeroCouponInterpolation;
import com.opengamma.analytics.financial.provider.description.inflation.InflationConvexityAdjustmentProviderInterface;
import com.opengamma.analytics.financial.provider.sensitivity.inflation.InflationSensitivity;
import com.opengamma.analytics.financial.provider.sensitivity.inflation.MultipleCurrencyInflationSensitivity;
import com.opengamma.util.ArgumentChecker;
import com.opengamma.util.money.MultipleCurrencyAmount;
import com.opengamma.util.tuple.DoublesPair;
/**
* Pricing method for inflation zero-coupon. The price is computed by index estimation, discounting and using a convexity adjustment.
* See note "Inflation convexity adjustment" by Arroub Zine-eddine for details.
*/
public class CouponInflationZeroCouponInterpolationConvexityAdjustmentMethod {
/**
* The convexity adjustment function used in the pricing.
*/
private static final InflationMarketModelConvexityAdjustmentForCoupon CONVEXITY_ADJUSTMENT_FUNCTION = new InflationMarketModelConvexityAdjustmentForCoupon();
/**
* Computes the estimated index with the weight and the two reference end dates.
* @param coupon The zero-coupon payment.
* @param inflation The inflation provider.
* @return The net amount.
*/
public double indexEstimation(final CouponInflationZeroCouponInterpolation coupon, final InflationConvexityAdjustmentProviderInterface inflation) {
final double estimatedIndexMonth0 = inflation.getInflationProvider().getPriceIndex(coupon.getPriceIndex(), coupon.getReferenceEndTime()[0]);
final double estimatedIndexMonth1 = inflation.getInflationProvider().getPriceIndex(coupon.getPriceIndex(), coupon.getReferenceEndTime()[1]);
return coupon.getWeight() * estimatedIndexMonth0 + (1 - coupon.getWeight()) * estimatedIndexMonth1;
}
/**
* Computes the net amount of the zero-coupon coupon with reference index at start of the month.
* @param coupon The zero-coupon payment.
* @param inflation The inflation provider.
* @return The net amount.
*/
public MultipleCurrencyAmount netAmount(final CouponInflationZeroCouponInterpolation coupon, final InflationConvexityAdjustmentProviderInterface inflation) {
ArgumentChecker.notNull(coupon, "Coupon");
ArgumentChecker.notNull(inflation, "Inflation");
final double estimatedIndex = indexEstimation(coupon, inflation);
final double convextityAdjustment = CONVEXITY_ADJUSTMENT_FUNCTION.getZeroCouponConvexityAdjustment(coupon, inflation);
final double netAmount = (estimatedIndex / coupon.getIndexStartValue() * convextityAdjustment - (coupon.payNotional() ? 0.0 : 1.0)) * coupon.getNotional();
return MultipleCurrencyAmount.of(coupon.getCurrency(), netAmount);
}
/**
* Computes the present value of the zero-coupon coupon with reference index at start of the month.
* @param coupon The zero-coupon payment.
* @param inflation The inflation provider.
* @return The present value.
*/
public MultipleCurrencyAmount presentValue(final CouponInflationZeroCouponInterpolation coupon, final InflationConvexityAdjustmentProviderInterface inflation) {
ArgumentChecker.notNull(coupon, "Coupon");
ArgumentChecker.notNull(inflation, "Inflation");
final double discountFactor = inflation.getInflationProvider().getDiscountFactor(coupon.getCurrency(), coupon.getPaymentTime());
return netAmount(coupon, inflation).multipliedBy(discountFactor);
}
/**
* Computes the par spread of the zero-coupon swap with the fixed rate of the fixed leg of inflation zero-coupon swap.
* @param coupon The zero-coupon payment.
* @param inflation The inflation provider.
* @param tenor the teno as used in the fixed leg
* @param fixedRate the fixed rate
* @return The present value.
*/
public double parSpread(final CouponInflationZeroCouponInterpolation coupon, final InflationConvexityAdjustmentProviderInterface inflation, final int tenor, final double fixedRate) {
ArgumentChecker.notNull(tenor, "Tenor");
ArgumentChecker.notNull(coupon, "Coupon");
ArgumentChecker.notNull(inflation, "Inflation");
final double estimatedIndex = indexEstimation(coupon, inflation);
final double convextityAdjustment = CONVEXITY_ADJUSTMENT_FUNCTION.getZeroCouponConvexityAdjustment(coupon, inflation);
return Math.pow((estimatedIndex / coupon.getIndexStartValue() * convextityAdjustment - (coupon.payNotional() ? 0.0 : 1.0)), 1 / tenor) - 1 - fixedRate;
}
/**
* Compute the present value sensitivity to rates of a Inflation coupon.
* @param coupon The coupon.
* @param inflation The inflation provider.
* @return The present value sensitivity.
*/
public MultipleCurrencyInflationSensitivity presentValueCurveSensitivity(final CouponInflationZeroCouponInterpolation coupon, final InflationConvexityAdjustmentProviderInterface inflation) {
ArgumentChecker.notNull(coupon, "Coupon");
ArgumentChecker.notNull(inflation, "Inflation");
final double estimatedIndexMonth0 = inflation.getInflationProvider().getPriceIndex(coupon.getPriceIndex(), coupon.getReferenceEndTime()[0]);
final double estimatedIndexMonth1 = inflation.getInflationProvider().getPriceIndex(coupon.getPriceIndex(), coupon.getReferenceEndTime()[1]);
final double estimatedIndex = coupon.getWeight() * estimatedIndexMonth0 + (1 - coupon.getWeight()) * estimatedIndexMonth1;
final double convextityAdjustment = CONVEXITY_ADJUSTMENT_FUNCTION.getZeroCouponConvexityAdjustment(coupon, inflation);
final double discountFactor = inflation.getInflationProvider().getDiscountFactor(coupon.getCurrency(), coupon.getPaymentTime());
// Backward sweep
final double pvBar = 1.0;
final double discountFactorBar = (estimatedIndex / coupon.getIndexStartValue() * convextityAdjustment - (coupon.payNotional() ? 0.0 : 1.0)) * coupon.getNotional() * pvBar;
final double estimatedIndexBar = 1.0 / coupon.getIndexStartValue() * convextityAdjustment * discountFactor * coupon.getNotional() * pvBar;
final double estimatedIndexMonth1Bar = (1 - coupon.getWeight()) * estimatedIndexBar;
final double estimatedIndexMonth0Bar = coupon.getWeight() * estimatedIndexBar;
final Map<String, List<DoublesPair>> resultMapDisc = new HashMap<>();
final List<DoublesPair> listDiscounting = new ArrayList<>();
listDiscounting.add(new DoublesPair(coupon.getPaymentTime(), -coupon.getPaymentTime() * discountFactor * discountFactorBar));
resultMapDisc.put(inflation.getInflationProvider().getName(coupon.getCurrency()), listDiscounting);
final Map<String, List<DoublesPair>> resultMapPrice = new HashMap<>();
final List<DoublesPair> listPrice = new ArrayList<>();
listPrice.add(new DoublesPair(coupon.getReferenceEndTime()[0], estimatedIndexMonth0Bar));
listPrice.add(new DoublesPair(coupon.getReferenceEndTime()[1], estimatedIndexMonth1Bar));
resultMapPrice.put(inflation.getInflationProvider().getName(coupon.getPriceIndex()), listPrice);
final InflationSensitivity inflationSensitivity = InflationSensitivity.ofYieldDiscountingAndPriceIndex(resultMapDisc, resultMapPrice);
return MultipleCurrencyInflationSensitivity.of(coupon.getCurrency(), inflationSensitivity);
}
}