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• TrigeorgisLatticeSpecification.java

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com.opengamma.strata.pricer.impl.tree.TrigeorgisLatticeSpecification Maven / Gradle / Ivy

/*
 * Copyright (C) 2016 - present by OpenGamma Inc. and the OpenGamma group of companies
 *
 * Please see distribution for license.
 */
package com.opengamma.strata.pricer.impl.tree;

import com.opengamma.strata.collect.array.DoubleArray;

/**
 * Trigeorgis lattice specification.
 */
public final class TrigeorgisLatticeSpecification implements LatticeSpecification {

  @Override
  public DoubleArray getParametersTrinomial(double volatility, double interestRate, double dt) {
    double volSq = volatility * volatility;
    double mu = interestRate - 0.5 * volSq;
    double mudt = mu * dt;
    double mudtSq = mudt * mudt;
    double dx = volatility * Math.sqrt(3d * dt);
    double upFactor = Math.exp(dx);
    double downFactor = Math.exp(-dx);
    double part = (volSq * dt + mudtSq) / dx / dx;
    double upProbability = 0.5 * (part + mudt / dx);
    double middleProbability = 1d - part;
    double downProbability = 0.5 * (part - mudt / dx);
    return DoubleArray.of(upFactor, 1d, downFactor, upProbability, middleProbability, downProbability);
  }
}