net.finmath.singleswaprate.model.volatilities.SABRVolatilityCubeSingleSmile Maven / Gradle / Ivy

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package net.finmath.singleswaprate.model.volatilities;

import java.io.Serializable;
import java.time.LocalDate;
import java.util.HashMap;
import java.util.Map;

import net.finmath.functions.AnalyticFormulas;
import net.finmath.marketdata.model.volatilities.VolatilitySurface.QuotingConvention;
import net.finmath.singleswaprate.model.VolatilityCubeModel;

/**
 * A simplified volatility cube that provides a volatility smile in strike for all possible maturities and terminations, based on a single set of SABR parameters.
 *
 * @author Christian Fries
 * @author Roland Bachl
 *
 */
public class SABRVolatilityCubeSingleSmile implements VolatilityCube, Serializable {

	private static final long serialVersionUID = -2465149876882995369L;

	private final String name;
	private final LocalDate referenceDate;

	private final double correlationDecay;
	private final double iborOisDecorrelation;

	//SABR parameters
	private final double underlying;
	private final double sabrAlpha;
	private final double sabrBeta;
	private final double sabrRho;
	private final double sabrNu;
	private final double sabrDisplacement;

	private final QuotingConvention quotingConvention = QuotingConvention.VOLATILITYNORMAL;

	/**
	 * Create the cube.
	 *
	 * @param name The name of the cube.
	 * @param referenceDate The reference date of the cube.
	 * @param underlying The dummy underlying to be used for the SABR model.
	 * @param sabrAlpha The initial value of the stochastic volatility process of the SABR model.
	 * @param sabrBeta The beta CEV parameter of the SABR model.
	 * @param sabrRho Correlation (leverages) of the stochastic volatility.
	 * @param sabrNu Volatility of the stochastic volatility (vol-of-vol).
	 * @param sabrDisplacement The displacement parameter of the smile.
	 */
	public SABRVolatilityCubeSingleSmile(String name, LocalDate referenceDate, double underlying, double sabrAlpha,
			double sabrBeta, double sabrRho, double sabrNu, double sabrDisplacement) {
		super();
		this.name = name;
		this.referenceDate = referenceDate;
		this.underlying = underlying;
		this.sabrAlpha = sabrAlpha;
		this.sabrBeta = sabrBeta;
		this.sabrRho = sabrRho;
		this.sabrNu = sabrNu;
		this.sabrDisplacement = sabrDisplacement;
		this.correlationDecay = 1.0;
		this.iborOisDecorrelation = 1.0;
	}

	/**
	 * Create the cube.
	 *
	 * @param name The name of the cube.
	 * @param referenceDate The reference date of the cube.
	 * @param underlying The dummy underlying to be used for the SABR model.
	 * @param sabrAlpha The initial value of the stochastic volatility process of the SABR model.
	 * @param sabrBeta The beta CEV parameter of the SABR model.
	 * @param sabrRho Correlation (leverages) of the stochastic volatility.
	 * @param sabrNu Volatility of the stochastic volatility (vol-of-vol).
	 * @param sabrDisplacement The displacement parameter of the smile.
	 * @param correlationDecay The correlation decay inherent to this cube.
	 */
	public SABRVolatilityCubeSingleSmile(String name, LocalDate referenceDate, double underlying, double sabrAlpha,
			double sabrBeta, double sabrRho, double sabrNu, double sabrDisplacement, double correlationDecay) {
		super();
		this.name = name;
		this.referenceDate = referenceDate;
		this.underlying = underlying;
		this.sabrAlpha = sabrAlpha;
		this.sabrBeta = sabrBeta;
		this.sabrRho = sabrRho;
		this.sabrNu = sabrNu;
		this.sabrDisplacement = sabrDisplacement;
		this.correlationDecay = correlationDecay;
		this.iborOisDecorrelation = 1.0;
	}

	/**
	 * Create the cube.
	 *
	 * @param name The name of the cube.
	 * @param referenceDate The reference date of the cube.
	 * @param underlying The dummy underlying to be used for the SABR model.
	 * @param sabrAlpha The initial value of the stochastic volatility process of the SABR model.
	 * @param sabrBeta The beta CEV parameter of the SABR model.
	 * @param sabrRho Correlation (leverages) of the stochastic volatility.
	 * @param sabrNu Volatility of the stochastic volatility (vol-of-vol).
	 * @param sabrDisplacement The displacement parameter of the smile.
	 * @param correlationDecay The correlation decay inherent to this cube.
	 * @param iborOisDecorrelation The ibor ois decorrealtion parameter of this cube.
	 */
	public SABRVolatilityCubeSingleSmile(String name, LocalDate referenceDate, double underlying, double sabrAlpha,
			double sabrBeta, double sabrRho, double sabrNu, double sabrDisplacement, double correlationDecay, double iborOisDecorrelation) {
		super();
		this.name = name;
		this.referenceDate = referenceDate;
		this.underlying = underlying;
		this.sabrAlpha = sabrAlpha;
		this.sabrBeta = sabrBeta;
		this.sabrRho = sabrRho;
		this.sabrNu = sabrNu;
		this.sabrDisplacement = sabrDisplacement;
		this.correlationDecay = correlationDecay;
		this.iborOisDecorrelation = iborOisDecorrelation;
	}

	@Override
	public double getValue(VolatilityCubeModel model, double termination, double maturity, double strike,
			QuotingConvention quotingConvention) {

		if(quotingConvention == this.quotingConvention) {
			return AnalyticFormulas.sabrBerestyckiNormalVolatilityApproximation(sabrAlpha, sabrBeta, sabrRho, sabrNu, sabrDisplacement, underlying, strike, maturity);
		} else {
			throw new IllegalArgumentException("This cube supports only the Quoting Convention " +this.quotingConvention);
		}
		//TODO support other conventions
	}

	@Override
	public double getValue(double termination, double maturity, double strike, QuotingConvention quotingConvention) {
		return getValue(null, termination, maturity, strike, quotingConvention);
	}

	@Override
	public String getName() {
		return name;
	}

	@Override
	public LocalDate getReferenceDate() {
		return referenceDate;
	}

	@Override
	public String toString() {
		return super.toString() + "\n\"" + this.getName() + "\"" + getParameters().toString();
	}

	@Override
	public Object clone() throws CloneNotSupportedException {
		return new SABRVolatilityCubeSingleSmile(name, referenceDate, underlying, sabrAlpha, sabrBeta, sabrRho, sabrNu, sabrDisplacement, correlationDecay, iborOisDecorrelation);
	}

	@Override
	public double getCorrelationDecay() {
		return correlationDecay;
	}

	@Override
	public Map getParameters() {
		Map map = new HashMap<>();
		map.put("sabrAlpha", sabrAlpha);
		map.put("sabrBeta", sabrBeta);
		map.put("sabrRho", sabrRho);
		map.put("sabrNu", sabrNu);
		map.put("sabrDisplacement", sabrDisplacement);
		map.put("InherentCorrelationDecay", correlationDecay);
		map.put("iborOisDecorrelation", iborOisDecorrelation);
		map.put("DummyUnderlying", underlying);

		return map;
	}

	@Override
	public double getLowestStrike(VolatilityCubeModel model) {
		return -sabrDisplacement;
	}

	@Override
	public double getIborOisDecorrelation() {
		return iborOisDecorrelation;
	}
}