/usr/include/ql/experimental/convertiblebonds/binomialconvertibleengine.hpp is in libquantlib0-dev 1.4-2.
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/*
Copyright (C) 2005, 2006 Theo Boafo
Copyright (C) 2006, 2007 StatPro Italia srl
This file is part of QuantLib, a free-software/open-source library
for financial quantitative analysts and developers - http://quantlib.org/
QuantLib is free software: you can redistribute it and/or modify it
under the terms of the QuantLib license. You should have received a
copy of the license along with this program; if not, please email
<quantlib-dev@lists.sf.net>. The license is also available online at
<http://quantlib.org/license.shtml>.
This program is distributed in the hope that it will be useful, but WITHOUT
ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS
FOR A PARTICULAR PURPOSE. See the license for more details.
*/
/*! \file binomialconvertibleengine.hpp
\brief binomial engine for convertible bonds
*/
#ifndef quantlib_binomial_convertible_engine_hpp
#define quantlib_binomial_convertible_engine_hpp
#include <ql/experimental/convertiblebonds/discretizedconvertible.hpp>
#include <ql/experimental/convertiblebonds/convertiblebond.hpp>
#include <ql/experimental/convertiblebonds/tflattice.hpp>
#include <ql/processes/blackscholesprocess.hpp>
#include <ql/termstructures/yield/flatforward.hpp>
#include <ql/termstructures/volatility/equityfx/blackconstantvol.hpp>
#include <ql/instruments/payoffs.hpp>
namespace QuantLib {
//! Binomial Tsiveriotis-Fernandes engine for convertible bonds
/* \ingroup hybridengines
\test the correctness of the returned value is tested by
checking it against known results in a few corner cases.
*/
template <class T>
class BinomialConvertibleEngine : public ConvertibleBond::option::engine {
public:
BinomialConvertibleEngine(
const boost::shared_ptr<GeneralizedBlackScholesProcess>& process,
Size timeSteps)
: process_(process), timeSteps_(timeSteps) {
QL_REQUIRE(timeSteps>0,
"timeSteps must be positive, " << timeSteps <<
" not allowed");
registerWith(process_);
}
void calculate() const;
private:
boost::shared_ptr<GeneralizedBlackScholesProcess> process_;
Size timeSteps_;
};
template <class T>
void BinomialConvertibleEngine<T>::calculate() const {
DayCounter rfdc = process_->riskFreeRate()->dayCounter();
DayCounter divdc = process_->dividendYield()->dayCounter();
DayCounter voldc = process_->blackVolatility()->dayCounter();
Calendar volcal = process_->blackVolatility()->calendar();
Real s0 = process_->x0();
QL_REQUIRE(s0 > 0.0, "negative or null underlying");
Volatility v = process_->blackVolatility()->blackVol(
arguments_.exercise->lastDate(), s0);
Date maturityDate = arguments_.exercise->lastDate();
Rate riskFreeRate = process_->riskFreeRate()->zeroRate(
maturityDate, rfdc, Continuous, NoFrequency);
Rate q = process_->dividendYield()->zeroRate(
maturityDate, divdc, Continuous, NoFrequency);
Date referenceDate = process_->riskFreeRate()->referenceDate();
// subtract dividends
Size i;
for (i=0; i<arguments_.dividends.size(); i++) {
if (arguments_.dividends[i]->date() >= referenceDate)
s0 -= arguments_.dividends[i]->amount() *
process_->riskFreeRate()->discount(
arguments_.dividends[i]->date());
}
QL_REQUIRE(s0 > 0.0,
"negative value after subtracting dividends");
// binomial trees with constant coefficient
Handle<Quote> underlying(boost::shared_ptr<Quote>(new SimpleQuote(s0)));
Handle<YieldTermStructure> flatRiskFree(
boost::shared_ptr<YieldTermStructure>(
new FlatForward(referenceDate, riskFreeRate, rfdc)));
Handle<YieldTermStructure> flatDividends(
boost::shared_ptr<YieldTermStructure>(
new FlatForward(referenceDate, q, divdc)));
Handle<BlackVolTermStructure> flatVol(
boost::shared_ptr<BlackVolTermStructure>(
new BlackConstantVol(referenceDate, volcal, v, voldc)));
boost::shared_ptr<PlainVanillaPayoff> payoff =
boost::dynamic_pointer_cast<PlainVanillaPayoff>(arguments_.payoff);
QL_REQUIRE(payoff, "non-plain payoff given");
Time maturity = rfdc.yearFraction(arguments_.settlementDate,
maturityDate);
boost::shared_ptr<GeneralizedBlackScholesProcess> bs(
new GeneralizedBlackScholesProcess(underlying, flatDividends,
flatRiskFree, flatVol));
boost::shared_ptr<T> tree(new T(bs, maturity, timeSteps_,
payoff->strike()));
Real creditSpread = arguments_.creditSpread->value();
boost::shared_ptr<Lattice> lattice(
new TsiveriotisFernandesLattice<T>(tree,riskFreeRate,maturity,
timeSteps_,creditSpread,v,q));
DiscretizedConvertible convertible(arguments_, bs,
TimeGrid(maturity, timeSteps_));
convertible.initialize(lattice, maturity);
convertible.rollback(0.0);
results_.value = convertible.presentValue();
QL_ENSURE(results_.value < std::numeric_limits<Real>::max(),
"floating-point overflow on tree grid");
}
}
#endif
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