1/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
2
3/*
4 Copyright (C) 2008 Roland Stamm
5 Copyright (C) 2009 Jose Aparicio
6
7 This file is part of QuantLib, a free-software/open-source library
8 for financial quantitative analysts and developers - http://quantlib.org/
9
10 QuantLib is free software: you can redistribute it and/or modify it
11 under the terms of the QuantLib license. You should have received a
12 copy of the license along with this program; if not, please email
13 <quantlib-dev@lists.sf.net>. The license is also available online at
14 <http://quantlib.org/license.shtml>.
15
16 This program is distributed in the hope that it will be useful, but WITHOUT
17 ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS
18 FOR A PARTICULAR PURPOSE. See the license for more details.
19*/
20
21#include <ql/exercise.hpp>
22#include <ql/experimental/credit/blackcdsoptionengine.hpp>
23#include <ql/pricingengines/blackformula.hpp>
24#include <ql/quote.hpp>
25#include <ql/termstructures/yieldtermstructure.hpp>
26#include <utility>
27
28namespace QuantLib {
29
30 BlackCdsOptionEngine::BlackCdsOptionEngine(Handle<DefaultProbabilityTermStructure> probability,
31 Real recoveryRate,
32 Handle<YieldTermStructure> termStructure,
33 Handle<Quote> volatility)
34 : probability_(std::move(probability)), recoveryRate_(recoveryRate),
35 termStructure_(std::move(termStructure)), volatility_(std::move(volatility)) {
36
37 registerWith(h: probability_);
38 registerWith(h: termStructure_);
39 registerWith(h: volatility_);
40 }
41
42 void BlackCdsOptionEngine::calculate() const {
43
44 Date maturityDate = arguments_.swap->coupons().front()->date();
45 Date exerciseDate = arguments_.exercise->date(index: 0);
46 QL_REQUIRE(maturityDate > exerciseDate,
47 "Underlying CDS should start after option maturity");
48 Date settlement = termStructure_->referenceDate();
49
50 Rate spotFwdSpread = arguments_.swap->fairSpread();
51 Rate swapSpread = arguments_.swap->runningSpread();
52
53 DayCounter tSDc = termStructure_->dayCounter();
54
55 // The sense of the underlying/option has to be sent this way
56 // to the Black formula, no sign.
57 Real riskyAnnuity =
58 std::fabs(x: arguments_.swap->couponLegNPV() / swapSpread);
59 results_.riskyAnnuity = riskyAnnuity;
60
61 Time T = tSDc.yearFraction(d1: settlement, d2: exerciseDate);
62
63 Real stdDev = volatility_->value() * std::sqrt(x: T);
64 Option::Type callPut = (arguments_.side == Protection::Buyer) ?
65 Option::Call : Option::Put;
66
67 results_.value =
68 blackFormula(optionType: callPut, strike: swapSpread, forward: spotFwdSpread,
69 stdDev, discount: riskyAnnuity);
70
71 // if a non knock-out payer option, add front end protection value
72 if (arguments_.side == Protection::Buyer && !arguments_.knocksOut) {
73 Real frontEndProtection =
74 Integer(callPut) * arguments_.swap->notional()
75 * (1.-recoveryRate_)
76 * probability_->defaultProbability(d: exerciseDate)
77 * termStructure_->discount(d: exerciseDate);
78 results_.value += frontEndProtection;
79 }
80 }
81
82 Handle<YieldTermStructure> BlackCdsOptionEngine::termStructure() {
83 return termStructure_;
84 }
85
86 Handle<Quote> BlackCdsOptionEngine::volatility() {
87 return volatility_;
88 }
89
90}
91

source code of quantlib/ql/experimental/credit/blackcdsoptionengine.cpp