Added Test Case to cover market quoted spread curve instead of single…

… spread data point
bleunguts · May 1, 2024 · 865d08b · 865d08b
1 parent cf12820
commit 865d08b
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Showing 2 changed files with 37 additions and 3 deletions.
diff --git a/ProjectX.AnalyticsLib.Tests/CreditDefaultSwapFunctionsTest.cs b/ProjectX.AnalyticsLib.Tests/CreditDefaultSwapFunctionsTest.cs
@@ -10,12 +10,12 @@ namespace ProjectX.AnalyticsLib.Tests;
 public class CreditDefaultSwapFunctionsTest
 {
     [Test]
-    public void WhenValuingCdsPVUsingFlatInterestCurveItShouldReturnValidPV()
+    public void WhenValuingCdsPVItShouldReturnValidPVAndProbabilities()
     {
         var evalDate = new DateTime(2009, 6, 15);
         var effectiveDate = new DateTime(2009, 3, 20);
         var maturityDate = new DateTime(2014, 6, 20);
-        var spreadsInBps = new int[] { 210 };
+        var spreadsInBps = new double[] { 210.0 };
         var tenors = new string[] { "5Y" };
         var recoveryRate = 0.4;
         var couponInBps = 100;
@@ -39,4 +39,35 @@ public void WhenValuingCdsPVUsingFlatInterestCurveItShouldReturnValidPV()
         Assert.That(actual.PV, Is.EqualTo(471).Within(1), "PV must be equal to expected value within tolerance"); 
         Assert.That(actual.FairSpread, Is.EqualTo(218).Within(1), "Fair spread must be equal to expected value within tolerance"); 
     }
+
+    [Test]
+    public void WhenValuingCdsPVWithMultipleSpreadPointsItShouldReturnValidPVAndProbabilities()
+    {
+        var evalDate = new DateTime(2015, 5, 15);
+        var effectiveDate = new DateTime(2015, 3, 20);
+        var maturityDate = new DateTime(2018, 6, 20);
+        var spreadsInBps = new double[] { 34.93, 53.6, 72.02, 106.39, 129.39, 139.46 };
+        var tenors = new string[] { "1Y","2Y","3Y","5Y","7Y","10Y" };
+        var recoveryRate = 0.4;
+        var couponInBps = 100;
+        var notional = 10_000;
+        Protection.Side protectionSide = Protection.Side.Buyer;
+        var interestRate = 0.07;
+        var actual = CreditDefaultSwapFunctions.PV(
+            evalDate,
+            effectiveDate,
+            maturityDate,
+            spreadsInBps,
+            tenors,
+            recoveryRate,
+            couponInBps,
+            notional,
+            protectionSide,
+            interestRate);
+        Assert.That(actual.SurvivalProbabilityPercentage, Is.EqualTo(96.3).Within(1));
+        Assert.That(actual.DefaultProbabilityPercentage, Is.EqualTo(3.6).Within(1));
+        Assert.That(actual.HazardRatePercentage, Is.EqualTo(1.8).Within(1));
+        Assert.That(actual.PV, Is.EqualTo(-137).Within(1), "PV must be equal to expected value within tolerance");
+        Assert.That(actual.FairSpread, Is.EqualTo(51.3).Within(1), "Fair spread must be equal to expected value within tolerance");
+    }
 }
diff --git a/ProjectX.AnalyticsLib/CreditDefaultSwapFunctions.cs b/ProjectX.AnalyticsLib/CreditDefaultSwapFunctions.cs
@@ -9,11 +9,14 @@ namespace ProjectX.AnalyticsLib;
 
 public class CreditDefaultSwapFunctions
 {
+    /// <summary>
+    /// Uses Flat Interest Rate Curve - instead of PiecewiseLogCubic ISDA rate curves
+    /// </summary>    
     public static CreditDefaultSwapPVResult PV(
         DateTime evaluationDate, 
         DateTime effectiveDate, 
         DateTime maturityDate, 
-        int[] spreadsInBps, 
+        double[] spreadsInBps, 
         string[] tenors, 
         double recoveryRate, 
         int couponInBps,