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Move credit spread and dividends to Binomial Convertible Engine #1220

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Nov 9, 2021
Merged

Move credit spread and dividends to Binomial Convertible Engine #1220

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f929a89
Move creditSpread and dividends into BinomalConvertibleEngine
w31ha0 Oct 30, 2021
582591d
Revert vcxproj file
w31ha0 Oct 30, 2021
193d2ff
Fix Build
w31ha0 Oct 30, 2021
e1aee00
Fix ordering
w31ha0 Oct 30, 2021
23f5928
Fix Build
w31ha0 Oct 30, 2021
7c3518a
Remove fields from engine arguments
w31ha0 Nov 2, 2021
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52 changes: 19 additions & 33 deletions Examples/ConvertibleBonds/ConvertibleBonds.cpp
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Original file line number Diff line number Diff line change
Expand Up @@ -193,27 +193,25 @@ int main(int, char* []) {

ext::shared_ptr<PricingEngine> engine(
new BinomialConvertibleEngine<JarrowRudd>(stochasticProcess,
timeSteps));
timeSteps, creditSpread, dividends));

ConvertibleFixedCouponBond europeanBond(
exercise, conversionRatio, dividends, callability,
creditSpread, issueDate, settlementDays,
exercise, conversionRatio, callability,
issueDate, settlementDays,
coupons, bondDayCount, schedule, redemption);
europeanBond.setPricingEngine(engine);

ConvertibleFixedCouponBond americanBond(
amExercise, conversionRatio, dividends, callability,
creditSpread, issueDate, settlementDays,
amExercise, conversionRatio, callability,
issueDate, settlementDays,
coupons, bondDayCount, schedule, redemption);
americanBond.setPricingEngine(engine);

method = "Jarrow-Rudd";
europeanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<JarrowRudd>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<JarrowRudd>(stochasticProcess, timeSteps, creditSpread, dividends)));
americanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<JarrowRudd>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<JarrowRudd>(stochasticProcess, timeSteps, creditSpread, dividends)));
std::cout << std::setw(widths[0]) << std::left << method
<< std::fixed
<< std::setw(widths[1]) << std::left << europeanBond.NPV()
Expand All @@ -222,11 +220,9 @@ int main(int, char* []) {

method = "Cox-Ross-Rubinstein";
europeanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<CoxRossRubinstein>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<CoxRossRubinstein>(stochasticProcess, timeSteps, creditSpread, dividends)));
americanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<CoxRossRubinstein>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<CoxRossRubinstein>(stochasticProcess, timeSteps, creditSpread, dividends)));
std::cout << std::setw(widths[0]) << std::left << method
<< std::fixed
<< std::setw(widths[1]) << std::left << europeanBond.NPV()
Expand All @@ -236,12 +232,10 @@ int main(int, char* []) {
method = "Additive equiprobabilities";
europeanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<AdditiveEQPBinomialTree>(
stochasticProcess,
timeSteps)));
stochasticProcess, timeSteps, creditSpread, dividends)));
americanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<AdditiveEQPBinomialTree>(
stochasticProcess,
timeSteps)));
stochasticProcess, timeSteps, creditSpread, dividends)));
std::cout << std::setw(widths[0]) << std::left << method
<< std::fixed
<< std::setw(widths[1]) << std::left << europeanBond.NPV()
Expand All @@ -250,11 +244,9 @@ int main(int, char* []) {

method = "Trigeorgis";
europeanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<Trigeorgis>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<Trigeorgis>(stochasticProcess, timeSteps, creditSpread, dividends)));
americanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<Trigeorgis>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<Trigeorgis>(stochasticProcess, timeSteps, creditSpread, dividends)));
std::cout << std::setw(widths[0]) << std::left << method
<< std::fixed
<< std::setw(widths[1]) << std::left << europeanBond.NPV()
Expand All @@ -263,11 +255,9 @@ int main(int, char* []) {

method = "Tian";
europeanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<Tian>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<Tian>(stochasticProcess, timeSteps, creditSpread, dividends)));
americanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<Tian>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<Tian>(stochasticProcess, timeSteps, creditSpread, dividends)));
std::cout << std::setw(widths[0]) << std::left << method
<< std::fixed
<< std::setw(widths[1]) << std::left << europeanBond.NPV()
Expand All @@ -276,11 +266,9 @@ int main(int, char* []) {

method = "Leisen-Reimer";
europeanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<LeisenReimer>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<LeisenReimer>(stochasticProcess, timeSteps, creditSpread, dividends)));
americanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<LeisenReimer>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<LeisenReimer>(stochasticProcess, timeSteps, creditSpread, dividends)));
std::cout << std::setw(widths[0]) << std::left << method
<< std::fixed
<< std::setw(widths[1]) << std::left << europeanBond.NPV()
Expand All @@ -289,11 +277,9 @@ int main(int, char* []) {

method = "Joshi";
europeanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<Joshi4>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<Joshi4>(stochasticProcess, timeSteps, creditSpread, dividends)));
americanBond.setPricingEngine(ext::shared_ptr<PricingEngine>(
new BinomialConvertibleEngine<Joshi4>(stochasticProcess,
timeSteps)));
new BinomialConvertibleEngine<Joshi4>(stochasticProcess, timeSteps, creditSpread, dividends)));
std::cout << std::setw(widths[0]) << std::left << method
<< std::fixed
<< std::setw(widths[1]) << std::left << europeanBond.NPV()
Expand Down
65 changes: 33 additions & 32 deletions ql/experimental/convertiblebonds/binomialconvertibleengine.hpp
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Original file line number Diff line number Diff line change
Expand Up @@ -46,18 +46,28 @@ namespace QuantLib {
class BinomialConvertibleEngine : public ConvertibleBond::option::engine {
public:
BinomialConvertibleEngine(ext::shared_ptr<GeneralizedBlackScholesProcess> process,
Size timeSteps)
: process_(std::move(process)), timeSteps_(timeSteps) {
Size timeSteps,
const Handle<Quote>& creditSpread,
DividendSchedule dividends)
: process_(std::move(process)), timeSteps_(timeSteps),
dividends_(std::move(dividends)), creditSpread_(creditSpread)
{
QL_REQUIRE(timeSteps>0,
"timeSteps must be positive, " << timeSteps <<
" not allowed");

registerWith(process_);
registerWith(creditSpread);
}
void calculate() const override;
const Handle<Quote>& creditSpread() const { return creditSpread_; }
const DividendSchedule& dividends() const { return dividends_; }

private:
ext::shared_ptr<GeneralizedBlackScholesProcess> process_;
Size timeSteps_;
DividendSchedule dividends_;
Handle<Quote> creditSpread_;
};


Expand All @@ -72,58 +82,49 @@ namespace QuantLib {
Real s0 = process_->x0();
QL_REQUIRE(s0 > 0.0, "negative or null underlying");
Volatility v = process_->blackVolatility()->blackVol(
arguments_.exercise->lastDate(), s0);
arguments_.exercise->lastDate(), s0);
Date maturityDate = arguments_.exercise->lastDate();
Rate riskFreeRate = process_->riskFreeRate()->zeroRate(
maturityDate, rfdc, Continuous, NoFrequency);
maturityDate, rfdc, Continuous, NoFrequency);
Rate q = process_->dividendYield()->zeroRate(
maturityDate, divdc, Continuous, NoFrequency);
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());
for (i=0; i<dividends_.size(); i++) {
if (dividends_[i]->date() >= referenceDate)
s0 -= dividends_[i]->amount() *
process_->riskFreeRate()->discount(dividends_[i]->date());
}
QL_REQUIRE(s0 > 0.0,
"negative value after subtracting dividends");
"negative value after subtracting dividends");

// binomial trees with constant coefficient
Handle<Quote> underlying(ext::shared_ptr<Quote>(new SimpleQuote(s0)));
Handle<YieldTermStructure> flatRiskFree(
ext::shared_ptr<YieldTermStructure>(
new FlatForward(referenceDate, riskFreeRate, rfdc)));
Handle<YieldTermStructure> flatRiskFree(ext::shared_ptr<YieldTermStructure>(
new FlatForward(referenceDate, riskFreeRate, rfdc)));
Handle<YieldTermStructure> flatDividends(
ext::shared_ptr<YieldTermStructure>(
new FlatForward(referenceDate, q, divdc)));
Handle<BlackVolTermStructure> flatVol(
ext::shared_ptr<BlackVolTermStructure>(
new BlackConstantVol(referenceDate, volcal, v, voldc)));
ext::shared_ptr<YieldTermStructure>(new FlatForward(referenceDate, q, divdc)));
Handle<BlackVolTermStructure> flatVol(ext::shared_ptr<BlackVolTermStructure>(
new BlackConstantVol(referenceDate, volcal, v, voldc)));

ext::shared_ptr<PlainVanillaPayoff> payoff =
ext::dynamic_pointer_cast<PlainVanillaPayoff>(arguments_.payoff);
QL_REQUIRE(payoff, "non-plain payoff given");

Time maturity = rfdc.yearFraction(arguments_.settlementDate,
maturityDate);
Time maturity = rfdc.yearFraction(arguments_.settlementDate, maturityDate);

ext::shared_ptr<GeneralizedBlackScholesProcess> bs(
new GeneralizedBlackScholesProcess(underlying, flatDividends,
flatRiskFree, flatVol));
ext::shared_ptr<T> tree(new T(bs, maturity, timeSteps_,
payoff->strike()));
new GeneralizedBlackScholesProcess(underlying, flatDividends, flatRiskFree, flatVol));
ext::shared_ptr<T> tree(new T(bs, maturity, timeSteps_, payoff->strike()));

Real creditSpread = arguments_.creditSpread->value();
Real creditSpread = creditSpread_->value();

ext::shared_ptr<Lattice> lattice(
new TsiveriotisFernandesLattice<T>(tree,riskFreeRate,maturity,
timeSteps_,creditSpread,v,q));
ext::shared_ptr<Lattice> lattice(new TsiveriotisFernandesLattice<T>(
tree, riskFreeRate, maturity, timeSteps_, creditSpread, v, q));

DiscretizedConvertible convertible(arguments_, bs,
TimeGrid(maturity, timeSteps_));
DiscretizedConvertible convertible(arguments_, bs, dividends_, creditSpread_, TimeGrid(maturity, timeSteps_));

convertible.initialize(lattice, maturity);
convertible.rollback(0.0);
Expand All @@ -135,4 +136,4 @@ namespace QuantLib {
}


#endif
#endif
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