/*
CVA IRS
*/
/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
#include <ql/quantlib.hpp>
#include <boost/timer.hpp>
#include <iostream>
#include <iomanip>
using namespace std;
using namespace QuantLib;
#ifdef BOOST_MSVC
# ifdef QL_ENABLE_THREAD_SAFE_OBSERVER_PATTERN
# include <ql/auto_link.hpp>
# define BOOST_LIB_NAME boost_system
# include <boost/config/auto_link.hpp>
# undef BOOST_LIB_NAME
# define BOOST_LIB_NAME boost_thread
# include <boost/config/auto_link.hpp>
# undef BOOST_LIB_NAME
# endif
#endif
#if defined(QL_ENABLE_SESSIONS)
namespace QuantLib {
Integer sessionId() { return 0; }
}
#endif
/*
This example reproduces Table 2 on page 11 of
A Formula for Interest Rate Swaps Valuation under
Counterparty Risk in presence of Netting Agreements
Damiano Brigo and Massimo Masetti; May 4, 2005
*/
int main(int, char* []) {
try {
boost::timer timer;
std::cout << std::endl;
Calendar calendar = TARGET();
Date todaysDate(10, March, 2004);
// must be a business day
todaysDate = calendar.adjust(todaysDate);
Settings::instance().evaluationDate() = todaysDate;
boost::shared_ptr<IborIndex> yieldIndx(new Euribor3M());
Size tenorsSwapMkt[] = {5, 10, 15, 20, 25, 30};
// rates ignoring counterparty risk:
Rate ratesSwapmkt[] = {.03249, .04074, .04463, .04675, .04775, .04811};
vector<boost::shared_ptr<RateHelper> > swapHelpers;
for(Size i=0; i<sizeof(tenorsSwapMkt)/sizeof(Size); i++)
swapHelpers.push_back(boost::make_shared<SwapRateHelper>(
Handle<Quote>(boost::shared_ptr<Quote>(
new SimpleQuote(ratesSwapmkt[i]))),
tenorsSwapMkt[i] * Years,
TARGET(),
Quarterly,
ModifiedFollowing,
ActualActual(ActualActual::ISDA),
yieldIndx));
boost::shared_ptr<YieldTermStructure> swapTS(
new PiecewiseYieldCurve<Discount,LogLinear>(
2, TARGET(), swapHelpers, ActualActual(ActualActual::ISDA),
1.0e-12));
swapTS->enableExtrapolation();
boost::shared_ptr<PricingEngine> riskFreeEngine(
boost::make_shared<DiscountingSwapEngine>(
Handle<YieldTermStructure>(swapTS)));
std::vector<Handle<DefaultProbabilityTermStructure> >
defaultIntensityTS;
Size defaultTenors[] = {0, 12, 36, 60, 84, 120, 180, 240, 300,
360};// months
// Three risk levels:
Real intensitiesLow[] = {0.0036, 0.0036, 0.0065, 0.0099, 0.0111,
0.0177, 0.0177, 0.0177, 0.0177, 0.0177,
0.0177};
Real intensitiesMedium[] = {0.0202, 0.0202, 0.0231, 0.0266, 0.0278,
0.0349, 0.0349, 0.0349, 0.0349, 0.0349,
0.0349};
Real intensitiesHigh[] = {0.0534, 0.0534, 0.0564, 0.06, 0.0614, 0.0696,
0.0696, 0.0696, 0.0696, 0.0696, 0.0696};
// Recovery rates:
Real ctptyRRLow = 0.4, ctptyRRMedium = 0.35, ctptyRRHigh = 0.3;
std::vector<Date> defaultTSDates;
std::vector<Real> intesitiesVLow, intesitiesVMedium, intesitiesVHigh;
for(Size i=0; i<sizeof(defaultTenors)/sizeof(Size); i++) {
defaultTSDates.push_back(TARGET().advance(todaysDate,
Period(defaultTenors[i], Months)));
intesitiesVLow.push_back(intensitiesLow[i]);
intesitiesVMedium.push_back(intensitiesMedium[i]);
intesitiesVHigh.push_back(intensitiesHigh[i]);
}
defaultIntensityTS.push_back(Handle<DefaultProbabilityTermStructure>(
boost::shared_ptr<DefaultProbabilityTermStructure>(
new InterpolatedHazardRateCurve<BackwardFlat>(
defaultTSDates,
intesitiesVLow,
Actual360(),
TARGET()))));
defaultIntensityTS.push_back(Handle<DefaultProbabilityTermStructure>(
boost::shared_ptr<DefaultProbabilityTermStructure>(
new InterpolatedHazardRateCurve<BackwardFlat>(
defaultTSDates,
intesitiesVMedium,
Actual360(),
TARGET()))));
defaultIntensityTS.push_back(Handle<DefaultProbabilityTermStructure>(
boost::shared_ptr<DefaultProbabilityTermStructure>(
new InterpolatedHazardRateCurve<BackwardFlat>(
defaultTSDates,
intesitiesVHigh,
Actual360(),
TARGET()))));
Volatility blackVol = 0.15;
boost::shared_ptr<PricingEngine> ctptySwapCvaLow =
boost::make_shared<CounterpartyAdjSwapEngine>(
Handle<YieldTermStructure>(swapTS),
blackVol,
defaultIntensityTS[0],
ctptyRRLow
);
boost::shared_ptr<PricingEngine> ctptySwapCvaMedium =
boost::make_shared<CounterpartyAdjSwapEngine>(
Handle<YieldTermStructure>(swapTS),
blackVol,
defaultIntensityTS[1],
ctptyRRMedium);
boost::shared_ptr<PricingEngine> ctptySwapCvaHigh =
boost::make_shared<CounterpartyAdjSwapEngine>(
Handle<YieldTermStructure>(swapTS),
blackVol,
defaultIntensityTS[2],
ctptyRRHigh);
defaultIntensityTS[0]->enableExtrapolation();
defaultIntensityTS[1]->enableExtrapolation();
defaultIntensityTS[2]->enableExtrapolation();
/// SWAP RISKY REPRICE----------------------------------------------
// fixed leg
Frequency fixedLegFrequency = Quarterly;
BusinessDayConvention fixedLegConvention = ModifiedFollowing;
DayCounter fixedLegDayCounter = ActualActual(ActualActual::ISDA);
DayCounter floatingLegDayCounter = ActualActual(ActualActual::ISDA);
VanillaSwap::Type swapType =
//VanillaSwap::Receiver ;
VanillaSwap::Payer;
boost::shared_ptr<IborIndex> yieldIndxS(
new Euribor3M(Handle<YieldTermStructure>(swapTS)));
std::vector<VanillaSwap> riskySwaps;
for(Size i=0; i<sizeof(tenorsSwapMkt)/sizeof(Size); i++)
riskySwaps.push_back(MakeVanillaSwap(tenorsSwapMkt[i]*Years,
yieldIndxS,
ratesSwapmkt[i],
0*Days)
.withSettlementDays(2)
.withFixedLegDayCount(fixedLegDayCounter)
.withFixedLegTenor(Period(fixedLegFrequency))
.withFixedLegConvention(fixedLegConvention)
.withFixedLegTerminationDateConvention(fixedLegConvention)
.withFixedLegCalendar(calendar)
.withFloatingLegCalendar(calendar)
.withNominal(100.)
.withType(swapType));
cout << "-- Correction in the contract fix rate in bp --" << endl;
/* The paper plots correction to be substracted, here is printed
with its sign
*/
for(Size i=0; i<riskySwaps.size(); i++) {
cout << fixed << setprecision(3);
cout << setw(4);
riskySwaps[i].setPricingEngine(riskFreeEngine);
// should recover the input here:
Real nonRiskyFair = riskySwaps[i].fairRate();
cout << tenorsSwapMkt[i];
cout << setw(5);
cout << " | " << io::rate(nonRiskyFair);
cout << fixed << setprecision(2);
cout << setw(5);
// Low Risk:
riskySwaps[i].setPricingEngine(ctptySwapCvaLow);
cout << " | " << setw(6)
<< 10000.*(riskySwaps[i].fairRate() - nonRiskyFair);
//cout << " | " << setw(6) << riskySwaps[i].NPV() ;
// Medium Risk:
riskySwaps[i].setPricingEngine(ctptySwapCvaMedium);
cout << " | " << setw(6)
<< 10000.*(riskySwaps[i].fairRate() - nonRiskyFair);
//cout << " | " << setw(6) << riskySwaps[i].NPV() ;
riskySwaps[i].setPricingEngine(ctptySwapCvaHigh);
cout << " | " << setw(6)
<< 10000.*(riskySwaps[i].fairRate() - nonRiskyFair);
//cout << " | " << setw(6) << riskySwaps[i].NPV() ;
cout << endl;
}
cout << endl;
Real seconds = timer.elapsed();
Integer hours = Integer(seconds/3600);
seconds -= hours * 3600;
Integer minutes = Integer(seconds/60);
seconds -= minutes * 60;
cout << "Run completed in ";
if (hours > 0)
cout << hours << " h ";
if (hours > 0 || minutes > 0)
cout << minutes << " m ";
cout << fixed << setprecision(0)
<< seconds << " s" << endl;
return 0;
} catch (exception& e) {
cerr << e.what() << endl;
return 1;
} catch (...) {
cerr << "unknown error" << endl;
return 1;
}
}
