Analytic LGM swaption engine for european exercise. More...

#include <qle/pricingengines/analyticlgmswaptionengine.hpp>

Inheritance diagram for AnalyticLgmSwaptionEngine:

Public Types
enum class	FloatSpreadMapping { nextCoupon , proRata , simple }

Public Member Functions
	AnalyticLgmSwaptionEngine (const QuantLib::ext::shared_ptr< LinearGaussMarkovModel > &model, const Handle< YieldTermStructure > &discountCurve=Handle< YieldTermStructure >(), const FloatSpreadMapping floatSpreadMapping=FloatSpreadMapping::proRata, const Real x0=0.0)
	AnalyticLgmSwaptionEngine (const QuantLib::ext::shared_ptr< CrossAssetModel > &model, const Size ccy, const Handle< YieldTermStructure > &discountCurve=Handle< YieldTermStructure >(), const FloatSpreadMapping floatSpreadMapping=FloatSpreadMapping::proRata, const Real x0=0.0)
	AnalyticLgmSwaptionEngine (const QuantLib::ext::shared_ptr< IrLgm1fParametrization > irlgm1f, const Handle< YieldTermStructure > &discountCurve=Handle< YieldTermStructure >(), const FloatSpreadMapping floatSpreadMapping=FloatSpreadMapping::proRata, const Real x0=0.0)
void	calculate () const override
void	enableCache (const bool lgm_H_constant=true, const bool lgm_alpha_constant=false)
void	clearCache ()
void	setZetaShift (const Time t1, const Real shift)
void	resetZetaShift ()

Detailed Description

Analytic LGM swaption engine for european exercise.

All fixed coupons with start date greater or equal to the respective option expiry are considered to be part of the exercise into right.

References:

[1] Hagan, Evaluating and hedging exotic swap instruments via LGM

[2] Lichters, Stamm, Gallagher: Modern Derivatives Pricing and Credit Exposure Analysis, Palgrave Macmillan, 2015, 11.2.2

Warning: Cash settled swaptions are not supported

The basis between the given discounting curve (or - if not given - the model curve) and the forwarding curve attached to the underlying swap's ibor index is taken into account by a static correction spread for the underlying's fixed leg. Likewise a spread on the floating leg is taken into account.

Note that we assume H' does not change its sign, but this is a general requirement of the LGM parametrization anyway (see the base parametrization class).

The reference date of the LGM model defines t = 0. The reference date of the discountCurve defines the valuation time t. If t > 0 the calculated npv is conditional on x(t) = x0 and inflated, i.e. we calculate

N(t, x0) E( V(T) / N(T) | x(t) = x0 )

If no discount curve is specified, the LGM model's curve is used as the discount curve. In this case, the valuation time is 0 and the parameter x0 is ignored.

Member Enumeration Documentation

◆ FloatSpreadMapping

enum class FloatSpreadMapping

strong

For nextCoupon, proRata cf. Lichters, Stamm, Gallagher (2015), 11.2.2, where these methods are called Mapping A and Mapping B respectively.

The method "simple" determines the difference between the flat amount (see documentation of flatAmount() method below) and the actual floating coupon amount npv on the float leg and from that a fixed leg rate correction by dividing the difference by the fixed leg annuity.

Constructor & Destructor Documentation

◆ AnalyticLgmSwaptionEngine() [1/3]

AnalyticLgmSwaptionEngine	(	const QuantLib::ext::shared_ptr< LinearGaussMarkovModel > &	model,
		const Handle< YieldTermStructure > &	discountCurve = Handle< YieldTermStructure >(),
		const FloatSpreadMapping	floatSpreadMapping = FloatSpreadMapping::proRata,
		const Real	x0 = 0.0 )

Lgm model based constructor

◆ AnalyticLgmSwaptionEngine() [2/3]

AnalyticLgmSwaptionEngine	(	const QuantLib::ext::shared_ptr< CrossAssetModel > &	model,
		const Size	ccy,
		const Handle< YieldTermStructure > &	discountCurve = Handle< YieldTermStructure >(),
		const FloatSpreadMapping	floatSpreadMapping = FloatSpreadMapping::proRata,
		const Real	x0 = 0.0 )

CrossAsset model based constructor

◆ AnalyticLgmSwaptionEngine() [3/3]

AnalyticLgmSwaptionEngine	(	const QuantLib::ext::shared_ptr< IrLgm1fParametrization >	irlgm1f,
		const Handle< YieldTermStructure > &	discountCurve = Handle< YieldTermStructure >(),
		const FloatSpreadMapping	floatSpreadMapping = FloatSpreadMapping::proRata,
		const Real	x0 = 0.0 )

parametrization based constructor, note that updates in the parametrization are not observed by the engine, you would have to call update() on the engine explicitly

Member Function Documentation

◆ setZetaShift()

void setZetaShift	(	const Time	t1,
		const Real	shift )

set a zeta shift to be added until t1, shift is given for unit time

◆ resetZetaShift()

void resetZetaShift ( )

reset zeta shift

Public Types

Public Member Functions