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1/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */
2
3/*
4 Copyright (C) 2014 Peter Caspers
5
6 This file is part of QuantLib, a free-software/open-source library
7 for financial quantitative analysts and developers - http://quantlib.org/
8
9 QuantLib is free software: you can redistribute it and/or modify it
10 under the terms of the QuantLib license. You should have received a
11 copy of the license along with this program; if not, please email
12 <quantlib-dev@lists.sf.net>. The license is also available online at
13 <http://quantlib.org/license.shtml>.
14
15 This program is distributed in the hope that it will be useful, but WITHOUT
16 ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS
17 FOR A PARTICULAR PURPOSE. See the license for more details.
18*/
19
20#include "zabr.hpp"
21#include "utilities.hpp"
22#include <ql/termstructures/volatility/sabrsmilesection.hpp>
23#include <ql/experimental/volatility/zabrsmilesection.hpp>
24
25using namespace QuantLib;
26using namespace boost::unit_test_framework;
27
28void ZabrTest::testConsistency() {
29 BOOST_TEST_MESSAGE("Testing the consistency of ZABR interpolation...");
30
31 Real tol = 1E-4;
32
33 Real alpha = 0.08;
34 Real beta = 0.70;
35 Real nu = 0.20;
36 Real rho = -0.30;
37 Real tau = 5.0;
38 Real forward = 0.03;
39
40 SabrSmileSection sabr(tau, forward,
41 {alpha, beta, nu, rho});
42
43 ZabrSmileSection<ZabrShortMaturityLognormal> zabr0(tau, forward,
44 {alpha, beta, nu, rho, 1.0});
45
46 ZabrSmileSection<ZabrShortMaturityNormal> zabr1(tau, forward,
47 {alpha, beta, nu, rho, 1.0});
48
49 ZabrSmileSection<ZabrLocalVolatility> zabr2(tau, forward,
50 {alpha, beta, nu, rho, 1.0});
51
52 // for full finite prices reduce the number of intermediate points here
53 // below the recommended value to speed up the test
54 ZabrSmileSection<ZabrFullFd> zabr3(tau, forward,
55 {alpha, beta, nu, rho, 1.0},
56 std::vector<Real>(), 2);
57
58 Real k = 0.0001;
59 while (k <= 0.70) {
60 Real c0 = sabr.optionPrice(strike: k);
61 Real z0 = zabr0.optionPrice(strike: k);
62 Real z1 = zabr1.optionPrice(strike: k);
63 Real z2 = zabr2.optionPrice(strike: k);
64 Real z3 = zabr3.optionPrice(strike: k);
65 if (std::fabs(x: z0 - c0) > tol)
66 BOOST_ERROR("Zabr short maturity lognormal expansion price "
67 "("
68 << z0 << ") deviates from Sabr Hagan 2002 price "
69 "by " << (z0 - c0));
70 if (std::fabs(x: z1 - c0) > tol)
71 BOOST_ERROR("Zabr short maturity normal expansion price "
72 "("
73 << z1 << ") deviates from Sabr Hagan 2002 price "
74 "by " << (z1 - c0));
75 if (std::fabs(x: z2 - c0) > tol)
76 BOOST_ERROR("Zabr local volatility price "
77 "("
78 << z2 << ") deviates from Sabr Hagan 2002 price "
79 "by " << (z2 - c0));
80 if (std::fabs(x: z3 - c0) > tol)
81 BOOST_ERROR("Zabr full finite difference price "
82 "("
83 << z3 << ") deviates from Sabr Hagan 2002 price "
84 "by " << (z3 - c0));
85 k += 0.0001;
86 }
87}
88
89test_suite *ZabrTest::suite(SpeedLevel speed) {
90 auto* suite = BOOST_TEST_SUITE("Zabr model tests");
91
92 if (speed == Slow) {
93 suite->add(QUANTLIB_TEST_CASE(&ZabrTest::testConsistency));
94 }
95
96 return suite;
97}
98

source code of quantlib/test-suite/zabr.cpp