Examples of com.opengamma.analytics.financial.forex.derivative.ForexOptionDigital

Package com.opengamma.analytics.financial.forex.derivative

Examples of com.opengamma.analytics.financial.forex.derivative.ForexOptionDigital

com.opengamma.analytics.financial.forex.derivative.ForexOptionDigital
Class describing a digital foreign exchange European option. The implied strike is the absolute value of ratio of the domestic currency (currency 2) amount and the foreign currency amount (currency1). When the option is a call, it pays the absolute value of the payment currency amount when the spot rate is above the strike and nothing otherwise. When the option is a put, it pays the absolute value of the payment currency amount when the spot rate is below the strike and nothing otherwise.

    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition callDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong, false);
    final ForexOptionDigitalDefinition putDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, !isCall, isLong, false);
    final ForexOptionDigital call = callDefinition.toDerivative(REFERENCE_DATE);
    final ForexOptionDigital put = putDefinition.toDerivative(REFERENCE_DATE);
    final MultipleCurrencyAmount pvCall = METHOD_DIGITAL_SPREAD.presentValue(call, SMILE_MULTICURVES);
    final MultipleCurrencyAmount pvPut = METHOD_DIGITAL_SPREAD.presentValue(put, SMILE_MULTICURVES);
    final Double pvCash = Math.abs(put.getUnderlyingForex().getPaymentCurrency1().accept(PVDC, MULTICURVES).getAmount(EUR));
    assertEquals("Forex Digital option: call spread method - present value", pvCall.getAmount(EUR) + pvPut.getAmount(EUR), Math.abs(pvCash), TOLERANCE_PV_FLAT);
  }

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  /**
   * Tests the present value long/short parity.
   */
  public void presentValueLongShort() {
    final ForexOptionDigitalDefinition forexOptionShortDefinition = new ForexOptionDigitalDefinition(FOREX_DEFINITION, OPTION_EXP_DATE, IS_CALL, !IS_LONG);
    final ForexOptionDigital forexOptionShort = forexOptionShortDefinition.toDerivative(REFERENCE_DATE);
    final MultipleCurrencyAmount pvShort = METHOD_DIGITAL_SPREAD.presentValue(forexOptionShort, SMILE_MULTICURVES);
    final MultipleCurrencyAmount pvLong = METHOD_DIGITAL_SPREAD.presentValue(FOREX_DIGITAL_CALL_DOM, SMILE_MULTICURVES);
    assertEquals("Forex Digital option: present value long/short parity", pvLong.getAmount(USD), -pvShort.getAmount(USD), 1E-2);
    final MultipleCurrencyAmount ceShort = METHOD_DIGITAL_SPREAD.currencyExposure(forexOptionShort, SMILE_MULTICURVES);
    final MultipleCurrencyAmount ceLong = METHOD_DIGITAL_SPREAD.currencyExposure(FOREX_DIGITAL_CALL_DOM, SMILE_MULTICURVES);

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    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition forexOptionDefinitionCall = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong);
    final ForexOptionDigitalDefinition forexOptionDefinitionPut = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, !isCall, isLong);
    final ForexOptionDigital forexOptionCall = forexOptionDefinitionCall.toDerivative(REFERENCE_DATE);
    final ForexOptionDigital forexOptionPut = forexOptionDefinitionPut.toDerivative(REFERENCE_DATE);
    final MultipleCurrencyAmount currencyExposureCall = METHOD_DIGITAL_SPREAD.currencyExposure(forexOptionCall, SMILE_MULTICURVES);
    final MultipleCurrencyAmount currencyExposurePut = METHOD_DIGITAL_SPREAD.currencyExposure(forexOptionPut, SMILE_MULTICURVES);
    final MultipleCurrencyAmount pvCash = forexOptionPut.getUnderlyingForex().getPaymentCurrency2().accept(PVDC, MULTICURVES);
    assertEquals("Forex Digital option: currency exposure put/call parity foreign", 0, currencyExposureCall.getAmount(EUR) + currencyExposurePut.getAmount(EUR),
        TOLERANCE_PV);
    assertEquals("Forex Digital option: currency exposure put/call parity domestic", Math.abs(pvCash.getAmount(USD)), currencyExposureCall.getAmount(USD)
        + currencyExposurePut.getAmount(USD), TOLERANCE_PV);
  }

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    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition forexOptionDefinitionCall = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong, false);
    final ForexOptionDigitalDefinition forexOptionDefinitionPut = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, !isCall, isLong, false);
    final ForexOptionDigital forexOptionCall = forexOptionDefinitionCall.toDerivative(REFERENCE_DATE);
    final ForexOptionDigital forexOptionPut = forexOptionDefinitionPut.toDerivative(REFERENCE_DATE);
    final MultipleCurrencyAmount currencyExposureCall = METHOD_DIGITAL_SPREAD.currencyExposure(forexOptionCall, SMILE_MULTICURVES);
    final MultipleCurrencyAmount currencyExposurePut = METHOD_DIGITAL_SPREAD.currencyExposure(forexOptionPut, SMILE_MULTICURVES);
    final MultipleCurrencyAmount pvCash = forexOptionPut.getUnderlyingForex().getPaymentCurrency1().accept(PVDC, MULTICURVES);
    assertEquals("Forex Digital option: currency exposure put/call parity foreign", 0, currencyExposureCall.getAmount(USD) + currencyExposurePut.getAmount(USD),
        TOLERANCE_PV);
    assertEquals("Forex Digital option: currency exposure put/call parity domestic", Math.abs(pvCash.getAmount(EUR)), currencyExposureCall.getAmount(EUR)
        + currencyExposurePut.getAmount(EUR), TOLERANCE_PV);
  }

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  /**
   * Tests the gamma for Forex option. Payment in foreign currency.
   */
  public void gammaForeign() {
    final ForexOptionDigitalDefinition digitalForeignDefinition = new ForexOptionDigitalDefinition(FOREX_DEFINITION, OPTION_EXP_DATE, IS_CALL, IS_LONG, false);
    final ForexOptionDigital digitalForeign = digitalForeignDefinition.toDerivative(REFERENCE_DATE);
    final double strikeM = STRIKE * (1 - CALL_SPREAD);
    final double strikeP = STRIKE * (1 + CALL_SPREAD);
    final double amountPaid = Math.abs(digitalForeign.getUnderlyingForex().getPaymentCurrency1().getAmount());
    final double strikeRelM = 1.0 / strikeP;
    final double strikeRelP = 1.0 / strikeM;
    final double amount = amountPaid / (strikeRelP - strikeRelM);
    final Forex forexM = new Forex(digitalForeign.getUnderlyingForex().getPaymentCurrency2().withAmount(amount), digitalForeign.getUnderlyingForex()
        .getPaymentCurrency1().withAmount(-strikeRelM * amount));
    final Forex forexP = new Forex(digitalForeign.getUnderlyingForex().getPaymentCurrency2().withAmount(amount), digitalForeign.getUnderlyingForex()
        .getPaymentCurrency1().withAmount(-strikeRelP * amount));
    final ForexOptionVanilla vanillaM = new ForexOptionVanilla(forexM, digitalForeign.getExpirationTime(), !IS_CALL, false);
    final ForexOptionVanilla vanillaP = new ForexOptionVanilla(forexP, digitalForeign.getExpirationTime(), !IS_CALL, true);
    final CurrencyAmount gammaP = METHOD_VANILLA_BLACK.gamma(vanillaP, SMILE_MULTICURVES, false);
    final CurrencyAmount gammaM = METHOD_VANILLA_BLACK.gamma(vanillaM, SMILE_MULTICURVES, false);
    final CurrencyAmount gammaExpected = gammaM.plus(gammaP);
    final CurrencyAmount gammaComputed = METHOD_DIGITAL_SPREAD.gamma(digitalForeign, SMILE_MULTICURVES);
    assertEquals("Forex Digital option: call spread method - gamma", gammaExpected.getAmount(), gammaComputed.getAmount(), TOLERANCE_PV);

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  /**
   * Tests the gamma for Forex option. Payment in foreign currency.
   */
  public void gammaSpotForeign() {
    final ForexOptionDigitalDefinition digitalForeignDefinition = new ForexOptionDigitalDefinition(FOREX_DEFINITION, OPTION_EXP_DATE, IS_CALL, IS_LONG, false);
    final ForexOptionDigital digitalForeign = digitalForeignDefinition.toDerivative(REFERENCE_DATE);
    final double strikeM = STRIKE * (1 - CALL_SPREAD);
    final double strikeP = STRIKE * (1 + CALL_SPREAD);
    final double amountPaid = Math.abs(digitalForeign.getUnderlyingForex().getPaymentCurrency1().getAmount());
    final double strikeRelM = 1.0 / strikeP;
    final double strikeRelP = 1.0 / strikeM;
    final double amount = amountPaid / (strikeRelP - strikeRelM);
    final Forex forexM = new Forex(digitalForeign.getUnderlyingForex().getPaymentCurrency2().withAmount(amount), digitalForeign.getUnderlyingForex()
        .getPaymentCurrency1().withAmount(-strikeRelM * amount));
    final Forex forexP = new Forex(digitalForeign.getUnderlyingForex().getPaymentCurrency2().withAmount(amount), digitalForeign.getUnderlyingForex()
        .getPaymentCurrency1().withAmount(-strikeRelP * amount));
    final ForexOptionVanilla vanillaM = new ForexOptionVanilla(forexM, digitalForeign.getExpirationTime(), !IS_CALL, false);
    final ForexOptionVanilla vanillaP = new ForexOptionVanilla(forexP, digitalForeign.getExpirationTime(), !IS_CALL, true);
    final CurrencyAmount gammaP = METHOD_VANILLA_BLACK.gammaSpot(vanillaP, SMILE_MULTICURVES, false);
    final CurrencyAmount gammaM = METHOD_VANILLA_BLACK.gammaSpot(vanillaM, SMILE_MULTICURVES, false);
    final CurrencyAmount gammaExpected = gammaM.plus(gammaP);
    final CurrencyAmount gammaComputed = METHOD_DIGITAL_SPREAD.gammaSpot(digitalForeign, SMILE_MULTICURVES);
    assertEquals("Forex Digital option: call spread method - gamma spot", gammaExpected.getAmount(), gammaComputed.getAmount(), TOLERANCE_PV);

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   * Tests the gamma for Forex option. Payment in foreign currency.
   */
  public void gammaSpotMethodVsCalculator() {
    final GammaSpotCallSpreadBlackForexCalculator calculator = new GammaSpotCallSpreadBlackForexCalculator(STANDARD_SPREAD);
    final ForexOptionDigitalDefinition digitalForeignDefinition = new ForexOptionDigitalDefinition(FOREX_DEFINITION, OPTION_EXP_DATE, IS_CALL, IS_LONG, false);
    final ForexOptionDigital digitalForeign = digitalForeignDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final CurrencyAmount gammaForeignMethod = METHOD_DIGITAL_SPREAD.gammaSpot(digitalForeign, SMILE_BUNDLE);
    final CurrencyAmount gammaForeignCalculator = digitalForeign.accept(calculator, SMILE_BUNDLE);
    assertEquals("Forex Digital option: call spread method - gamma spot", gammaForeignCalculator.getAmount(), gammaForeignMethod.getAmount(), TOLERANCE_PV);
    final CurrencyAmount gammaDomesticMethod = METHOD_DIGITAL_SPREAD.gammaSpot(FOREX_DIGITAL_CALL_DOM, SMILE_BUNDLE);
    final CurrencyAmount gammaDomesticCalculator = FOREX_DIGITAL_CALL_DOM.accept(calculator, SMILE_BUNDLE);
    assertEquals("Forex Digital option: call spread method - gamma spot", gammaDomesticCalculator.getAmount(), gammaDomesticMethod.getAmount(), TOLERANCE_PV);
  }

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  /**
   * Tests the Theta (1 day change of pv) for forex options transactions.
   */
  public void thetaBeforeExpiration() {
    final MultipleCurrencyAmount theta = THETAC.getTheta(FOREX_DIGITAL_CALL_DOM_DEFINITION, REFERENCE_DATE, CURVES_NAME, SMILE_BUNDLE, PVC_CALLSPREAD, 1);
    final ForexOptionDigital swapToday = FOREX_DIGITAL_CALL_DOM_DEFINITION.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final ForexOptionDigital swapTomorrow = FOREX_DIGITAL_CALL_DOM_DEFINITION.toDerivative(REFERENCE_DATE.plusDays(1), CURVES_NAME);
    final MultipleCurrencyAmount pvToday = swapToday.accept(PVC_CALLSPREAD, SMILE_BUNDLE);
    final YieldCurveBundle tomorrowData = FX_OPTION_ROLLDOWN.rollDown(SMILE_BUNDLE, TimeCalculator.getTimeBetween(REFERENCE_DATE, REFERENCE_DATE.plusDays(1)));
    final MultipleCurrencyAmount pvTomorrow = swapTomorrow.accept(PVC_CALLSPREAD, tomorrowData);
    final MultipleCurrencyAmount thetaExpected = pvTomorrow.plus(pvToday.multipliedBy(-1.0));
    assertEquals("ThetaCalculator: forex option", thetaExpected.getAmount(USD), theta.getAmount(USD), TOLERANCE_PV);
  }

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    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition callDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong);
    final ForexOptionDigitalDefinition putDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, !isCall, isLong);
    final ForexOptionDigital call = callDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final ForexOptionDigital put = putDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final MultipleCurrencyAmount pvCall = METHOD_DIGITAL_SPREAD.presentValue(call, SMILE_BUNDLE);
    final MultipleCurrencyAmount pvPut = METHOD_DIGITAL_SPREAD.presentValue(put, SMILE_BUNDLE);
    final Double pvCash = Math.abs(put.getUnderlyingForex().getPaymentCurrency2().accept(PVC, CURVES));
    assertEquals("Forex Digital option: call spread method - present value", pvCall.getAmount(USD) + pvPut.getAmount(USD), Math.abs(pvCash), TOLERANCE_PV_FLAT);
  }

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    final ZonedDateTime payDate = ScheduleCalculator.getAdjustedDate(REFERENCE_DATE, Period.ofMonths(9), BUSINESS_DAY, CALENDAR);
    final ZonedDateTime expDate = ScheduleCalculator.getAdjustedDate(payDate, -SETTLEMENT_DAYS, CALENDAR);
    final ForexDefinition forexUnderlyingDefinition = new ForexDefinition(EUR, USD, payDate, notional, strike);
    final ForexOptionDigitalDefinition callDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, isCall, isLong, false);
    final ForexOptionDigitalDefinition putDefinition = new ForexOptionDigitalDefinition(forexUnderlyingDefinition, expDate, !isCall, isLong, false);
    final ForexOptionDigital call = callDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final ForexOptionDigital put = putDefinition.toDerivative(REFERENCE_DATE, CURVES_NAME);
    final MultipleCurrencyAmount pvCall = METHOD_DIGITAL_SPREAD.presentValue(call, SMILE_BUNDLE);
    final MultipleCurrencyAmount pvPut = METHOD_DIGITAL_SPREAD.presentValue(put, SMILE_BUNDLE);
    final Double pvCash = Math.abs(put.getUnderlyingForex().getPaymentCurrency1().accept(PVC, CURVES));
    assertEquals("Forex Digital option: call spread method - present value", pvCall.getAmount(EUR) + pvPut.getAmount(EUR), Math.abs(pvCash), TOLERANCE_PV_FLAT);
  }

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