Package com.opengamma.strata.pricer.impl.volatility.local

Class ImpliedTrinomialTreeLocalVolatilityCalculator

java.lang.Object

com.opengamma.strata.pricer.impl.volatility.local.ImpliedTrinomialTreeLocalVolatilityCalculator

All Implemented Interfaces:

LocalVolatilityCalculator

public class ImpliedTrinomialTreeLocalVolatilityCalculator
extends Object
implements LocalVolatilityCalculator

Local volatility calculation based on trinomila tree model.

Emanuel Derman, Iraj Kani and Neil Chriss, "Implied Trinomial Trees of the Volatility Smile" (1996).

Constructor Summary

Constructors

Constructor	Description
ImpliedTrinomialTreeLocalVolatilityCalculator()	Creates an instance with default setups.
ImpliedTrinomialTreeLocalVolatilityCalculator(int nSteps, double maxTime)	Creates an instance with the number of steps and maximum time fixed.
ImpliedTrinomialTreeLocalVolatilityCalculator(int nSteps, double maxTime, SurfaceInterpolator interpolator)	Creates an instance by specifying the number of steps, maximum time, and 2D interpolator.

Method Summary

Modifier and Type	Method	Description
RecombiningTrinomialTreeData	calibrateImpliedVolatility(Function<DoublesPair,Double> impliedVolatilitySurface, double spot, Function<Double,Double> interestRate, Function<Double,Double> dividendRate)	Calibrate trinomial tree to implied volatility surface.
InterpolatedNodalSurface	localVolatilityFromImpliedVolatility(Surface impliedVolatilitySurface, double spot, Function<Double,Double> interestRate, Function<Double,Double> dividendRate)	Computes local volatility surface from implied volatility surface.
InterpolatedNodalSurface	localVolatilityFromPrice(Surface callPriceSurface, double spot, Function<Double,Double> interestRate, Function<Double,Double> dividendRate)	Computes local volatility surface from call price surface.

Methods inherited from class java.lang.Object

clone, equals, finalize, getClass, hashCode, notify, notifyAll, toString, wait, wait, wait

Constructor Detail

ImpliedTrinomialTreeLocalVolatilityCalculator

public ImpliedTrinomialTreeLocalVolatilityCalculator()

Creates an instance with default setups.

The number of time steps is 20, and the tree covers up to 3 years. The time square linear interpolator is used for time direction, whereas the linear interpolator is used for spot dimension. The extrapolation is flat for both the dimensions.

ImpliedTrinomialTreeLocalVolatilityCalculator

public ImpliedTrinomialTreeLocalVolatilityCalculator(int nSteps,
                                                     double maxTime)

Creates an instance with the number of steps and maximum time fixed.

The default interpolators are used: the time square linear interpolator for time direction, the linear interpolator for spot dimension, and flat extrapolator for both the dimensions.

Parameters:

nSteps - the number of steps

maxTime - the maximum time

ImpliedTrinomialTreeLocalVolatilityCalculator

public ImpliedTrinomialTreeLocalVolatilityCalculator(int nSteps,
                                                     double maxTime,
                                                     SurfaceInterpolator interpolator)

Creates an instance by specifying the number of steps, maximum time, and 2D interpolator.

Parameters:

nSteps - number of steps

maxTime - the maximum time

interpolator - the interpolator

Method Detail

localVolatilityFromImpliedVolatility

public InterpolatedNodalSurface localVolatilityFromImpliedVolatility(Surface impliedVolatilitySurface,
                                                                     double spot,
                                                                     Function<Double,Double> interestRate,
                                                                     Function<Double,Double> dividendRate)

Description copied from interface: LocalVolatilityCalculator

Computes local volatility surface from implied volatility surface.

The implied volatility surface must be spanned by time to expiry and strike.

The interest rate and dividend rate must be zero-coupon continuously compounded rates based on respective day count convention. Thus interestRate and dividendRate are functions from year fraction to zero rate.

Specified by:

localVolatilityFromImpliedVolatility in interface LocalVolatilityCalculator

Parameters:

impliedVolatilitySurface - the implied volatility surface

spot - the spot

interestRate - the interest rate

dividendRate - the dividend

Returns:

the local volatility surface

calibrateImpliedVolatility

public RecombiningTrinomialTreeData calibrateImpliedVolatility(Function<DoublesPair,Double> impliedVolatilitySurface,
                                                               double spot,
                                                               Function<Double,Double> interestRate,
                                                               Function<Double,Double> dividendRate)

Calibrate trinomial tree to implied volatility surface.

Parameters:

impliedVolatilitySurface - the implied volatility surface

spot - the spot

interestRate - the interest rate

dividendRate - the dividend rate

Returns:

the trinomial tree

localVolatilityFromPrice

public InterpolatedNodalSurface localVolatilityFromPrice(Surface callPriceSurface,
                                                         double spot,
                                                         Function<Double,Double> interestRate,
                                                         Function<Double,Double> dividendRate)

Description copied from interface: LocalVolatilityCalculator

Computes local volatility surface from call price surface.

The interest rate and dividend rate must be zero-coupon continuously compounded rates based on respective day count convention. Thus interestRate and dividendRate are functions from year fraction to zero rate.

Specified by:

localVolatilityFromPrice in interface LocalVolatilityCalculator

Parameters:

callPriceSurface - the price surface

spot - the spot

interestRate - the interest rate

dividendRate - the dividend rate

Returns:

the local volatility surface