4.13 Swaption.help

Octarisk Class: object = Swaption(id)

Octarisk Class: object = Swaption()

Class for setting up Swaption objects. Possible underlyings are fixed and floating swap legs. Therefore the following Swaption types are introduced:

• SWAPT_REC: European Receiver Swaption priced by Black-Scholes or Bachelier normal model.
• SWAPT_PAY: European Payer Swaption priced by Black-Scholes or Bachelier normal model.

In the following, all methods and attributes are explained and a code example is given.

Methods for Swaption object obj:

• Swaption(id) or Swaption(): Constructor of a Swaption object. id is optional and specifies id and name of new object.
• obj.set(attribute,value): Setter method. Provide pairs of attributes and values. Values are checked for format and constraints.
• obj.get(attribute): Getter method. Query the value of specified attribute.
• obj.calc_value(valuation_date,scenario, discount_curve, volatility_surface, underlying_fixed_leg, underlying_floating_leg) Calculate the value of Swaptions based on valuation date, scenario type, discount curve, underlying instruments and volatility surface. The pricing model is chosen based on Swaption type and instrument model attributes.
• obj.calc_greeks(valuation_date,scenario, discount_curve, volatility_surface, underlying_fixed_leg, underlying_floating_leg) Calculate numerical sensitivities (the Greeks) for the given Swaption instrument.
• obj.calc_vola_spread(valuation_date,scenario, discount_curve, volatility_surface, underlying_fixed_leg, underlying_floating_leg) Calibrate volatility spread in order to match the Swaption price with the market price. The volatility spread will be used for further pricing.
• obj.getValue(scenario): Return Swaption value for given scenario. Method inherited from Superclass Instrument
• Swaption.help(format,returnflag): show this message. Format can be [plain text, html or texinfo]. If empty, defaults to plain text. Returnflag is boolean: True returns documentation string, false (default) returns empty string. [static method]

Attributes of Swaption objects:

• id: Instrument id. Has to be unique identifier. (Default: empty string)
• name: Instrument name. (Default: empty string)
• description: Instrument description. (Default: empty string)
• value_base: Base value of instrument of type real numeric. (Default: 0.0)
• currency: Currency of instrument of type string. (Default: ’EUR’) During instrument valuation and aggregation, FX conversion takes place if corresponding FX rate is available.
• asset_class: Asset class of instrument. (Default: ’derivative’)
• type: Type of instrument, specific for class. Set to ’Swaption’.
• value_stress: Line vector with instrument stress scenario values.
• value_mc: Line vector with instrument scenario values. MC values for several timestep_mc are stored in columns.
• timestep_mc: String Cell array with MC timesteps. If new timesteps are set, values are automatically appended.
• maturity_date: Maturity date of Swaption (date in format DD-MMM-YYYY)
• effective_date: Effective date of Swaption (date in format DD-MMM-YYYY)
• day_count_convention: Day count convention of curve. See ’help get_basis’ for details (Default: ’act/365’)
• compounding_type: Compounding type. Can be continuous, discrete or simple. (Default: ’cont’)
• compounding_freq: Compounding frequency used for discrete compounding. Can be [daily, weekly, monthly, quarterly, semi-annual, annual]. (Default: ’annual’)
• spread: Interest rate spread used in calculating risk free interest rate. Default: 0.0;
• discount_curve: ID of discount curve. Default: empty string
• underlying: ID of underlying curve object for extracting forward rates. Default: empty string
• vola_surface: ID of volatility surface. Default: empty string
• vola_sensi: Sensitivity scaling factor for volatility. Default: 1
• strike: Strike rate of Swaption. Default: 100
• spot: Spot rate of underlying reference curve. Only used, if underlying is risk factor.
• multiplier: Multiplier of Swaption. Resulting Swaption price is scales by this multiplier. Default: 100
• model: Pricing model for Swaptions. Can be [’black’,’normal’]. Default: ’black’
• tenor: Tenor of swaption contract.
• no_payments: Number of payments of swaption contract.
• use_underlyings: Boolean flag: if true, underlying swap values of fixed and floating legs are used for calculation of swaption spot price spot price (Default: ’false’)
• und_fixed_leg: ID of underlying fixed swap leg. Object has to be a Bond(). Default: empty string
• und_floating_leg: ID of underlying floating swap leg. Object has to be a Bond(). Default: empty string
• theo_delta: Sensitivity to changes in underlying’s price. Calculate by method calc_greeks.
• theo_gamma: Sensitivity to changes in changes of underlying’s price. Calculate by method calc_greeks.
• theo_vega: Sensitivity to changes in volatility. Calculate by method calc_greeks.
• theo_theta: Sensitivity to changes in remaining days to maturity. Calculate by method calc_greeks.
• theo_rho: Sensitivity to changes in risk free rate. Calculate by method calc_greeks.
• theo_omega: Specified as theo_delta scaled by underlying value over Swaption base value. Calculate by method calc_greeks.

For illustration see the following example: A normal payer swaption with maturity in 20 years with underlying swaps starting in 20 years for 10 years, a volatility surface and a discount curve are priced. The resulting Swaption value (642.6867193851) is retrieved:

disp('Pricing Payer Swaption with underlyings (Normal Model)')
r = Curve();
r = r.set('id','EUR-SWAP-NOFLOOR','nodes', ...
[7300,7665,8030,8395,8760,9125,9490,9855,10220,10585,10900], ...
'rates_base',[0.02,0.01,0.0075,0.005,0.0025,-0.001, ...
-0.002,-0.003,-0.005,-0.0075,-0.01], ...
'method_interpolation','linear');
fix = Bond();
fix = fix.set('Name','SWAP_FIXED','coupon_rate',0.045, ...
'value_base',100,'coupon_generation_method','forward', ...
'sub_type','SWAP_FIXED');
fix = fix.set('maturity_date','24-Mar-2046','notional',100, ...
'compounding_type','simple','issue_date','26-Mar-2036', ...
'term',365,'notional_at_end',0);
fix = fix.rollout('base','31-Mar-2016');
fix = fix.rollout('stress','31-Mar-2016');
fix = fix.calc_value('31-Mar-2016','base',r); 
fix = fix.calc_value('31-Mar-2016','stress',r);
float = Bond();
float = float.set('Name','SWAP_FLOAT','coupon_rate',0.00,'value_base',100, ...
'coupon_generation_method','forward','last_reset_rate',-0.000, ...
'sub_type','SWAP_FLOATING','spread',0.00);
float = float.set('maturity_date','24-Mar-2046','notional',100, ...
'compounding_type','simple','issue_date','26-Mar-2036', ...
'term',365,'notional_at_end',0);
float = float.rollout('base',r,'31-Mar-2016');
float = float.rollout('stress',r,'31-Mar-2016');
float = float.calc_value('30-Sep-2016','base',r);
float = float.calc_value('30-Sep-2016','stress',r);
v = Surface();
v = v.set('axis_x',30,'axis_x_name','TENOR', ...
'axis_y',45,'axis_y_name','TERM','axis_z',1.0,'axis_z_name','MONEYNESS');
v = v.set('values_base',0.376563388);
v = v.set('type','IRVol');
s = Swaption();
s = s.set('maturity_date','26-Mar-2036','effective_date','31-Mar-2016');
s = s.set('strike',0.045,'multiplier',1,'sub_type', 'SWAPT_PAY', ...
'model','normal','tenor',10);
s = s.set('und_fixed_leg','SWAP_FIXED','und_floating_leg','SWAP_FLOAT', ...
'use_underlyings',true);
s = s.calc_value('31-Mar-2016','base',r,v,fix,float);
s.getValue('base')

Dependencies of class: