com.webcab.ejb.finance.bonds.pricing
Interface InterestDerivativesLocal

All Superinterfaces:

EJBLocalObject

public interface InterestDerivativesLocal

extends EJBLocalObject

Local interface of InterestDerivatives. This interface provides the same functionality as the InterestDerivatives remote interface.

See Also:

InterestDerivatives

Method Summary

double	getMaxPrice(double confidence) Method getMaxPrice(double) as defined in the InterestDerivatives remote interface.
double	getMinPrice(double confidence) Method getMinPrice(double) as defined in the InterestDerivatives remote interface.
double	getPrice() Method getPrice() as defined in the InterestDerivatives remote interface.
double	getStddev() Method getStddev() as defined in the InterestDerivatives remote interface.
void	runSimulation(int timeSteps, double confidence, double maxRelativeError, int maxRandomWalks, double timeToEvaluation) Method runSimulation(int, double, double, int, double) as defined in the InterestDerivatives remote interface.
void	runSimulation(int monteCarloTimesteps, int monteCarloRandomWalks, double currentTime) Method runSimulation(int, int, double) as defined in the InterestDerivatives remote interface.
void	setAsianOptionContract(BlackScholesConstants callPut, BlackScholesConstants strikeRate, BlackScholesConstants arithmGeom, double maturity, double strike, double updatingInterval) Method setAsianOptionContract(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.
void	setBinaryOptionContract(BlackScholesConstants type, double maturity, double strike, double amount) Method setBinaryOptionContract(BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.
void	setBlackDermanToyRateModel(Function phi, KOrderDiff sigma, double initialRate) Method setBlackDermanToyRateModel(Function, KOrderDiff, double) as defined in the InterestDerivatives remote interface.
void	setBlackKarasinskiRateModel(Function phi, Function modelFunction, Function sigma, double initialRate) Method setBlackKarasinskiRateModel(Function, Function, Function, double) as defined in the InterestDerivatives remote interface.
void	setBrennanSchwartzRateModel(double a1, double b1, double sigma1, double a2, double b2, double c2, double sigma2, double initialShortRate, double initialLongRate) Method setBrennanSchwartzRateModel(double, double, double, double, double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setCapForwardContract(double principal, double firstResetDate, double capRate, double tenor, double expiry) Method setCapForwardContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setCapSpotContract(double principal, double firstResetDate, double capRate, double tenor, double expiry) Method setCapSpotContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setConstantPriceModel(double price) Method setConstantPriceModel(double) as defined in the InterestDerivatives remote interface.
void	setConstantRateModel(double rate) Method setConstantRateModel(double) as defined in the InterestDerivatives remote interface.
void	setConstantVolatilityModel(double volatility) Method setConstantVolatilityModel(double) as defined in the InterestDerivatives remote interface.
void	setConstantYieldCurveModel(double[] forwardRates, double[] maturities, int numberMaturities, BlackScholesConstants interpolationType, double currentTime) Method setConstantYieldCurveModel(double[], double[], int, BlackScholesConstants, double) as defined in the InterestDerivatives remote interface.
void	setCouponBondContract(double principal, double firstCouponDate, double couponInterest, double couponPeriod, double expiry) Method setCouponBondContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setCoxIngersollRossRateModel(double equilibriumRate, double adjustmentSpeed, double sigma, double initialRate) Method setCoxIngersollRossRateModel(double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setDeterministPriceModel(KOrderDiff priceFunction, double currentTime) Method setDeterministPriceModel(KOrderDiff, double) as defined in the InterestDerivatives remote interface.
void	setDeterministVolatilityModel(KOrderDiff volatilityFunction, double value, double currentTime) Method setDeterministVolatilityModel(KOrderDiff, double, double) as defined in the InterestDerivatives remote interface.
void	setFittedHoLeeRateModel(double[] forwardRates, double[] maturities, int numberMaturities, BlackScholesConstants interpolationType, double currentTime, double sigma) Method setFittedHoLeeRateModel(double[], double[], int, BlackScholesConstants, double, double) as defined in the InterestDerivatives remote interface.
void	setFittedHullWhiteRateModel(double[] forwardRates, double[] maturities, int numberMaturities, BlackScholesConstants interpolationType, double currentTime, double adjustmentSpeed, double sigma) Method setFittedHullWhiteRateModel(double[], double[], int, BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.
void	setFloorForwardContract(double principal, double settlement, double floorRate, double tenor, double expiry) Method setFloorForwardContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setFloorSpotContract(double principal, double firstResetDate, double floorRate, double tenor, double expiry) Method setFloorSpotContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setFongVasicekRateModel(double spotRateMean, double sqrVolMean, double meanReversionRateSpot, double meanReversionRateVariance, double volatilityVariance, double initialSpotRate, double initialSqrtVolatility) Method setFongVasicekRateModel(double, double, double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setForwardContract(double settledPrice, double maturity, double amount) Method setForwardContract(double, double, double) as defined in the InterestDerivatives remote interface.
void	setForwardStartAtTheMoneyOptionContract(BlackScholesConstants type, double maturity, double startTime, double amount) Method setForwardStartAtTheMoneyOptionContract(BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.
void	setFutureContract(double settledPrice, double settlementTime, double maturity, double amount, double marginingPeriod) Method setFutureContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setHJMRateModel(double[][] historicZcbPrices, double[] forwardRates, double[] maturities, int numberMaturities, double tolerance, int numberObservations, int numberPCAVectors, double dt, double currentTime, int internalMemorySteps) Method setHJMRateModel(double[][], double[], double[], int, double, int, int, double, double, int) as defined in the InterestDerivatives remote interface.
void	setHoLeeRateModel(Function drift, double sigma, double initialRate) Method setHoLeeRateModel(Function, double, double) as defined in the InterestDerivatives remote interface.
void	setHostonVolatilityModel(double gamma, double delta, double initialVolatility) Method setHostonVolatilityModel(double, double, double) as defined in the InterestDerivatives remote interface.
void	setHullWhiteRateModel(Function averageLongTermRate, double adjustmentSpeed, double sigma, double initialRate) Method setHullWhiteRateModel(Function, double, double, double) as defined in the InterestDerivatives remote interface.
void	setHullWhiteVolatilityModel(double adjustmentSpeed, double averageLongTermVariance, double varianceVolatility, double initialVariance) Method setHullWhiteVolatilityModel(double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setLadderOption(BlackScholesConstants callPut, BlackScholesConstants strikeRate, BlackScholesConstants minMax, double maturity, double strike, double[] ladderPrices, double updatingInterval) Method setLadderOption(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double[], double) as defined in the InterestDerivatives remote interface.
void	setLognormalPriceModel(double initialPrice) Method setLognormalPriceModel(double) as defined in the InterestDerivatives remote interface.
void	setLongstaffSchwartzRateModel(double xMean, double yMean, double reversionX, double reversionY, double c, double d, double initialX, double initialY) Method setLongstaffSchwartzRateModel(double, double, double, double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setLookbackOption(BlackScholesConstants callPut, BlackScholesConstants strikeRate, BlackScholesConstants minMax, double maturity, double strike, double updatingInterval) Method setLookbackOption(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.
void	setPoissonPriceModel(double initialPrice, double intensity, double jumpStddev) Method setPoissonPriceModel(double, double, double) as defined in the InterestDerivatives remote interface.
void	setPriceBarrier(BlackScholesConstants triggeredBy, BlackScholesConstants type, BlackScholesConstants upDown, BlackScholesConstants inOut, double barrierLevel, double rebate, double monitoringInterval, double timeToTrigger) Method setPriceBarrier(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setSimplifiedBGMRateModel(double[] discreteCurrentForwardRate, double[] capletVolatilities, double[] resetDates, int forwardCurveSteps, double currentTime) Method setSimplifiedBGMRateModel(double[], double[], double[], int, double) as defined in the InterestDerivatives remote interface.
void	setVanillaInterestRateSwapForward(double principal, double fixedRate, double firstResetDate, double tenor, double expiry) Method setVanillaInterestRateSwapForward(double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setVanillaInterestRateSwapSpot(double principal, double fixedRate, double firstResetDate, double tenor, double expiry) Method setVanillaInterestRateSwapSpot(double, double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setVanillaOptionContract(BlackScholesConstants callPut, double maturity, double strike, double amount) Method setVanillaOptionContract(BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.
void	setVanillaSwaptionSpotContract(BlackScholesConstants callPut, double maturity, double strike, double amount, double principal, double fixedRate, int monteCarloTimesteps, int monteCarloRandomWalks, double firstResetDate, double tenor, double expiry) Method setVanillaSwaptionSpotContract(BlackScholesConstants, double, double, double, double, double, int, int, double, double, double) as defined in the InterestDerivatives remote interface.
void	setVasicekRateModel(double averageLongTermRate, double adjustmentSpeed, double sigma, double initialRate) Method setVasicekRateModel(double, double, double, double) as defined in the InterestDerivatives remote interface.
void	setZeroCouponBondContract(double principal, double maturity) Method setZeroCouponBondContract(double, double) as defined in the InterestDerivatives remote interface.

Methods inherited from interface javax.ejb.EJBLocalObject

getEJBLocalHome, getPrimaryKey, isIdentical, remove

Method Detail

setAsianOptionContract

public void setAsianOptionContract(BlackScholesConstants callPut,
                                   BlackScholesConstants strikeRate,
                                   BlackScholesConstants arithmGeom,
                                   double maturity,
                                   double strike,
                                   double updatingInterval)
                            throws EvaluationException,
                                   InterestDerivativesDemoException

Method setAsianOptionContract(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements an Asian option contract.

Types of Asian Options

There are four types of Asian option:

• average rate call (or average price call): payoff = max(average - strike price, 0)
• average rate put (or average rate put): payoff = max(strike price - average, 0)
• average strike call: payoff = max(final price - average price)
• average strike put: payoff = max(average price - final price)

Where the average use can be either arithmetic or geometric.

Parameters:

callPut - either BlackScholesConstants.CALL or BlackScholesConstants.PUT, to indicate whether the option is a call option or a put option.

strikeRate - either STRIKE or RATE

arithmGeom - specifies the type of averaging used. Either ARITHMETIC or GEOMETRIC

maturity - the expiry time (in years, absolute time)

strike - the strike price - used only for rate (price) Asian options

updatingInterval - the interval of updating the value of the average in years (i.e. 0.1 means updating with take place 10 times a year.

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setAsianOptionContract(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double)

setBinaryOptionContract

public void setBinaryOptionContract(BlackScholesConstants type,
                                    double maturity,
                                    double strike,
                                    double amount)
                             throws InterestDerivativesDemoException

Method setBinaryOptionContract(BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a stock Binary option contract.

Parameters:

type - either BinaryOption.CALL (for call options) or BinaryOption.PUT (for put options)

maturity - the expiry time (in years, absolute time)

strike - the strike price

amount - the sum which will be payed if the option is exercised

InterestDerivativesDemoException

See Also:

InterestDerivatives.setBinaryOptionContract(BlackScholesConstants, double, double, double)

setCapForwardContract

public void setCapForwardContract(double principal,
                                  double firstResetDate,
                                  double capRate,
                                  double tenor,
                                  double expiry)
                           throws InterestDerivativesDemoException

Method setCapForwardContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a Cap contract which can only be priced in conjunction with a forward rate model.

Description of Contract

A cap guarantees to the holder that floating interest rates will not exceed a predefined maximum level. If the rates go beyond this level, the holder will be compensated by receiving the fraction that capped from a fixed premium.

Payoff Function of the Cap Contract

The payoff function for this contract is:

1. principal * max(floatingRate - capRate, 0).

where the principle is the sum which is insured against interest rate fluctuations, floatingRate is the capRate is the

Compatible Rate Models

The Cap contract can only be priced using a forward curve model for the interest rates. Two such models provide within this pricing framework our: setHJMRateModel(double[][], double[], double[], int, double, int, int, double, double, int) and setSimplifiedBGMRateModel(double[], double[], double[], int, double).

Parameters:

principal - the sum which is insured against interest rate fluctuations

firstResetDate - the moment when the first payment takes place

capRate - the maximum admissible interest rate without compensation

tenor - the period between two consecutive regular payments

expiry - the maturity time of the contract

InterestDerivativesDemoException

See Also:

InterestDerivatives.setCapForwardContract(double, double, double, double, double)

setCapSpotContract

public void setCapSpotContract(double principal,
                               double firstResetDate,
                               double capRate,
                               double tenor,
                               double expiry)
                        throws EvaluationException,
                               InterestDerivativesDemoException

Method setCapSpotContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a Cap contract which can be priced in conjunction with any interest rate model.

Description of Contract

A cap guarantees to the holder that floating interest rates will not exceed a predefined maximum level. If the rates go beyond this level, the holder will be compensated by receiving the fraction that capped from a fixed premium.

Payoff Function

The payoff function for this contract is:

• principal * max(floatingRate - capRate, 0).

where the principle is the sum which is insured against interest rate fluctuations, floatingRate the present floating rate against which the swap is considered and capRate is the maximum admissible interest rate before compensation is due.

Parameters:

principal - the sum which is insured against interest rate fluctuations

firstResetDate - the moment when the first payment takes place

capRate - the maximum admissible interest rate without compensation

tenor - the period between two consecutive regular payments

expiry - the maturity time of the contract

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setCapSpotContract(double, double, double, double, double)

setCouponBondContract

public void setCouponBondContract(double principal,
                                  double firstCouponDate,
                                  double couponInterest,
                                  double couponPeriod,
                                  double expiry)
                           throws EvaluationException,
                                  InterestDerivativesDemoException

Method setCouponBondContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the fixed income security (i.e. contract) known as a Coupon Bond.

Description of Coupon Bond

A coupon bond pays a principal at expiry (in exactly the same way as setZeroCouponBondContract(double, double)). Additionally it pays an interest on the principal at fixed and equal intervals of time (know as the coupon period) beginning with a specified moment first coupon date until expiry.

Parameters:

principal - the amount paid at expiry

firstCouponDate - the time when the first coupon is paid

couponInterest - the fraction of the principal paid at each coupon date

couponPeriod - the interval between two coupon payments

expiry - the moment when the principal is paid

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setCouponBondContract(double, double, double, double, double)

setFloorForwardContract

public void setFloorForwardContract(double principal,
                                    double settlement,
                                    double floorRate,
                                    double tenor,
                                    double expiry)
                             throws EvaluationException,
                                    InterestDerivativesDemoException

Method setFloorForwardContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a Floor contract which can only be priced in conjunction with forward curve models.

Description of Contract

A floor guarantees to the holder that floating interest rates will not exceed a predefined maximum level. If the rates go beyond this level, the holder will be compensated by receiving the fraction that is beneath the minimum from a fixed premium.

Payoff Function

The payoff function for this contract is:

• principal * max(floorRate - floatingRate, 0).

where the principle is the sum which is insured against interest rate fluctuations, floatingRate the present floating rate against which the floor is considered and floorRate is the minimum admissible interest rate before compensation is due.

Compatible Forward Rate Models

The Cap contract can only be priced using a forward curve model for the interest rates. Two such models are presently provided: setHJMRateModel(double[][], double[], double[], int, double, int, int, double, double, int) and setSimplifiedBGMRateModel(double[], double[], double[], int, double).

Parameters:

principal - the sum which is insured against interest rate fluctuations

settlement - the settlement date for this contract (first cash flow will be exchanged at moment settlement + tenor

floorRate - the minimum admissible interest rate without compensation

tenor - the period between two consecutive regular payments

expiry - the maturity time of the contract

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setFloorForwardContract(double, double, double, double, double)

setFloorSpotContract

public void setFloorSpotContract(double principal,
                                 double firstResetDate,
                                 double floorRate,
                                 double tenor,
                                 double expiry)
                          throws EvaluationException,
                                 InterestDerivativesDemoException

Method setFloorSpotContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a Floor contract which can be pricing in conjunction within any interest rate model.

Description of Contract

A floor guarantees to the holder that floating interest rates will not go beneath a predefined minimum level. If this happens, the holder will be compensated by receiving the fraction beneath the level from a fixed premium.

Payoff Function

The payoff function for this contract is:

• principal * max(floorRate - floatingRate, 0).

where the principle is the sum which is insured against interest rate fluctuations, floatingRate the present floating rate against which the floor is considered and floorRate is the minimum admissible interest rate before compensation is due.

Parameters:

principal - the sum which is insured against interest rate fluctuations

firstResetDate - the moment when the first payment takes place

floorRate - the minimum admissible interest rate without compensation

tenor - the period between two consecutive regular payments

expiry - the maturity time of the contract

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setFloorSpotContract(double, double, double, double, double)

setForwardContract

public void setForwardContract(double settledPrice,
                               double maturity,
                               double amount)
                        throws EvaluationException,
                               InterestDerivativesDemoException

Method setForwardContract(double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a forward contract.

Payoff Function

The payoff of a forward contract is:

• payoff = (finalPrice - settledPrice) * amount

where finalPrice is the market price of the futures contract at expiry, settledPrice is the settlement price and amount is the amount which is paid at settlement.

Comparison Between Future and Forward Contracts

Though payoff function of the future and forward contract are the same these two contracts do fundamentally differ. The difference lies in the fact that the a future contract has a Mark-To-Market characteristic and hence provides a continuous cash flow, positive or negative, based on the current value of the underlying variable. This process is also often referred to as remargining and has the additional property that it reduces the credit exposure of the contract for both counter parties.

Application of this Contract

The principle reason for the inclusion of a forward contract with are general framework is to allow the implementation of the pricing of compound (non-linear) contracts involving Forwards. For example, an options contract which has a payoff of a forward contract, i.e. an option on a future contract.

Parameters:

settledPrice - the price fixed at settlement (strike price)

maturity - the expiry time (in years, absolute time)

amount - the number of shares which will be bought or sold

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setForwardContract(double, double, double)

setForwardStartAtTheMoneyOptionContract

public void setForwardStartAtTheMoneyOptionContract(BlackScholesConstants type,
                                                    double maturity,
                                                    double startTime,
                                                    double amount)
                                             throws EvaluationException,
                                                    InterestDerivativesDemoException

Method setForwardStartAtTheMoneyOptionContract(BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a Forward Start stock option contract. This option contract is at the money at the moment it starts (that is, its strike price is set to be equal to the price at the point when the contract is entered).

Parameters:

type - either VanillaOption.CALL (for call options) or VanillaOption.PUT (for put options)

maturity - the expiry time (in years, absolute time)

startTime - the starting moment. The strike price is considered to be the price recorded at this moment

amount - the number of shares which will be bought or sold

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setForwardStartAtTheMoneyOptionContract(BlackScholesConstants, double, double, double)

setFutureContract

public void setFutureContract(double settledPrice,
                              double settlementTime,
                              double maturity,
                              double amount,
                              double marginingPeriod)
                       throws EvaluationException,
                              InterestDerivativesDemoException

Method setFutureContract(double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a futures contract.

Payoff Function

The payoff of the implemented futures contract is:

• payoff = (finalPrice - settledPrice) * amount

where finalPrice is the market price of the futures contract at expiry, settledPrice is the settlement price and amount is the amount which is paid at settlement.

Comparison Between Future and Forward Contracts

Though payoff function of the future and forward contract are the same these two contracts do fundamentally differ. The difference lies in the fact that the a future contract has a Mark-To-Market characteristic and hence provides a continuous cash flow, positive or negative, based on the current value of the underlying variable. This process is also often refereed to as remargining and has the additional property that it reduces the credit exposure of the contract for both counter parties.

Application of this Contract

The principle reason for the inclusion of a future contract with are general framework is to allow the implementation of the pricing of compound (non-linear) contracts involving futures. For example, an options contract which has a payoff of a futures contract, i.e. an option on a future contract.

Parameters:

settledPrice - the price fixed at settlement (strike price)

settlementTime - the moment when the futures contract becomes effective

maturity - the expiry time (in years, absolute time)

amount - the number of shares which will be bought or sold

marginingPeriod - the time interval between two successive Mark To Market cash exchanges (usually 1 day - it depends on the calendar you use how this translates into years - e.g. 1.0 / 260, where 260 is the number of business days in a year)

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setFutureContract(double, double, double, double, double)

setLookbackOption

public void setLookbackOption(BlackScholesConstants callPut,
                              BlackScholesConstants strikeRate,
                              BlackScholesConstants minMax,
                              double maturity,
                              double strike,
                              double updatingInterval)
                       throws EvaluationException,
                              InterestDerivativesDemoException

Method setLookbackOption(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a Lookback option contract.

Types of Lookback Options

There are four types of lookback options:

• rate call (or average price call): payoff = max(extremum - strike price, 0)
• rate put (or average rate put): payoff = max(strike price - extremum, 0)
• strike call: payoff = max(final price - extremum)
• strike put: payoff = max(extremum - final price)

where the extremum can be a minimum or a maximum.

Parameters:

callPut - either CALL or PUT

strikeRate - either STRIKE or RATE

minMax - specifies the type of extremum used. Either MIN or MAX.

maturity - the expiry time (in years, absolute time)

strike - the strike price - used only for rate (price) Asian options

updatingInterval - the interval of updating the value of the extremum in years (i.e. 0.1 means updating with take place 10 times a year.

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setLookbackOption(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double)

setLadderOption

public void setLadderOption(BlackScholesConstants callPut,
                            BlackScholesConstants strikeRate,
                            BlackScholesConstants minMax,
                            double maturity,
                            double strike,
                            double[] ladderPrices,
                            double updatingInterval)
                     throws EvaluationException,
                            InterestDerivativesDemoException

Method setLadderOption(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double[], double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a Ladder option contract.

Types of Ladder Options

There are four types of ladder options:

• rate call (or average price call): payoff = max(extremum - strike price, 0)
• rate put (or average rate put): payoff = max(strike price - ladder(extremum), 0)
• strike call: payoff = max(final price - ladder(extremum))
• strike put: payoff = max(ladder(extremum) - final price)

where the extremum can be either a minimum or a maximum.

Parameters:

callPut - either CALL or PUT

strikeRate - either STRIKE or RATE

minMax - specifies the type of extremum used. Either MIN or MAX.

maturity - the expiry time (in years, absolute time)

strike - the strike price - used only for rate (price) Asian options

ladderPrices - a vector containing the discrete ladder prices.

updatingInterval - the interval of updating the value of the average in years (i.e. 0.1 means updating with take place 10 times a year.

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setLadderOption(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double[], double)

setVanillaInterestRateSwapForward

public void setVanillaInterestRateSwapForward(double principal,
                                              double fixedRate,
                                              double firstResetDate,
                                              double tenor,
                                              double expiry)
                                       throws EvaluationException,
                                              InterestDerivativesDemoException

Method setVanillaInterestRateSwapForward(double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a standard plain Vanilla Swap contract which must be priced in conjunction with a forward curve rate model.

Description of Vanilla Swap Contract

The holder of this contract pays the other party a fixed percentage of the principal whilst receiving a variable amount. That is the contract exchanges a fixed interest rate for a floating one. Note that the rate model used will refer to a rate model for the floating rate must be provided which must in this case be a forward curve model (such as HJM or BGM).

Compatible (Forward) Rate Models

This Swap contract can only be priced using a forward curve model for the interest rates. Two such models are presently provided: setHJMRateModel and setSimplifiedBGMRateModel.

Parameters:

principal - the notional principal. This it's actually not exchanged at maturity, only used to compute the cash flow.

fixedRate - the fixed interest rate paid

firstResetDate - the date of the first payment

tenor - the interval between payments

expiry - the maturity date

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setVanillaInterestRateSwapForward(double, double, double, double, double)

setVanillaInterestRateSwapSpot

public void setVanillaInterestRateSwapSpot(double principal,
                                           double fixedRate,
                                           double firstResetDate,
                                           double tenor,
                                           double expiry)
                                    throws EvaluationException,
                                           InterestDerivativesDemoException

Method setVanillaInterestRateSwapSpot(double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements an approximation of a plain vanilla swap contract which can be priced in conjunction with any spot rate model.

Description of Vanilla Swap Contract

The holder of this contract pays the other party a fixed percentage of the principal whilst receiving a variable amount. That's exchanging a fixed interest rate for a floating one. A model for the floating rate must be provided. This can be any interest rate model provided with our product.

Parameters:

principal - the notional principal. This it's actually not exchanged at maturity, only used to compute the cash flow.

fixedRate - the fixed interest rate paid

firstResetDate - the date of the first payment

tenor - the interval between payments

expiry - the maturity date

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setVanillaInterestRateSwapSpot(double, double, double, double, double)

setVanillaOptionContract

public void setVanillaOptionContract(BlackScholesConstants callPut,
                                     double maturity,
                                     double strike,
                                     double amount)
                              throws EvaluationException,
                                     InterestDerivativesDemoException

Method setVanillaOptionContract(BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a Vanilla stock option contract.

Description of Vanilla Option

The holder of a vanilla call or put option contact has the right to either buy or sell (respectively) the underlying asset at the strike price at the maturity of the contract.

Parameters:

callPut - either BlackScholesConstants.CALL (for call options) or BlackScholesConstants.PUT (for put options)

maturity - the expiry time (in years, absolute time)

strike - the strike price

amount - the number of shares which will be bought or sold

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setVanillaOptionContract(BlackScholesConstants, double, double, double)

setVanillaSwaptionSpotContract

public void setVanillaSwaptionSpotContract(BlackScholesConstants callPut,
                                           double maturity,
                                           double strike,
                                           double amount,
                                           double principal,
                                           double fixedRate,
                                           int monteCarloTimesteps,
                                           int monteCarloRandomWalks,
                                           double firstResetDate,
                                           double tenor,
                                           double expiry)
                                    throws EvaluationException,
                                           InterestDerivativesDemoException

Method setVanillaSwaptionSpotContract(BlackScholesConstants, double, double, double, double, double, int, int, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements an Option on a Vanilla Swap approximation which can be priced in accordance with any rate model.

Parameters:

callPut - either BlackScholesConstants.CALL (for call options) or BlackScholesConstants.PUT (for put options)

maturity - the expiry time (in years, absolute time)

strike - the strike price

amount - the number of shares which will be bought or sold

principal - the notional principal. This it's actually not exchanged at maturity, only used to compute the cash flow.

fixedRate - the fixed interest rate paid

monteCarloTimesteps - the number of time axis divisions for one random walk

monteCarloRandomWalks - the number of random walks executed

firstResetDate - the date of the first payment

tenor - the interval between payments

expiry - the maturity date

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setVanillaSwaptionSpotContract(BlackScholesConstants, double, double, double, double, double, int, int, double, double, double)

setZeroCouponBondContract

public void setZeroCouponBondContract(double principal,
                                      double maturity)
                               throws EvaluationException,
                                      InterestDerivativesDemoException

Method setZeroCouponBondContract(double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a fixed income security known as a Zero Coupon bond.

Description of Contract

The bond pays a specified amount of money known as the principal to the contract holder at the maturity of the bond.

Parameters:

principal - the amount received at maturity

maturity - the maturity date (absolute time - not time relative to start time).

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setZeroCouponBondContract(double, double)

setPriceBarrier

public void setPriceBarrier(BlackScholesConstants triggeredBy,
                            BlackScholesConstants type,
                            BlackScholesConstants upDown,
                            BlackScholesConstants inOut,
                            double barrierLevel,
                            double rebate,
                            double monitoringInterval,
                            double timeToTrigger)
                     throws EvaluationException,
                            InterestDerivativesDemoException

Method setPriceBarrier(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a Barrier, Parisian or Parasian contract triggered by a price with a simple constant barrier.

Parameters:

triggeredBy - can be either PRICE, RISK_FREE_RATE, PRICE_VOLATILITY

type - can be either BARRIER, PARISIAN or PARASIAN.

upDown - can be either UP or DOWN.

inOut - can be either IN or OUT.

barrierLevel - the price level for which the barrier is triggered

rebate - the compensation paid instead of the normal payoff

monitoringInterval - the variable which may trigger the contract is not continuously monitored. Only at this time interval the value is recorded and the trigger state is updated.

timeToTrigger - this parameter is used only for Parisian or Parasian contracts. It is the minimum amount of time which must be spent with the barrier condition active, before the contract is triggered. For Parisians this time must be not interrupted. The Parisians use the total time spent (even with interruptions).

Throws:

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setPriceBarrier(BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, BlackScholesConstants, double, double, double, double)

setConstantRateModel

public void setConstantRateModel(double rate)
                          throws InterestDerivativesDemoException

Method setConstantRateModel(double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Constant Spot Rate model which assumes that the spot rate is a constant.

Description of Rate Model

This interest rate model is deterministic in nature and should be very familiar to the reader since it is the interest rate model used within the classical Black-Scholes model.

Parameters:

rate - the constant value of the spot interest rate

InterestDerivativesDemoException

See Also:

InterestDerivatives.setConstantRateModel(double)

setConstantYieldCurveModel

public void setConstantYieldCurveModel(double[] forwardRates,
                                       double[] maturities,
                                       int numberMaturities,
                                       BlackScholesConstants interpolationType,
                                       double currentTime)
                                throws InterestDerivativesDemoException

Method setConstantYieldCurveModel(double[], double[], int, BlackScholesConstants, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Constant (in time) yield curve interest rate model.

Description of Model

This model assumes that the forward rate, as a function of absolute time, does not change over time. This means that, advancing in time, the spot rate follows a deterministic path, which is given by the forward rate curve set at the initial moment.

Representing the Rate Curve

A forward rate curve is a function of one real variable namely time, and the shape of the forward curve in accordance with this model does not change with time. Here we apply interpolation and other approximation methods in order to construct the curve from a number of tabulation points. In particular, the forward rate curve is specified at different discrete maturities of the forward rate (e.g. 1 month, 2 months, 3 months, etc.). These values of the forward rate can either be directly read from the market prices of zero coupon bonds or implied from the market prices of other interest rate securities such as swap prices. For further details concerning the evaluating points on the forward curve we refer the reader to the Basic Bonds module of this product and/or the section of the accompanying documentation entitled `Fundamental Theory of Bonds'.

Once the discrete values of the forward curve are known we are able to use an interpolation and other approximation procedure over these discrete tabulation values in order to construct the full forward rate curve between the maximum and minimum maturities which are considered.

Selecting an Forward Rate Construction

The particular procedure of interpolation or other approximation procedure to use will depend on your view of forward rates. In particular, there is no `right way' to interpolate a set of forward rates of differing maturities to construct the forward rate curve and the broader literature takes a number of points of view with regard to this matter. However, within this method we allow you to select from the three most popular approaches of the construction of the forward rate:

1. Constant interpolation algorithm - the forward rate is considered to be constant on the intervals between the discrete points. At each point the forward rate makes a sudden jump to the next interpolation point, thus making the forward curve non-differentiable which is a disadvantage of this approach. It is also the case that this method is not usable for fitting.
2. Linear approximation algorithm - this approach in recommended in most cases and is the only method which can be fitted in a consistent manner using market data. Though this approach is not an interpolation procedure it is based on interpolation since the basic idea to is interpolate the integral of the forward rate, rather than the forward rates themselves. The fitted forward curve produced by this procedure will be continuous and differentiable and hence is amenable to further analysis. The two main disadvantages with this approach our:
   1. The forward curve constructed may not necessarily pass through all the points given.
   2. The derivative of the forward curve may not be continuous.
3. Cubic spline interpolation algorithm - This interpolation procedure produces a smooth function and is compatible with fitting, however the curve found may not be consistent with market prices.

Providing the Parameters

A forward rate is specified using pairs of the following type (forwardRate, maturity). These values are given in two separate vectors: forwardRates and maturities, where the values contained with these vectors correspond in the following sense:

• forwardRate[0] contains the spot rate - that is the forward rate with zero time until maturity, that is, here the maturity is zero.
• forwardRate[1] contains the rate with maturity = maturities[0]
• forwardRate[2] contains the rate with maturity = maturities[1]
• ..............................................................
• forwardRate[nMaturities - 1] contains the rate with maturity = maturities[numberMaturities - 2]

As you can see, the length of the forwardRate and maturities vectors are equal. The last value maturities[numberMaturities - 1] has no corresponding forward rate and is used to give a point in time such that the forward rates beyond this point can be considered unknown - or undefined.

Parameters:

forwardRates - the vector of forward rates as described above.

maturities - the vector of maturities given in absolute time. That is, to represent the maturity of say 1st March 2004, we would write 2004 + (2.0/12), and so on.

numberMaturities - the number of maturities (or forward rates) given

interpolationType - can be either CONSTANT, LINEAR or SPLINE, depending on whether the constant interpolation, linear approximation or cubic spline interpolation procedures respectively are used in order to construct the forward curve from the set of discrete known points.

currentTime - the current time in absolute terms. That is, if the current date is 1st April 2006 - then in absolute terms we would represent it as 2006.25, since (2006 years + 3 months)/ 12 months = 2006.25.

InterestDerivativesDemoException

See Also:

InterestDerivatives.setConstantYieldCurveModel(double[], double[], int, BlackScholesConstants, double)

setVasicekRateModel

public void setVasicekRateModel(double averageLongTermRate,
                                double adjustmentSpeed,
                                double sigma,
                                double initialRate)
                         throws InterestDerivativesDemoException

Method setVasicekRateModel(double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Vasicek one factor stochastic model of the spot rate.

Description of Vasicek one factor Rate model

This model of the spot rate process is a semi martingale and is in fact a particular case of the Hull-White model. This model cannot be fitted to a particular yield curve.

The Vasicek model generates an elastic random walk around a trend in the sense that it is mean-reverting. The model also does not guarantee the positivity of the interest rates and assumes that the variance of the process (i.e. spot rate around the average spot rate) is constant.

Stochastic Differential Equation of the Vasicek Model

The stochastic differential equation of the Vasicek model is:

• dr = adjustmentSpeed * (averageLongTermRate - r) * dt + sigma * dW

where the adjustmentSpeed is the reversion speed, averageLongTermRate the long term average rate of the spot rate, sigma is a measure of the spot rate volatility, dr roughly speaking is the change of the spot rate, dt is the corresponding change in time and dW represents the random variable.

Parameters:

averageLongTermRate - the long term average rate of the spot rate

adjustmentSpeed - the reversion speed (towards the long term average value of the spot rate)

sigma - a measure of the spot rate volatility

initialRate - the initial value of the spot rate

InterestDerivativesDemoException

See Also:

InterestDerivatives.setVasicekRateModel(double, double, double, double)

setBlackDermanToyRateModel

public void setBlackDermanToyRateModel(Function phi,
                                       KOrderDiff sigma,
                                       double initialRate)
                                throws InterestDerivativesDemoException

Method setBlackDermanToyRateModel(Function, KOrderDiff, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Black, Derman & Toy (BDT) one factor stochastic spot rate model.

Description oh BDT rate model

The BDT spot rate process is a semi martingale which generates a model which can be fitted is historical price data.

Models Stochastic Differential Equation

The corresponding stochastic differential equation for this model is given by:

• d(log(r)) = (phi(t) - sigma'(t)/sigma(t) * log(r)) * dt + sigma(t) * dW

where sigma'(t) is the first derivative of sigma(t).

Parameters:

phi - a function of one variable (some class implementing the Function interface).

sigma - a smooth function of one variable (some class implementing the KOrderDiff interface).

initialRate - the initial value of the spot rate

InterestDerivativesDemoException

See Also:

InterestDerivatives.setBlackDermanToyRateModel(Function, KOrderDiff, double)

setBlackKarasinskiRateModel

public void setBlackKarasinskiRateModel(Function phi,
                                        Function modelFunction,
                                        Function sigma,
                                        double initialRate)
                                 throws InterestDerivativesDemoException

Method setBlackKarasinskiRateModel(Function, Function, Function, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Black & Karasinski is a one factor stochastic spot rate model.

Description of the Rate Model

The spot rate process is a semi martingale for which the resulting model can be fitted to market data.

Models Stochastic Differential Equation

The stochastic differential equation is:

• d(log(r)) = (phi(t) - a(t) * log(r)) * dt + sigma(t) * dW

Parameters:

phi - a function of one variable (some class implementing the Function interface).

modelFunction - a function of one variable (a class implementing the Function interface).

sigma - a function of one variable (a class implementing the Function interface).

initialRate - the initial value of the spot rate

InterestDerivativesDemoException

See Also:

InterestDerivatives.setBlackKarasinskiRateModel(Function, Function, Function, double)

setBrennanSchwartzRateModel

public void setBrennanSchwartzRateModel(double a1,
                                        double b1,
                                        double sigma1,
                                        double a2,
                                        double b2,
                                        double c2,
                                        double sigma2,
                                        double initialShortRate,
                                        double initialLongRate)
                                 throws InterestDerivativesDemoException

Method setBrennanSchwartzRateModel(double, double, double, double, double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Brennan & Schwartz two factor stochastic interest rate model.

Models Stochastic Differential Equation

The stochastic differential equations are:

• dr = (a1 + b1 * (l - r)) * dt + sigma1 * r * dW1
• dl = l * (a2 - b2 * r + c2 * l) * dt + sigma2 * l * dW2

Where the first factor of the model r, is the spot rate, and the second factor of the model l, is the long rate (or unspecified maturity).

Parameters:

a1 - real constant influencing the drift of the spot rate

b1 - real constant - the reversion of the spot rate to the long rate

sigma1 - a measure of the volatility of the spot rate

a2 - real constant influencing the drift of the long rate

b2 - real constant influencing the drift of the long rate

c2 - real constant influencing the drift of the long rate

sigma2 - a measure of the volatility of the long rate

initialShortRate - the initial value of the spot rate

initialLongRate - the initial value of the long rate

InterestDerivativesDemoException

See Also:

InterestDerivatives.setBrennanSchwartzRateModel(double, double, double, double, double, double, double, double, double)

setCoxIngersollRossRateModel

public void setCoxIngersollRossRateModel(double equilibriumRate,
                                         double adjustmentSpeed,
                                         double sigma,
                                         double initialRate)
                                  throws InterestDerivativesDemoException

Method setCoxIngersollRossRateModel(double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Cox, Ingersoll and Ross interest rate model.

Description of Model

This model is an equilibrium model derived under the assumption that interest rates are determined by the supply and demand of individuals having a logarithmic utility function.

This model is very similar to Vasicek, with the exception that its variance is proportional to the short rate, rather than being constant. It is also the case that this model guarantees the positivity of interest rates if the following condition is satisfied:

sigma * sigma < 2 * adjustmentSpeed * averageLongTermRate

Models Stochastic Differential Equation

The spot rate process is a semi martingale and the models stochastic differential equation is:

• dr = adjustmentSpeed * (equilibriumRate - r) * dt + sigma * sqrt(r) * dW

where adjustmentSpeed represents the reversion speed of the spot rate towards the long term average value, equilibriumRate the equilibrium value of the spot rate and sigma is the measure of the spot rate volatility.

Parameters:

equilibriumRate - the equilibrium value of the spot rate

adjustmentSpeed - represents the reversion speed of the spot rate towards the equilibrium rate

sigma - a measure of the spot rate volatility

initialRate - the initial value of the spot rate

InterestDerivativesDemoException

See Also:

InterestDerivatives.setCoxIngersollRossRateModel(double, double, double, double)

setFittedHoLeeRateModel

public void setFittedHoLeeRateModel(double[] forwardRates,
                                    double[] maturities,
                                    int numberMaturities,
                                    BlackScholesConstants interpolationType,
                                    double currentTime,
                                    double sigma)
                             throws InterestDerivativesDemoException

Method setFittedHoLeeRateModel(double[], double[], int, BlackScholesConstants, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Ho & Lee model of the spot rate with automatic yield curve fitting using forward rates.

Calibration

In order for the calibration process to work, the forward rate function must be differentiable and it should be used with an approximation algorithm consistent with market prices - so only LINEAR is suitable.

Parameters:

forwardRates - the vector of forward rates

maturities - the vector of maturities. The maturities are given as absolute times, that is, the date 1st March 2004, would be represented as 2004.25, since currentTime = 2004 + 2. / 12.

numberMaturities - the number of rates (and maturities)

interpolationType - can be either CONSTANT, LINEAR or SPLINE.

currentTime - the current time (absolute time).

sigma - a measure of the volatility.

InterestDerivativesDemoException

See Also:

InterestDerivatives.setFittedHoLeeRateModel(double[], double[], int, BlackScholesConstants, double, double)

setFittedHullWhiteRateModel

public void setFittedHullWhiteRateModel(double[] forwardRates,
                                        double[] maturities,
                                        int numberMaturities,
                                        BlackScholesConstants interpolationType,
                                        double currentTime,
                                        double adjustmentSpeed,
                                        double sigma)
                                 throws InterestDerivativesDemoException

Method setFittedHullWhiteRateModel(double[], double[], int, BlackScholesConstants, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Hull & White model of the spot rate with automatic yield curve fitting using forward rates.

Calibration

In order for the calibration process to work, the forward rate function must be differentiable and it should be used with an approximation algorithm consistent with market prices - so only LINEAR is suitable.

Parameters:

forwardRates - the vector of forward rates

maturities - the vector of maturities. The maturities are given as absolute times, that is, the date 1st March 2004, would be represented as 2004.25, since currentTime = 2004 + 2. / 12.

numberMaturities - the number of maturities (or rates) given.

interpolationType - can be either CONSTANT, LINEAR or SPLINE.

currentTime - the current time (absolute time).

sigma - a measure of the volatility

InterestDerivativesDemoException

See Also:

InterestDerivatives.setFittedHullWhiteRateModel(double[], double[], int, BlackScholesConstants, double, double, double)

setFongVasicekRateModel

public void setFongVasicekRateModel(double spotRateMean,
                                    double sqrVolMean,
                                    double meanReversionRateSpot,
                                    double meanReversionRateVariance,
                                    double volatilityVariance,
                                    double initialSpotRate,
                                    double initialSqrtVolatility)
                             throws InterestDerivativesDemoException

Method setFongVasicekRateModel(double, double, double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Fong & Vasicek model which is a two factor model providing both the spot rate and the volatility of the spot rate.

Models Stochastic Differential Equation

The stochastic differential equations are:

• dr = meanReversionRateSpot * (spotRateMean - r) * dt + sqrt(e) * dW1
• de = meanReversionRateVariance * (varianceRateMean - e) * dt + volatilityVariance * sqrt(e) * dW2

where r is the spot rate, e is the variance (i.e. the volatility squared) of the spot rate, meanReversionRateSpot a constant indicating the mean-reversion speed of the spot rate to its long term trend rate, meanReversionRateVariance constant showing the mean-reversion speed of the variance to its long term trend rate and volatilityVariance the volatility of the variance.

Parameters:

spotRateMean - the long term trend rate around which the spot rate oscillates

meanReversionRateSpot - a constant indicating the mean-reversion speed of the spot rate to its long term trend rate

meanReversionRateVariance - constant showing the mean-reversion speed of the variance to its long term trend rate

volatilityVariance - the volatility of the variance

initialSpotRate - the initial value of the spot rate

InterestDerivativesDemoException

See Also:

InterestDerivatives.setFongVasicekRateModel(double, double, double, double, double, double, double)

setHJMRateModel

public void setHJMRateModel(double[][] historicZcbPrices,
                            double[] forwardRates,
                            double[] maturities,
                            int numberMaturities,
                            double tolerance,
                            int numberObservations,
                            int numberPCAVectors,
                            double dt,
                            double currentTime,
                            int internalMemorySteps)
                     throws InterestDerivativesDemoException

Method setHJMRateModel(double[][], double[], double[], int, double, int, int, double, double, int) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Heath, Jarrow and Morton model of the forward rate curve.

Description of Model

This model uses instantaneous forward rates, rather than discrete ones as used in the case of SimplifiedBGM. Mathematically speaking, the HJM model is an infinite-factor model, in that it uses infinite-dimensional Brownian motions. In order to simulate this infinite dimensional model on a computer the model is discretized and only a finite number of dimensions or equivalently forward rates are used.

Models Stochastic Differential Equation

The stochastic differential equation for HJM is:

• dF(t; T) = m(t, T) * dt + vol(t, T) * dW,

where F(t, T) is the forward rate with maturity T at moment t; m(t, T) is the drift of the forward rate with maturity T and vol(t, T) is the volatility of the above mentioned rate.

Applying the Model

It is known that if the drifts of forward rates under the risk-neutral probability are entirely determined by their volatility (according to a certain formula) - the model is risk-neutral. You have thus the freedom to choose any volatility structure you want. The HJM specification is so general that almost all models are in fact particular cases of it.

The volatility of the forward rates is automatically computed to fit the market data:

• Model calibration using Principal Component Analysis: the historic values of zero coupon bond prices are required to compute the volatility structure.

Parameters:

forwardRates - the vector of forward rates

maturities - the vector of maturities. The maturities are given as absolute times. Suppose today's date is 1-st of March 2004 => the absolute time is currentTime = 2004 + 2. / 12. Suppose that the rates are given at each month. => maturities[0] = 2004 + 3. / 12 = 2004.25; maturities[1] = 2004 + 4. / 12 = 2004.33; etc.

numberMaturities - the number of rates (and maturities)

tolerance - a tolerance used as stopping condition in the Power method for finding the eigenvectors of a matrix (needed in the PCA algorithm). A recommended value for this parameter is 1E-12.

numberObservations - the number of historic values of zero coupon bond prices recorded for each maturity

numberPCAVectors - the number of forward volatility stochastic factor you want to find using PCA

dt - the fixed time interval between two consecutive observations of zero coupon bond prices

currentTime - the initial moment

internalMemorySteps - this parameter sets the length of an internal cache used to speed up the computations. Generally it is a good idea to set this parameter exactly as the number of timesteps in Monte Carlo.

InterestDerivativesDemoException

See Also:

InterestDerivatives.setHJMRateModel(double[][], double[], double[], int, double, int, int, double, double, int)

setHoLeeRateModel

public void setHoLeeRateModel(Function drift,
                              double sigma,
                              double initialRate)
                       throws InterestDerivativesDemoException

Method setHoLeeRateModel(Function, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Ho & Lee one factor stochastic spot rate model which provide a spot rate process which is a semi martingale.

Calibration

The Ho&Lee model does not specify in any way the drift structure of the spot rate process, and thus we are able to apply a fitting technique to fit the model to appropriate market data. In particular, through a careful choice of the drift function the theoretical zero-coupon bonds prices produced by the model, will correspond to the market prices of the corresponding bonds. In this way we are able to calibrate the model using the available market prices of liquid contracts such as zero-coupon bonds, and then use the calibrated model to price contacts which are less liquid and hence for which market prices are generally not available and if available being unreliable.

Remark: This class also allows you to implement your own calibration algorithm by providing the drift function. We also provide a version of the model with yield curve fitting for zero coupon bonds included see #setFittedHoLee.

Models Stochastic Differential Equation

The stochastic differential equation is:

• dr = drift(t) * dt + sigma * dW

where r is the spot rate, t is time, drift is the drift function, sigma is the initial value of the spot rate and W is the random variable.

Parameters:

drift - the drift function which must implement the Function interface.

sigma - a measure of volatility

initialRate - the initial value of the spot rate

InterestDerivativesDemoException

See Also:

InterestDerivatives.setHoLeeRateModel(Function, double, double)

setHullWhiteRateModel

public void setHullWhiteRateModel(Function averageLongTermRate,
                                  double adjustmentSpeed,
                                  double sigma,
                                  double initialRate)
                           throws InterestDerivativesDemoException

Method setHullWhiteRateModel(Function, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Hull & White one factor stochastic spot rate model.

Calibration

The Hull & White model does not specify the trend of the spot rate prices, and thus we are able to apply a fitting technique to fit the model to appropriate market data. This means that a careful choice of the trend function (i.e. averageLongTermRate(t)) will result in theoretical zero-coupon bonds prices, generated by the model being the same as the market prices of the same zero-coupon bonds. In this way we are able to calibrate the model using the available market prices of liquid contracts such as zero-coupon bonds, and then use the calibrated model to price contacts which are less liquid and hence for which market prices are generally not available and if available being unreliable.

Remark: This class allows you to implement your own calibration algorithm by providing the drift function. If you want a version of the model with yield curve fitting for zero coupon bonds included see FittedHullWhite.

Models Stochastic Differential Equation

The spot rate process is a semi martingale and its evolution is modeled using the stochastic differential equation:

• dr = adjustmentSpeed * (averageLongTermRate(t) - r) * dt + sigma * dW

You can see that this is a generalization of the Vasicek model. The mean-reverting characteristic is present here, as is the constant variance.

Parameters:

averageLongTermRate - the trend function which is a function of time which returns the average expected long term spot rate at that point in time.

adjustmentSpeed - the mean-reversion speed

sigma - a measure of volatility

initialRate - the initial value of the spot rate

InterestDerivativesDemoException

See Also:

InterestDerivatives.setHullWhiteRateModel(Function, double, double, double)

setLongstaffSchwartzRateModel

public void setLongstaffSchwartzRateModel(double xMean,
                                          double yMean,
                                          double reversionX,
                                          double reversionY,
                                          double c,
                                          double d,
                                          double initialX,
                                          double initialY)
                                   throws InterestDerivativesDemoException

Method setLongstaffSchwartzRateModel(double, double, double, double, double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Longstaff & Schwartz two factor stochastic interest rate model.

Description of the Model

Within this model neither of the two model variables are the spot rate. The spot rate is indirectly computed using a linear combination of the two variables. However, the variables themselves are modeled are components of the spot rate where each of these component variables has a mean-reversion characteristic:

• dx = reversionX * (xMean - x) * dt + sqrt(x) * dW1
• dy = reversionY * (yMean - y) * dt + sqrt(y) * dW1
• r = c * x + d * y

where x and y are the two component variables, and the other quantities are named in accordance with the naming of the parameters.

Parameters:

xMean - the long term trend of the first component

yMean - the long term trend of the second component

reversionX - the mean-reversion speed for the first component

reversionY - the mean-reversion speed for the second component

c - the coefficient corresponding to the first component variable of the third formulae given above

d - the coefficient corresponding to the second component variable of the third formulae given above

initialX - the initial value for the first component

initialY - the initial value for the second component

InterestDerivativesDemoException

See Also:

InterestDerivatives.setLongstaffSchwartzRateModel(double, double, double, double, double, double, double, double)

setSimplifiedBGMRateModel

public void setSimplifiedBGMRateModel(double[] discreteCurrentForwardRate,
                                      double[] capletVolatilities,
                                      double[] resetDates,
                                      int forwardCurveSteps,
                                      double currentTime)
                               throws InterestDerivativesDemoException

Method setSimplifiedBGMRateModel(double[], double[], double[], int, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Brace, Gatarek and Musiela (BGM) model (also known as the LIBOR market model) of the forward rate curve.

Description of the Model

This model has three parameters which describe volatility functions that must be calibrated so that the model recovers the volatility structure observed in the market. Within our implementation of this model Cap volatilities will need to used in order to calibrate these functions.

Comparison with the Heath, Jarrow and Morton (HJM) model

The model specification is natively discrete, so in this respect the model is superior to the Heath, Jarrow and Morton (HJM) model, which needs to be discretized in order to be used with numerical pricing algorithms such as Monte Carlo. The fact that the model is natively discrete also means that it is expressed in terms of the discrete forward rates (i.e. which is generally taken to be the LIBOR rates). Thus, the model can be classified as a market model, meaning that it uses trading instruments as state variables. Another advantage over Heath, Jarrow and Morton (HJM) model is that it assures positive interest rates while future interest rates never exponentially increase.

Parameters:

discreteCurrentForwardRate - a vector containing the initial forward (LIBOR) rates for different maturities (resetDates). In general discreteCurrentForwardRate[i] is the forward rate between times resetDates[k] and resetDates[k + 1].

capletVolatilities - the Black caplet volatilities used for model calibration. capletVolatilities[k] is the Black volatility for the caplet that corresponds to the period between times resetDates[k] and resetDates[k + 1].

resetDates - a vector containing the maturities of the forward (LIBOR) rates

forwardCurveSteps - the number of rates and maturities

currentTime - the current time

InterestDerivativesDemoException

See Also:

InterestDerivatives.setSimplifiedBGMRateModel(double[], double[], double[], int, double)

setConstantPriceModel

public void setConstantPriceModel(double price)
                           throws InterestDerivativesDemoException

Method setConstantPriceModel(double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the constant price model which assumes that the price is constant.

Parameters:

price - the constant value of the price.

InterestDerivativesDemoException

See Also:

InterestDerivatives.setConstantPriceModel(double)

setDeterministPriceModel

public void setDeterministPriceModel(KOrderDiff priceFunction,
                                     double currentTime)
                              throws InterestDerivativesDemoException

Method setDeterministPriceModel(KOrderDiff, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a General Deterministic Price Model.

Overview

The asset price dynamics will follow a function given as a parameter. Therefore, this model is deterministic in nature.

Parameters:

priceFunction - a differentiable function of one real variable time which must be at least first order differentiable.

currentTime - the current time from which the price model begins.

InterestDerivativesDemoException

See Also:

InterestDerivatives.setDeterministPriceModel(KOrderDiff, double)

setLognormalPriceModel

public void setLognormalPriceModel(double initialPrice)
                            throws InterestDerivativesDemoException

Method setLognormalPriceModel(double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Lognormal model of the dynamics of the asset prices.

Definition of the Model

It is a one-factor stochastic model where the process of the price is a semi martingale. This is also the price model which is used within the classical Black-Scholes model.

Models Stochastic Differential Equation

The stochastic differential equation is:

dS = drift * S * dt + vol * S * dW,

where S represents the asset price, t is time, the drift is the (long term average) drift (i.e. a constant) of the asset, vol is the volatility of the assets (i.e. a constant) and W is the lognormal random variable.

Parameters:

initialPrice - the initial value of the price

InterestDerivativesDemoException

See Also:

InterestDerivatives.setLognormalPriceModel(double)

setPoissonPriceModel

public void setPoissonPriceModel(double initialPrice,
                                 double intensity,
                                 double jumpStddev)
                          throws InterestDerivativesDemoException

Method setPoissonPriceModel(double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the jump-diffusion price model for the dynamics of asset prices.

Models Stochastic Differential Equation

The stochastic differential equation for this model is:

• dS = drift * S * dt + vol * S * dW + (J - 1) * S * dq,

where drift and vol are external variables of the model; J is a measure of the jumps' magnitude and dq is a Poisson process. In this implementation J is also considered a stochastic variable, in particular J is given by:

J = 1 + jumpStddev * N(0, 1),

where N(0, 1) is a variable taken from a standard normal distribution.

Parameters:

initialPrice - the initial value of the price of the asset considered.

intensity - the intensity of the Poisson process

jumpStddev - the standard deviation of the jump magnitude

InterestDerivativesDemoException

See Also:

InterestDerivatives.setPoissonPriceModel(double, double, double)

setConstantVolatilityModel

public void setConstantVolatilityModel(double volatility)
                                throws InterestDerivativesDemoException

Method setConstantVolatilityModel(double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the constant volatility model which is deterministic in nature.

Parameters:

volatility - the constant value of the volatility

InterestDerivativesDemoException

See Also:

InterestDerivatives.setConstantVolatilityModel(double)

setDeterministVolatilityModel

public void setDeterministVolatilityModel(KOrderDiff volatilityFunction,
                                          double value,
                                          double currentTime)
                                   throws InterestDerivativesDemoException

Method setDeterministVolatilityModel(KOrderDiff, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements a General deterministic Volatility model.

Description of the Model

Here the user specifies the dynamics of the volatility by passing a function of one variable time of the type KOrderDiff as a parameter which take the values of the volatility with respect to time. The function provided must be a least first order differentiable. Since the volatility will follow a function (given as a parameter) the model is deterministic in nature.

Parameters:

volatilityFunction - a differentiable function of one real variable time which specifies the volatility. If this parameter is null, then the volatility will be assumed to be constant equal to the `value' given in the next parameter

value - the value of the constant volatility function in the case when the volatilityFunction parameter is not null. If the volatility function is given then this parameters is ignored.

currentTime - the current time from which the volatility model begins.

InterestDerivativesDemoException

See Also:

InterestDerivatives.setDeterministVolatilityModel(KOrderDiff, double, double)

setHullWhiteVolatilityModel

public void setHullWhiteVolatilityModel(double adjustmentSpeed,
                                        double averageLongTermVariance,
                                        double varianceVolatility,
                                        double initialVariance)
                                 throws EvaluationException,
                                        InterestDerivativesDemoException

Method setHullWhiteVolatilityModel(double, double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Hull & White Stochastic model of the Variance (recall that, volatility = sqrt(variance)).

Definition of the Model

This model is based on the Hull & White analysis which showed that when the asset price and its volatility are uncorrelated then the fair value of an option on this asset is the average of the Black-Scholes values for the option taken over the distribution of the variance.

Models Stochastic Differential Equation

The variance process is a semi martingale and the stochastic differential equation of this model is:

• d var = adjustmentSpeed * (averageLongTermVariance - var) * dt + varianceVolatility * var * dW

where var is the variance, t is time and W is a random variable. The other three terms correspond to the parameters of the same name.

Parameters:

adjustmentSpeed - the reversion speed towards the equilibrium value of the variance

averageLongTermVariance - the equilibrium value of the variance

varianceVolatility - a measure of the variance of the volatility

initialVariance - the initial value of the variance

Throws:

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setHullWhiteVolatilityModel(double, double, double, double)

setHostonVolatilityModel

public void setHostonVolatilityModel(double gamma,
                                     double delta,
                                     double initialVolatility)
                              throws EvaluationException,
                                     InterestDerivativesDemoException

Method setHostonVolatilityModel(double, double, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Implements the Hoston Stochastic Volatility model.

Models Stochastic Differential Equation

The volatility process is a semi martingale with a stochastic differential equation of:

• d vol = -gamma * vol * dt + delta * dW

where vol is the volatility,

Parameters:

gamma - the drift multiplied by -1

delta - a measure of the process' randomness

initialVolatility - the initial value of the volatility

Throws:

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.setHostonVolatilityModel(double, double, double)

runSimulation

public void runSimulation(int monteCarloTimesteps,
                          int monteCarloRandomWalks,
                          double currentTime)
                   throws EvaluationException,
                          InterestDerivativesDemoException

Method runSimulation(int, int, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Performs the Monte Carlo simulation for a fixed number of random walks for the set (cash or derivative) contract, in accordance to the set price model, interest rate model and volatility model.

Overview

The Monte Carlo algorithm due to its stochastic nature, will produce differing results with each time it is run. That is, two sequential runs of the algorithm using the same model, contract and parameters, will return different prices. However, as the number of simulation used increases the results of Monte Carlo simulation converge to a normal distribution where the standard deviation of this distribution can be evaluated using getStddev. Therefore, for a given interval of values we are able to evaluate the confidence level that the true theoretical value lies within the interval considered.

Confidence Interval and number of Simulations

The higher the confidence level, the larger the interval considered will need to be in order to ensure that the true theoretical price lies within the interval. However, you can reduce the interval for a fixed confidence level, by increasing the number of simulations. In particular, by increasing the number of random walks by 100 times, the size of the confidence interval will be decreased by a factor of 10. More generally, the factor reduction of the confidence interval is the square root of the multiple factor of the number of simulation increases.

Sources of Error

Monte Carlo pricing procedures offer an estimate of the price of an asset, which in its turn can be affected by other errors (such as size of the time steps, numerical algorithm errors, floating point imprecision, model error and so on). For further details, concerning the types of errors which can occur we refer the reader to the PDF documentation. In most cases however, these other sources of error are small in comparison with the Monte Carlo error. However, these other errors are difficult to control whereas the Monte Carlo error can be controlled and in particular reduced by increasing the number of simulations.

Choosing between runSimulation(int, int, double) and

Within this pricing framework we offer two means by which to run the required Monte Carlo simulation, namely:

1. runSimulation(int, int, double) (this method) - Runs Monte Carlo using a prescribed number of simulations.
2. - Runs Monte Carlo using the required number of simulations required in order to achieve a given level in expected accuracy determined by the confidence and the maximum relative error. Please note that we ensure that this method exits by requiring a maximum number of iterations which can be used to be set.

The choice between these two methods will depend whether you wish specify the number of iterations used (that is, set the time before an estimate of the result is returned) or specify the confidence and maximum relative error for which the result will be found and then returned. In short, this method sets the number of simulations after which the result is returned, whereas the other procedure `MC set accuracy' will find the result to a given required accuracy which it will return.

Parameters:

monteCarloTimesteps - the number of time axis divisions for one random walk

monteCarloRandomWalks - the number of random walks executed

currentTime - the start moment for the simulation (the value date - contract is evaluated as of this moment)

EvaluationException

InterestDerivativesDemoException

See Also:

runSimulation(int, double, double, int, double), InterestDerivatives.runSimulation(int, int, double)

runSimulation

public void runSimulation(int timeSteps,
                          double confidence,
                          double maxRelativeError,
                          int maxRandomWalks,
                          double timeToEvaluation)
                   throws EvaluationException,
                          InterestDerivativesDemoException

Method runSimulation(int, double, double, int, double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Performs the Monte Carlo simulation for the set (cash or derivative) contract, in accordance to the set price model, interest rate model and volatility model; and returns the result found when it satisfies a given level in confidence and maximum relative error.

Overview

The Monte Carlo algorithm due to its stochastic nature, will produce differing results with each time it is run. That is, two sequential runs of the algorithm using the same model, contract and parameters, will return different prices. However, as the number of simulation used increases the results of Monte Carlo simulation converge to a normal distribution where the standard deviation of this distribution can be evaluated using getStddev. Therefore, for a given interval of values we are able to evaluate the confidence level that the true theoretical value lies within the interval considered.

Confidence Interval and number of Simulations

The higher the confidence level, the larger the interval considered will need to be in order to ensure that the true theoretical price lies within the interval. However, you can reduce the interval for a fixed confidence level, by increasing the number of simulations. In particular, by increasing the number of random walks by 100 times, the size of the confidence interval will be decreased by a factor of 10. More generally, the factor reduction of the confidence interval is the square root of the multiple factor of the number of simulation increases.

Sources of Error

Monte Carlo pricing procedures offer an estimate of the price of an asset, which in its turn can be affected by other errors (such as size of the time steps, numerical algorithm errors, floating point imprecision, model error and so on). For further details, concerning the types of errors which can occur we refer the reader to the PDF documentation. In most cases however, these other sources of error are small in comparison with the Monte Carlo error. However, these other errors are difficult to control whereas the Monte Carlo error explicitly controlled within this methods by increasing the and decreasing the maximum relative values which is allowed. Note that whenever the accuracy required is increased it may be necessary to increase the maximum number of simulations which are allowed.

Choosing between runSimulation(int, int, double) and

Within this pricing framework we offer two means by which to run the required Monte Carlo simulation, namely:

1. (this method) Runs Monte Carlo using the required number of simulations required in order to achieve a given level in expected accuracy determined by the confidence and the maximum relative error. Please note that we ensure that this method exits by requiring a maximum number of iterations which can be used to be set.
2. runSimulation(int, int, double) - Runs Monte Carlo using a prescribed number of simulations.

The choice between these two methods will depend on whether you wish specify the number of iterations used (that is, set the time before an estimate of the result is returned) or specify the confidence and maximum relative error for which the result will be found and then returned (assuming maximum number of simulations is not exceeded). In short, this method sets the accuracy required of the result and then run the number of simulations required to find the results to that level of accuracy whereas the other approach `MC set number Simulations' sets the number of simulations after which the result is returned.

Parameters:

timeSteps - the number of time axis divisions for one random walk

confidence - the probability used to compute the uncertainty interval (and maximum relative error)

maxRelativeError - the maximum acceptable relative error. This is equal with half_uncertainty_interval / (abs(price) * - half_uncertainty_interval) * 100. The error is given as a percentage.

maxRandomWalks - the simulation will stop after this number of random walks even if the relative error is larger than maxRelativeError. This is given as a safety measure - to ensure that Monte Carlo will actually finish in a reasonable amount of time.

timeToEvaluation - the start moment for the simulation (the value date - contract is evaluated as of this moment)

EvaluationException

InterestDerivativesDemoException

See Also:

runSimulation(int, int, double), InterestDerivatives.runSimulation(int, double, double, int, double)

getPrice

public double getPrice()
                throws EvaluationException,
                       InterestDerivativesDemoException

Method getPrice() as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Returns the price of the contract set (i.e. asset) priced in accordance with the price, volatility and interest rate models set using the Monte Carlo simulation performed.

Dependencies of this method

Before calling this method the contract considered, and the price, volatility and interest rate models should have already been set. In addition, you must have already performed the Monte Carlo simulation using one of the `MC set accuracy' or `MC set number Simulations'. After each Monte Carlo Simulation is performed the results are stored within private field which are then read by this method.

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.getPrice()

getStddev

public double getStddev()
                 throws EvaluationException,
                        InterestDerivativesDemoException

Method getStddev() as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Returns the standard deviation of the price estimate given by the last Monte Carlo simulation performed of the set contract (i.e. asset) in accordance with the price, volatility and interest rate models used.

Dependencies of this method

Before calling this method the contract considered, and the price, volatility and interest rate models should have already been set. In addition, you must have already performed the Monte Carlo simulation using one of the `MC set accuracy' or `MC set number Simulations'. After each Monte Carlo Simulation is performed the results are stored within private field which are then read by this method.

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.getStddev()

getMinPrice

public double getMinPrice(double confidence)
                   throws EvaluationException,
                          InterestDerivativesDemoException

Method getMinPrice(double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Returns the minimum value of the estimated price expected for a given confidence level for the last Monte Carlo simulation performed of the set contract (i.e. asset) in accordance with the price, volatility and interest rate models used.

Dependencies of this method

Before calling this method the contract considered, and the price, volatility and interest rate models should have already been set. In addition, you must have already performed the Monte Carlo simulation using one of the `MC set accuracy' or `MC set number Simulations'. After each Monte Carlo Simulation is performed the results are stored within private field which are then read by this method.

Parameters:

confidence - the probability for which the minimal value is calculated

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.getMinPrice(double)

getMaxPrice

public double getMaxPrice(double confidence)
                   throws EvaluationException,
                          InterestDerivativesDemoException

Method getMaxPrice(double) as defined in the InterestDerivatives remote interface.

Description copied from the InterestDerivatives interface:

Returns the maximum value of the estimated price expected for a given confidence level for the last Monte Carlo simulation performed of the set contract (i.e. asset) in accordance with the price, volatility and interest rate models used.

Dependencies of this method

Before calling this method the contract considered, and the price, volatility and interest rate models should have already been set. In addition, you must have already performed the Monte Carlo simulation using one of the `MC set accuracy' or `MC set number Simulations'. After each Monte Carlo Simulation is performed the results are stored within private field which are then read by this method.

Parameters:

confidence - the probability for which the maximal value is calculated

EvaluationException

InterestDerivativesDemoException

See Also:

InterestDerivatives.getMaxPrice(double)