Class FloatingStrikeSwingOption

java.lang.Object
net.finmath.finitedifference.assetderivativevaluation.products.FloatingStrikeSwingOption
All Implemented Interfaces:
FiniteDifferenceEquityProduct, FiniteDifferenceProduct<FiniteDifferenceEquityModel>, Product
public class FloatingStrikeSwingOption extends Object implements FiniteDifferenceEquityProduct
Floating-strike fixed-maturity swing option.

This product combines the volume-control features of a swing option with a floating strike determined by a weighted fixing average of the underlying. Let t_0, \ldots, t_{n-1} denote the decision dates and u_0, \ldots, u_{m-1} the fixing dates with associated non-negative weights w_0, \ldots, w_{m-1}. At each decision date the holder chooses an exercised quantity q_i subject to local bounds

q_i \in [q_i^{min}, q_i^{max}],

and global cumulative bounds

Q^{min} \le \sum_{i=0}^{n-1} q_i \le Q^{max}.

The strike is built from an accumulator process

A_{new} = A_{old} + w S,

updated on fixing dates, and the effective strike used at a decision date is

K(A) = strikeShift + strikeScale \cdot A / W,

where W is the cumulative fixing weight available at that decision date. The immediate exercise payoff at a decision time is therefore

q \max(\omega (S - K(A)), 0),

where \omega = 1 for a call and \omega = -1 for a put.

The valuation is carried out by dynamic programming on two additional discrete contract states: cumulative consumed quantity and strike accumulator. Between event dates, continuation values are propagated backward with the existing one- or two-dimensional finite- difference solver of the supplied model. On fixing dates, the accumulator state is shifted according to the fixing rule. On decision dates, the Bellman optimization is applied over the admissible exercised quantities.

If a fixing date and a decision date coincide, the convention SwingStrikeFixingConvention.FIX_THEN_EXERCISE is applied, that is, the strike is first updated using the fixing at that date and only then used in the exercise payoff.

As in the fixed-strike swing implementation, a full state-independent surface getValues(FiniteDifferenceEquityModel) is not well defined because the contract value depends on the additional cumulative-quantity and accumulator states. Hence this implementation exposes getValue(double, FiniteDifferenceEquityModel) at evaluation time 0 only.

Author:
Alessandro Gnoatto

  • Constructor Details

    • FloatingStrikeSwingOption

      public FloatingStrikeSwingOption(String underlyingName, double[] decisionTimes, double[] fixingTimes, double[] fixingWeights, double strikeShift, double strikeScale, double[] accumulatorGrid, double[] localMinQuantity, double[] localMaxQuantity, double globalMinQuantity, double globalMaxQuantity, CallOrPut callOrPut, SwingQuantityMode quantityMode, double quantityGridStep, SwingStrikeFixingConvention fixingConvention)
      Creates a floating-strike swing option.
      Parameters:
      underlyingName - Name of the underlying. May be null.
      decisionTimes - Exercise decision times.
      fixingTimes - Strike-fixing times.
      fixingWeights - Strike-fixing weights.
      strikeShift - Additive strike shift.
      strikeScale - Multiplicative strike scale.
      accumulatorGrid - Grid for the strike accumulator state.
      localMinQuantity - Local minimum quantities.
      localMaxQuantity - Local maximum quantities.
      globalMinQuantity - Global minimum total quantity.
      globalMaxQuantity - Global maximum total quantity.
      callOrPut - Call/put flag.
      quantityMode - Quantity control mode.
      quantityGridStep - Quantity discretization step for SwingQuantityMode.DISCRETE_QUANTITY_GRID.
      fixingConvention - Strike-fixing convention.

    • FloatingStrikeSwingOption

      public FloatingStrikeSwingOption(double[] decisionTimes, double[] fixingTimes, double[] fixingWeights, double strikeShift, double strikeScale, double[] accumulatorGrid, double[] localMinQuantity, double[] localMaxQuantity, double globalMinQuantity, double globalMaxQuantity, CallOrPut callOrPut, SwingQuantityMode quantityMode, double quantityGridStep, SwingStrikeFixingConvention fixingConvention)
      Creates a floating-strike swing option with anonymous underlying.
      Parameters:
      decisionTimes - Exercise decision times.
      fixingTimes - Strike-fixing times.
      fixingWeights - Strike-fixing weights.
      strikeShift - Additive strike shift.
      strikeScale - Multiplicative strike scale.
      accumulatorGrid - Grid for the strike accumulator state.
      localMinQuantity - Local minimum quantities.
      localMaxQuantity - Local maximum quantities.
      globalMinQuantity - Global minimum total quantity.
      globalMaxQuantity - Global maximum total quantity.
      callOrPut - Call/put flag.
      quantityMode - Quantity control mode.
      quantityGridStep - Quantity discretization step for SwingQuantityMode.DISCRETE_QUANTITY_GRID.
      fixingConvention - Strike-fixing convention.

    • FloatingStrikeSwingOption

      public FloatingStrikeSwingOption(String underlyingName, double[] decisionTimes, double[] fixingTimes, double[] fixingWeights, double strikeShift, double strikeScale, double[] accumulatorGrid, double localMinQuantity, double localMaxQuantity, double globalMinQuantity, double globalMaxQuantity, CallOrPut callOrPut, SwingQuantityMode quantityMode, double quantityGridStep, SwingStrikeFixingConvention fixingConvention)
      Creates a floating-strike swing option with time-homogeneous local quantity bounds.
      Parameters:
      underlyingName - Name of the underlying. May be null.
      decisionTimes - Exercise decision times.
      fixingTimes - Strike-fixing times.
      fixingWeights - Strike-fixing weights.
      strikeShift - Additive strike shift.
      strikeScale - Multiplicative strike scale.
      accumulatorGrid - Grid for the strike accumulator state.
      localMinQuantity - Constant local minimum quantity.
      localMaxQuantity - Constant local maximum quantity.
      globalMinQuantity - Global minimum total quantity.
      globalMaxQuantity - Global maximum total quantity.
      callOrPut - Call/put flag.
      quantityMode - Quantity control mode.
      quantityGridStep - Quantity discretization step for SwingQuantityMode.DISCRETE_QUANTITY_GRID.
      fixingConvention - Strike-fixing convention.

    • FloatingStrikeSwingOption

      public FloatingStrikeSwingOption(double[] decisionTimes, double[] fixingTimes, double[] fixingWeights, double strikeShift, double strikeScale, double[] accumulatorGrid, double localMinQuantity, double localMaxQuantity, double globalMinQuantity, double globalMaxQuantity, CallOrPut callOrPut, SwingQuantityMode quantityMode, double quantityGridStep, SwingStrikeFixingConvention fixingConvention)
      Creates a floating-strike swing option with anonymous underlying and time-homogeneous local quantity bounds.
      Parameters:
      decisionTimes - Exercise decision times.
      fixingTimes - Strike-fixing times.
      fixingWeights - Strike-fixing weights.
      strikeShift - Additive strike shift.
      strikeScale - Multiplicative strike scale.
      accumulatorGrid - Grid for the strike accumulator state.
      localMinQuantity - Constant local minimum quantity.
      localMaxQuantity - Constant local maximum quantity.
      globalMinQuantity - Global minimum total quantity.
      globalMaxQuantity - Global maximum total quantity.
      callOrPut - Call/put flag.
      quantityMode - Quantity control mode.
      quantityGridStep - Quantity discretization step for SwingQuantityMode.DISCRETE_QUANTITY_GRID.
      fixingConvention - Strike-fixing convention.

  • Method Details

    • getValue

      public double[] getValue(double evaluationTime, FiniteDifferenceEquityModel model)
      Returns the value at the given evaluation time.

      In this implementation only evaluation time 0 is supported, since the additional contract states must otherwise be supplied explicitly.

      Specified by:
      getValue in interface FiniteDifferenceProduct<FiniteDifferenceEquityModel>
      Parameters:
      evaluationTime - Evaluation time.
      model - The finite-difference model.
      Returns:
      The value on the model space grid.

    • getValues

      public double[][] getValues(FiniteDifferenceEquityModel model)
      Returns the full value surface.

      This operation is intentionally unsupported, since the contract value depends on additional discrete states.

      Specified by:
      getValues in interface FiniteDifferenceProduct<FiniteDifferenceEquityModel>
      Parameters:
      model - The finite-difference model.
      Returns:
      Never returns normally.

    • getUnderlyingName

      public String getUnderlyingName()
      Returns the underlying name.
      Returns:
      The underlying name, possibly null.

    • getDecisionTimes

      public double[] getDecisionTimes()
      Returns the decision times.
      Returns:
      A defensive copy of the decision times.

    • getFixingTimes

      public double[] getFixingTimes()
      Returns the fixing times.
      Returns:
      A defensive copy of the fixing times.

    • getFixingWeights

      public double[] getFixingWeights()
      Returns the fixing weights.
      Returns:
      A defensive copy of the fixing weights.

    • getMaturity

      public double getMaturity()
      Returns the maturity.
      Returns:
      The maturity.

    • getStrikeShift

      public double getStrikeShift()
      Returns the additive strike shift.
      Returns:
      The additive strike shift.

    • getStrikeScale

      public double getStrikeScale()
      Returns the multiplicative strike scale.
      Returns:
      The multiplicative strike scale.

    • getAccumulatorGrid

      public double[] getAccumulatorGrid()
      Returns the accumulator grid.
      Returns:
      A defensive copy of the accumulator grid.

    • getLocalMinQuantity

      public double[] getLocalMinQuantity()
      Returns the local minimum quantities.
      Returns:
      A defensive copy of the local minimum quantities.

    • getLocalMaxQuantity

      public double[] getLocalMaxQuantity()
      Returns the local maximum quantities.
      Returns:
      A defensive copy of the local maximum quantities.

    • getGlobalMinQuantity

      public double getGlobalMinQuantity()
      Returns the global minimum total quantity.
      Returns:
      The global minimum total quantity.

    • getGlobalMaxQuantity

      public double getGlobalMaxQuantity()
      Returns the global maximum total quantity.
      Returns:
      The global maximum total quantity.

    • getCallOrPut

      public CallOrPut getCallOrPut()
      Returns the call/put flag.
      Returns:
      The call/put flag.

    • getQuantityMode

      public SwingQuantityMode getQuantityMode()
      Returns the quantity control mode.
      Returns:
      The quantity control mode.

    • getQuantityGridStep

      public double getQuantityGridStep()
      Returns the quantity grid step.
      Returns:
      The quantity grid step.

    • getFixingConvention

      public SwingStrikeFixingConvention getFixingConvention()
      Returns the strike-fixing convention.
      Returns:
      The strike-fixing convention.