Class SwingOption

java.lang.Object

net.finmath.finitedifference.assetderivativevaluation.products.SwingOption

All Implemented Interfaces:

FiniteDifferenceEquityProduct, FiniteDifferenceProduct<FiniteDifferenceEquityModel>, Product

public class SwingOption
extends Object
implements FiniteDifferenceEquityProduct

Fixed-strike generalized swing option.

A swing option is a multiple-exercise contract with volume constraints. At each decision time t_i, the holder chooses an exercised quantity q_i subject to local bounds

q_i ∈ [q_i^min, q_i^max],

and global cumulative constraints

Q^min ≤ ∑_i=0^n-1 q_i ≤ Q^max.

For a fixed strike K, the immediate payoff at decision time t_i is

q_i max(ω(S(t_i) - K), 0),

where ω = 1 for a call and ω = -1 for a put.

The valuation is performed by dynamic programming over an auxiliary state variable representing cumulative consumed quantity Q_i = ∑_k=0^i-1 q_k. Between decision dates, continuation values are propagated backward by the finite- difference solver of the underlying model. At each decision date the value is obtained from the Bellman step

V_i(S,Q) = sup_{q ∈ A(i,Q)} { q max(ω(S-K),0) + C_i(S,Q+q) },

where A(i,Q) denotes the admissible set induced by local and global quantity constraints.

The quantity control may be either bang-bang, where only local extrema are admissible, or based on a discretized quantity grid. The implementation supports one- and two-dimensional finite-difference equity models. Since cumulative consumed quantity is an additional path state not contained in the model space grid, a full value surface independent of this state is not well defined. Therefore getValues(FiniteDifferenceEquityModel) is intentionally unsupported in this implementation, while getValue(double, FiniteDifferenceEquityModel) is provided at evaluation time 0.

Author:

Alessandro Gnoatto

Constructor Summary

Constructors

Constructor	Description
SwingOption(double[] decisionTimes, double strike, double[] localMinQuantity, double[] localMaxQuantity, double globalMinQuantity, double globalMaxQuantity, CallOrPut callOrPut, SwingQuantityMode quantityMode, double quantityGridStep)	Creates a generalized swing option with anonymous underlying.
SwingOption(double[] decisionTimes, double strike, double localMinQuantity, double localMaxQuantity, double globalMinQuantity, double globalMaxQuantity, CallOrPut callOrPut, SwingQuantityMode quantityMode, double quantityGridStep)	Creates a generalized swing option with anonymous underlying and time- homogeneous local bounds.
SwingOption(String underlyingName, double[] decisionTimes, double strike, double[] localMinQuantity, double[] localMaxQuantity, double globalMinQuantity, double globalMaxQuantity, CallOrPut callOrPut, SwingQuantityMode quantityMode, double quantityGridStep)	Creates a generalized swing option.
SwingOption(String underlyingName, double[] decisionTimes, double strike, double localMinQuantity, double localMaxQuantity, double globalMinQuantity, double globalMaxQuantity, CallOrPut callOrPut, SwingQuantityMode quantityMode, double quantityGridStep)	Creates a generalized swing option with time-homogeneous local bounds.

Method Summary

Modifier and Type	Method	Description
CallOrPut	getCallOrPut()	Returns the call/put indicator.
double[]	getDecisionTimes()	Returns the decision times.
double	getGlobalMaxQuantity()	Returns the global maximum total quantity.
double	getGlobalMinQuantity()	Returns the global minimum total quantity.
double[]	getLocalMaxQuantity()	Returns the local maximum quantities.
double[]	getLocalMinQuantity()	Returns the local minimum quantities.
double	getMaturity()	Returns the maturity.
double	getQuantityGridStep()	Returns the quantity grid step.
SwingQuantityMode	getQuantityMode()	Returns the quantity control mode.
double	getStrike()	Returns the strike.
String	getUnderlyingName()	Returns the underlying name.
double[]	getValue(double evaluationTime, FiniteDifferenceEquityModel model)	Returns the value at the given evaluation time.
double[][]	getValues(FiniteDifferenceEquityModel model)	Returns the full value surface.

Methods inherited from class Object

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

Methods inherited from interface FiniteDifferenceEquityProduct

getModelClass

Methods inherited from interface FiniteDifferenceProduct

getValue

Methods inherited from interface Product

getValues

Constructor Details

SwingOption

public SwingOption(String underlyingName,
 double[] decisionTimes,
 double strike,
 double[] localMinQuantity,
 double[] localMaxQuantity,
 double globalMinQuantity,
 double globalMaxQuantity,
 CallOrPut callOrPut,
 SwingQuantityMode quantityMode,
 double quantityGridStep)

Creates a generalized swing option.

Parameters:

underlyingName - Name of the underlying. May be null.

decisionTimes - Exercise decision times.

strike - Fixed strike.

localMinQuantity - Local minimum quantities.

localMaxQuantity - Local maximum quantities.

globalMinQuantity - Global minimum total quantity.

globalMaxQuantity - Global maximum total quantity.

callOrPut - Call/put indicator.

quantityMode - Quantity control mode.

quantityGridStep - Quantity discretization step for SwingQuantityMode.DISCRETE_QUANTITY_GRID.

SwingOption

public SwingOption(double[] decisionTimes,
 double strike,
 double[] localMinQuantity,
 double[] localMaxQuantity,
 double globalMinQuantity,
 double globalMaxQuantity,
 CallOrPut callOrPut,
 SwingQuantityMode quantityMode,
 double quantityGridStep)

Creates a generalized swing option with anonymous underlying.

Parameters:

decisionTimes - Exercise decision times.

strike - Fixed strike.

localMinQuantity - Local minimum quantities.

localMaxQuantity - Local maximum quantities.

globalMinQuantity - Global minimum total quantity.

globalMaxQuantity - Global maximum total quantity.

callOrPut - Call/put indicator.

quantityMode - Quantity control mode.

quantityGridStep - Quantity discretization step for SwingQuantityMode.DISCRETE_QUANTITY_GRID.

SwingOption

public SwingOption(String underlyingName,
 double[] decisionTimes,
 double strike,
 double localMinQuantity,
 double localMaxQuantity,
 double globalMinQuantity,
 double globalMaxQuantity,
 CallOrPut callOrPut,
 SwingQuantityMode quantityMode,
 double quantityGridStep)

Creates a generalized swing option with time-homogeneous local bounds.

Parameters:

underlyingName - Name of the underlying. May be null.

decisionTimes - Exercise decision times.

strike - Fixed strike.

localMinQuantity - Constant local minimum quantity.

localMaxQuantity - Constant local maximum quantity.

globalMinQuantity - Global minimum total quantity.

globalMaxQuantity - Global maximum total quantity.

callOrPut - Call/put indicator.

quantityMode - Quantity control mode.

quantityGridStep - Quantity discretization step for SwingQuantityMode.DISCRETE_QUANTITY_GRID.

SwingOption

public SwingOption(double[] decisionTimes,
 double strike,
 double localMinQuantity,
 double localMaxQuantity,
 double globalMinQuantity,
 double globalMaxQuantity,
 CallOrPut callOrPut,
 SwingQuantityMode quantityMode,
 double quantityGridStep)

Creates a generalized swing option with anonymous underlying and time- homogeneous local bounds.

Parameters:

decisionTimes - Exercise decision times.

strike - Fixed strike.

localMinQuantity - Constant local minimum quantity.

localMaxQuantity - Constant local maximum quantity.

globalMinQuantity - Global minimum total quantity.

globalMaxQuantity - Global maximum total quantity.

callOrPut - Call/put indicator.

quantityMode - Quantity control mode.

quantityGridStep - Quantity discretization step for SwingQuantityMode.DISCRETE_QUANTITY_GRID.

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 for later times the cumulative consumed quantity would have to 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 the additional cumulative-quantity state.

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.

getMaturity

public double getMaturity()

Returns the maturity.

Returns:

The maturity, equal to the last decision time.

getStrike

public double getStrike()

Returns the strike.

Returns:

The fixed strike.

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 indicator.

Returns:

The call/put indicator.

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.