Class OptionOnBond

java.lang.Object

net.finmath.finitedifference.interestrate.products.OptionOnBond

All Implemented Interfaces:

FiniteDifferenceProduct<FiniteDifferenceInterestRateModel>, FiniteDifferenceInterestRateProduct, Product

public class OptionOnBond
extends Object
implements FiniteDifferenceInterestRateProduct

Finite-difference valuation of a European option on a deterministic-cashflow bond.

The underlying bond is assumed to be a Bond, that is, a bond with deterministic fixed cashflows. Let T denote the option exercise date, B(T,x) the bond value at exercise as a function of the model state, K the strike, and \omega \in \{+1,-1\} the call/put sign. The payoff is

\bigl( \omega ( B(T,x) - K ) \bigr)^{+}.

Since the underlying bond has deterministic cashflows, its value at exercise can be computed directly from the interest-rate model through the remaining discount bonds:

B(T,x) = \sum_{i:\,T_i \ge T} C_i P(T,T_i;x),

where C_i are the remaining bond cashflows and P(T,T_i;x) is the discount bond implied by the model.

The current implementation is intended for one-dimensional finite-difference interest-rate models used with FDMThetaMethod1D.

Author:

Alessandro Gnoatto

Constructor Summary

Constructors

Constructor	Description
OptionOnBond(Bond underlyingBond, double exerciseDate, double strike, CallOrPut callOrPut)	Creates a European option on a deterministic-cashflow bond.

Method Summary

Modifier and Type	Method	Description
CallOrPut	getCallOrPut()	Returns the call/put indicator.
double	getExerciseDate()	Returns the exercise date.
double	getStrike()	Returns the strike.
Bond	getUnderlyingBond()	Returns the underlying bond.
double[]	getValue(double evaluationTime, FiniteDifferenceInterestRateModel model)	Returns the value.
double[][]	getValues(FiniteDifferenceInterestRateModel model)	Returns the value.

Methods inherited from class Object

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

Methods inherited from interface FiniteDifferenceInterestRateProduct

applyEventCondition, getEventTimes, getModelClass

Methods inherited from interface FiniteDifferenceProduct

getValue

Methods inherited from interface Product

getValues

Constructor Details

OptionOnBond

public OptionOnBond(Bond underlyingBond,
 double exerciseDate,
 double strike,
 CallOrPut callOrPut)

Creates a European option on a deterministic-cashflow bond.

Parameters:

underlyingBond - The underlying bond.

exerciseDate - The option exercise date.

strike - The strike.

callOrPut - The call/put indicator.

Method Details

getValue

public double[] getValue(double evaluationTime,
 FiniteDifferenceInterestRateModel model)

Description copied from interface: FiniteDifferenceProduct

Returns the value.

Specified by:

getValue in interface FiniteDifferenceProduct<FiniteDifferenceInterestRateModel>

Parameters:

evaluationTime - The value.

model - The value.

Returns:

The value.

getValues

public double[][] getValues(FiniteDifferenceInterestRateModel model)

Description copied from interface: FiniteDifferenceProduct

Returns the value.

Specified by:

getValues in interface FiniteDifferenceProduct<FiniteDifferenceInterestRateModel>

Parameters:

model - The value.

Returns:

The value.

getUnderlyingBond

public Bond getUnderlyingBond()

Returns the underlying bond.

Returns:

The underlying bond.

getExerciseDate

public double getExerciseDate()

Returns the exercise date.

Returns:

The exercise date.

getStrike

public double getStrike()

Returns the strike.

Returns:

The strike.

getCallOrPut

public CallOrPut getCallOrPut()

Returns the call/put indicator.

Returns:

The call/put indicator.