Class ContinuationActivationPolicy

java.lang.Object
net.finmath.finitedifference.solvers.ContinuationActivationPolicy
All Implemented Interfaces:
TwoStateActivationPolicy
public class ContinuationActivationPolicy extends Object implements TwoStateActivationPolicy
Activation policy for two-state finite-difference products in which the active regime continues with its own continuation value once the barrier event has occurred.

In a two-state barrier formulation, the contract value is decomposed into an inactive no-hit regime and an active already-hit regime. Let V^{\mathrm{act}}(t,x) denote the value in the active regime, where x is the state variable. Under a continuation activation rule, barrier activation does not trigger an immediate replacement payoff other than the active branch itself. Hence the already-hit value is simply identified with the active continuation value.

At maturity this means

V^{\mathrm{hit}}(T,x) = V^{\mathrm{act}}(T,x),

independently of the inactive no-hit terminal value. Likewise, at intermediate times and at the activation interface,

V^{\mathrm{hit}}(t,x) = V^{\mathrm{act}}(t,x).

This policy is appropriate for contracts where hitting the barrier switches the product into an active continuation problem rather than causing an immediate cash settlement. A typical example is an expiry-settled knock-in structure, where the contract remains alive after activation and evolves according to the active branch PDE until maturity.

Author:
Alessandro Gnoatto

  • Constructor Details

    • ContinuationActivationPolicy

      public ContinuationActivationPolicy()

  • Method Details

    • getAlreadyHitValueAtMaturity

      public double getAlreadyHitValueAtMaturity(double stateVariable, double activePayoffValue, double inactiveNoHitValue)
      Returns the already-hit value at maturity.
      Specified by:
      getAlreadyHitValueAtMaturity in interface TwoStateActivationPolicy
      Parameters:
      stateVariable - State variable.
      activePayoffValue - Active-regime payoff value at maturity.
      inactiveNoHitValue - Inactive no-hit value at maturity.
      Returns:
      The already-hit value at maturity.

    • getAlreadyHitValue

      public double getAlreadyHitValue(double currentTime, double stateVariable, double activeValue)
      Returns the already-hit value before maturity.
      Specified by:
      getAlreadyHitValue in interface TwoStateActivationPolicy
      Parameters:
      currentTime - Current running time.
      stateVariable - State variable.
      activeValue - Active-regime continuation value.
      Returns:
      The already-hit value.

    • getInterfaceValue

      public double getInterfaceValue(double currentTime, double barrierStateVariable, double activeValueAtBarrier)
      Returns the interface value at the activation boundary.
      Specified by:
      getInterfaceValue in interface TwoStateActivationPolicy
      Parameters:
      currentTime - Current running time.
      barrierStateVariable - State variable at the barrier.
      activeValueAtBarrier - Active-regime value at the barrier.
      Returns:
      The interface value.