Module net.finmath.lib

Package net.finmath.montecarlo.interestrate.products.components

Class Option

java.lang.Object

net.finmath.montecarlo.AbstractMonteCarloProduct

net.finmath.montecarlo.interestrate.products.AbstractTermStructureMonteCarloProduct

net.finmath.montecarlo.interestrate.products.components.AbstractProductComponent

net.finmath.montecarlo.interestrate.products.components.Option

All Implemented Interfaces:

Serializable, Product, RegressionBasisFunctionsProvider, TermStructureMonteCarloProduct, MonteCarloProduct

public class Option
extends AbstractProductComponent
implements RegressionBasisFunctionsProvider

An option. Implements the function max(underlying(t)-strike,0) for any underlying object implementing an AbstractTermStructureMonteCarloProduct. The strike may be a fixed constant value or an object implementing AbstractTermStructureMonteCarloProduct (resulting in a stochastic strike or exchange option). More precise, the getVaue method returns the value \[ \left\{ \begin{array}{ll} U(t)-S(t) & \text{if E(t) > 0} \\ U(t)-S(t) & \text{else.} \end{array} \right. \] where \( E \) is an estimator for the expectation of \( U(t)-S(t) \) and \( U \) is the value returned by the call to getValue of the underlying product, which may return a sum on discounted futures cash-flows / values (i.e. not yet performing the expectation) and \( S \) is the strike (which may be a fixed value or another underlying product).

Version:

1.2

Author:

Christian Fries

See Also:

• AbstractTermStructureMonteCarloProduct
• Serialized Form

Constructor Summary

Constructors

Constructor	Description
Option(double exerciseDate, boolean isCall, TermStructureMonteCarloProduct strikeProduct, AbstractTermStructureMonteCarloProduct underlying)	Creates the function underlying(exerciseDate) ≥ strikeProduct ? underlying : strikeProduct
Option(double exerciseDate, boolean isCall, TermStructureMonteCarloProduct strikeProduct, AbstractTermStructureMonteCarloProduct underlying, RegressionBasisFunctionsProvider regressionBasisFunctionsProvider)	Creates the function underlying(exerciseDate) ≥ strikeProduct ? underlying : strikeProduct
Option(double exerciseDate, double strikePrice, boolean isCall, AbstractTermStructureMonteCarloProduct underlying)	Creates the function underlying(exerciseDate) ≥ strikePrice ? underlying : strikePrice
Option(double exerciseDate, double strikePrice, boolean isCall, AbstractTermStructureMonteCarloProduct underlying, RegressionBasisFunctionsProvider regressionBasisFunctionsProvider)	Creates the function underlying(exerciseDate) ≥ strikePrice ? underlying : strikePrice
Option(double exerciseDate, double strikePrice, AbstractTermStructureMonteCarloProduct underlying)	Creates the function underlying(exerciseDate) ≥ strikePrice ? underlying : strikePrice
Option(double exerciseDate, AbstractTermStructureMonteCarloProduct underlying)	Creates the function underlying(exerciseDate) ≥ 0 ? underlying : 0

Method Summary

Modifier and Type	Method	Description
RandomVariable[]	getBasisFunctions(double exerciseDate, LIBORModelMonteCarloSimulationModel model)	Return the regression basis functions.
RandomVariable[]	getBasisFunctions(double evaluationTime, MonteCarloSimulationModel model)	Provides a set of \( \mathcal{F}_{t} \)-measurable random variables which can serve as regression basis functions.
String	getCurrency()	Returns the currency string of this product.
RandomVariable	getValue(double evaluationTime, TermStructureMonteCarloSimulationModel model)	This method returns the value random variable of the product within the specified model, evaluated at a given evalutationTime.
Set<String>	queryUnderlyings()	Returns a set of underlying names referenced by this product component (i.e., required for valuation) or null if none.
String	toString()

Methods inherited from class net.finmath.montecarlo.interestrate.products.components.AbstractProductComponent

getExecutor, getValues

Methods inherited from class net.finmath.montecarlo.interestrate.products.AbstractTermStructureMonteCarloProduct

getFactorDrift, getValue, getValueForModifiedData

Methods inherited from class net.finmath.montecarlo.AbstractMonteCarloProduct

getValue, getValue, getValues, getValues, getValues, getValuesForModifiedData, getValuesForModifiedData, getValuesForModifiedData, getValuesForModifiedData

Methods inherited from class java.lang.Object

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

Methods inherited from interface net.finmath.montecarlo.MonteCarloProduct

getValue, getValue, getValues, getValues, getValues, getValuesForModifiedData, getValuesForModifiedData, getValuesForModifiedData, getValuesForModifiedData

Constructor Details

Option

public Option(double exerciseDate,
 double strikePrice,
 boolean isCall,
 AbstractTermStructureMonteCarloProduct underlying,
 RegressionBasisFunctionsProvider regressionBasisFunctionsProvider)

Creates the function underlying(exerciseDate) ≥ strikePrice ? underlying : strikePrice

Parameters:

exerciseDate - The exercise date of the option (given as a double).

strikePrice - The strike price.

isCall - If true, the function implements is underlying(exerciseDate) ≥ strikePrice ? underlying : strikePrice. Otherwise it is underlying(exerciseDate) < strikePrice ? underlying : strikePrice.

underlying - The underlying.

regressionBasisFunctionsProvider - Used to determine the regression basis functions for the conditional expectation operator.

Option

public Option(double exerciseDate,
 boolean isCall,
 TermStructureMonteCarloProduct strikeProduct,
 AbstractTermStructureMonteCarloProduct underlying,
 RegressionBasisFunctionsProvider regressionBasisFunctionsProvider)

Creates the function underlying(exerciseDate) ≥ strikeProduct ? underlying : strikeProduct

Parameters:

exerciseDate - The exercise date of the option (given as a double).

isCall - If true, the function implements is underlying(exerciseDate) ≥ strikePrice ? underlying : strikePrice. Otherwise it is underlying(exerciseDate) < strikePrice ? underlying : strikePrice.

strikeProduct - The strike (can be a general AbstractLIBORMonteCarloProduct).

underlying - The underlying.

regressionBasisFunctionsProvider - Used to determine the regression basis functions for the conditional expectation operator.

Option

public Option(double exerciseDate,
 boolean isCall,
 TermStructureMonteCarloProduct strikeProduct,
 AbstractTermStructureMonteCarloProduct underlying)

Creates the function underlying(exerciseDate) ≥ strikeProduct ? underlying : strikeProduct

Parameters:

exerciseDate - The exercise date of the option (given as a double).

isCall - If true, the function implements is underlying(exerciseDate) ≥ strikePrice ? underlying : strikePrice. Otherwise it is underlying(exerciseDate) < strikePrice ? underlying : strikePrice.

strikeProduct - The strike (can be a general AbstractLIBORMonteCarloProduct).

underlying - The underlying.

Option

public Option(double exerciseDate,
 double strikePrice,
 boolean isCall,
 AbstractTermStructureMonteCarloProduct underlying)

Creates the function underlying(exerciseDate) ≥ strikePrice ? underlying : strikePrice

Parameters:

exerciseDate - The exercise date of the option (given as a double).

strikePrice - The strike price.

isCall - If true, the function implements is underlying(exerciseDate) ≥ strikePrice ? underlying : strikePrice. Otherwise it is underlying(exerciseDate) < strikePrice ? underlying : strikePrice.

underlying - The underlying.

Option

public Option(double exerciseDate,
 double strikePrice,
 AbstractTermStructureMonteCarloProduct underlying)

Creates the function underlying(exerciseDate) ≥ strikePrice ? underlying : strikePrice

Parameters:

exerciseDate - The exercise date of the option (given as a double).

strikePrice - The strike price.

underlying - The underlying.

Option

public Option(double exerciseDate,
 AbstractTermStructureMonteCarloProduct underlying)

Creates the function underlying(exerciseDate) ≥ 0 ? underlying : 0

Parameters:

exerciseDate - The exercise date of the option (given as a double).

underlying - The underlying.

Method Details

getCurrency

public String getCurrency()

Description copied from interface: MonteCarloProduct

Returns the currency string of this product.

Specified by:

getCurrency in interface MonteCarloProduct

Overrides:

getCurrency in class AbstractMonteCarloProduct

Returns:

the currency

queryUnderlyings

public Set<String> queryUnderlyings()

Description copied from class: AbstractProductComponent

Returns a set of underlying names referenced by this product component (i.e., required for valuation) or null if none.

Specified by:

queryUnderlyings in class AbstractProductComponent

Returns:

A set of underlying names referenced by this product component (i.e., required for valuation) or null if none.

getValue

public RandomVariable getValue(double evaluationTime,
 TermStructureMonteCarloSimulationModel model)
                        throws CalculationException

This method returns the value random variable of the product within the specified model, evaluated at a given evalutationTime. Note: For a lattice this is often the value conditional to evalutationTime, for a Monte-Carlo simulation this is the (sum of) value discounted to evaluation time. Cashflows prior evaluationTime are not considered.

Specified by:

getValue in interface TermStructureMonteCarloProduct

Specified by:

getValue in class AbstractTermStructureMonteCarloProduct

Parameters:

evaluationTime - The time on which this products value should be observed.

model - The model used to price the product.

Returns:

The random variable representing the value of the product discounted to evaluation time

Throws:

CalculationException - Thrown if the valuation fails, specific cause may be available via the cause() method.

getBasisFunctions

public RandomVariable[] getBasisFunctions(double evaluationTime,
 MonteCarloSimulationModel model)
                                   throws CalculationException

Description copied from interface: RegressionBasisFunctionsProvider

Provides a set of \( \mathcal{F}_{t} \)-measurable random variables which can serve as regression basis functions.

Specified by:

getBasisFunctions in interface RegressionBasisFunctionsProvider

Parameters:

evaluationTime - The evaluation time \( t \) at which the basis function should be observed.

model - The Monte-Carlo model used to derive the basis function.

Returns:

An \( \mathcal{F}_{t} \)-measurable random variable.

Throws:

CalculationException - Thrown if derivation of the basis function fails.

getBasisFunctions

public RandomVariable[] getBasisFunctions(double exerciseDate,
 LIBORModelMonteCarloSimulationModel model)
                                   throws CalculationException

Return the regression basis functions.

Parameters:

exerciseDate - The date w.r.t. which the basis functions should be measurable.

model - The model.

Returns:

Array of random variables.

Throws:

CalculationException - Thrown if the valuation fails, specific cause may be available via the cause() method.

toString

public String toString()

Overrides:

toString in class AbstractMonteCarloProduct