EuropeanOption.java
/*
* (c) Copyright Christian P. Fries, Germany. Contact: email@christian-fries.de.
*
* Created on 21.01.2004
*/
package net.finmath.montecarlo.assetderivativevaluation.products;
import java.util.HashMap;
import java.util.Map;
import net.finmath.exception.CalculationException;
import net.finmath.modelling.Model;
import net.finmath.modelling.products.CallOrPut;
import net.finmath.montecarlo.assetderivativevaluation.AssetModelMonteCarloSimulationModel;
import net.finmath.stochastic.RandomVariable;
/**
* Implements the valuation of a European option on a single asset.
*
* Given a model for an asset <i>S</i>, the European option with strike <i>K</i>, maturity <i>T</i>
* pays
* <br>
* <i>V(T) = max((S(T) - K) * CallOrPut , 0)</i> in <i>T</i>.
* <br>
*
* The <code>getValue</code> method of this class will return the random variable <i>N(t) * V(T) / N(T)</i>,
* where <i>N</i> is the numeraire provided by the model. If <i>N(t)</i> is deterministic,
* calling <code>getAverage</code> on this random variable will result in the value. Otherwise a
* conditional expectation has to be applied.
*
* @author Christian Fries
* @version 1.3
*/
public class EuropeanOption extends AbstractAssetMonteCarloProduct {
private final double maturity;
private final double strike;
private final CallOrPut callOrPutSign;
private final Integer underlyingIndex;
private final String nameOfUnderliyng;
/**
* Construct a product representing an European option on an asset S (where S the asset with index <code>underlyingIndex</code> from the model - single asset case).
* @param underlyingName Name of the underlying
* @param maturity The maturity T in the option payoff max(sign * (S(T)-K),0).
* @param strike The strike K in the option payoff max(sign * (S(T)-K),0).
* @param callOrPutSign The sign in the payoff.
*/
public EuropeanOption(final String underlyingName, final double maturity, final double strike, final double callOrPutSign) {
super();
nameOfUnderliyng = underlyingName;
this.maturity = maturity;
this.strike = strike;
if(callOrPutSign == 1.0) {
this.callOrPutSign = CallOrPut.CALL;
}else if(callOrPutSign == - 1.0) {
this.callOrPutSign = CallOrPut.PUT;
}else {
throw new IllegalArgumentException("Unknown option type");
}
underlyingIndex = 0;
}
/**
* Construct a product representing an European option on an asset S (where S the asset with index <code>underlyingIndex</code> from the model - single asset case).
* @param underlyingName Name of the underlying
* @param maturity The maturity T in the option payoff max(sign * (S(T)-K),0).
* @param strike The strike K in the option payoff max(sign * (S(T)-K),0).
* @param callOrPutSign The sign in the payoff.
*/
public EuropeanOption(final String underlyingName, final double maturity, final double strike, final CallOrPut callOrPutSign) {
super();
nameOfUnderliyng = underlyingName;
this.maturity = maturity;
this.strike = strike;
this.callOrPutSign = callOrPutSign;
underlyingIndex = 0;
}
/**
* Construct a product representing an European option on an asset S (where S the asset with index 0 from the model - single asset case).
* @param maturity The maturity T in the option payoff max(S(T)-K,0)
* @param strike The strike K in the option payoff max(S(T)-K,0).
* @param callOrPutSign The sign in the payoff.
* @param underlyingIndex The index of the underlying to be fetched from the model.
*/
public EuropeanOption(final double maturity, final double strike, final double callOrPutSign, final int underlyingIndex) {
super();
this.maturity = maturity;
this.strike = strike;
if(callOrPutSign == 1.0) {
this.callOrPutSign = CallOrPut.CALL;
}else if(callOrPutSign == - 1.0) {
this.callOrPutSign = CallOrPut.PUT;
}else {
throw new IllegalArgumentException("Unknown option type");
}
this.underlyingIndex = underlyingIndex;
nameOfUnderliyng = null; // Use underlyingIndex
}
/**
* Construct a product representing an European option on an asset S (where S the asset with index 0 from the model - single asset case).
* @param maturity The maturity T in the option payoff max(S(T)-K,0)
* @param strike The strike K in the option payoff max(S(T)-K,0).
* @param callOrPutSign The sign in the payoff.
* @param underlyingIndex The index of the underlying to be fetched from the model.
*/
public EuropeanOption(final double maturity, final double strike, final CallOrPut callOrPutSign, final int underlyingIndex) {
super();
this.maturity = maturity;
this.strike = strike;
this.callOrPutSign = callOrPutSign;
this.underlyingIndex = underlyingIndex;
nameOfUnderliyng = null; // Use underlyingIndex
}
/**
* Construct a product representing an European option on an asset S (where S the asset with index <code>underlyingIndex</code> from the model - single asset case).
* @param underlyingName Name of the underlying
* @param maturity The maturity T in the option payoff max(S(T)-K,0)
* @param strike The strike K in the option payoff max(S(T)-K,0).
*/
public EuropeanOption(final String underlyingName, final double maturity, final double strike) {
this(underlyingName, maturity, strike, 1.0);
}
/**
* Construct a product representing an European option on an asset S (where S the asset with index 0 from the model - single asset case).
* @param maturity The maturity T in the option payoff max(S(T)-K,0)
* @param strike The strike K in the option payoff max(S(T)-K,0).
* @param underlyingIndex The index of the underlying to be fetched from the model.
*/
public EuropeanOption(final double maturity, final double strike, final int underlyingIndex) {
this(maturity, strike, 1.0, underlyingIndex);
}
/**
* Construct a product representing an European option on an asset S (where S the asset with index 0 from the model - single asset case).
* @param maturity The maturity T in the option payoff max(S(T)-K,0)
* @param strike The strike K in the option payoff max(S(T)-K,0).
*/
public EuropeanOption(final double maturity, final double strike) {
this(maturity, strike, 0);
}
/**
* Construct a product representing an European option on an asset S (where S the asset with index 0 from the model - single asset case).
* @param maturity The maturity T in the option payoff max(S(T)-K,0)
* @param strike The strike K in the option payoff max(S(T)-K,0).
* @param callOrPutSign The sign in the payoff.
*/
public EuropeanOption(final double maturity, final double strike, final CallOrPut callOrPutSign) {
super();
this.maturity = maturity;
this.strike = strike;
this.callOrPutSign = callOrPutSign;
this.underlyingIndex = 0;
nameOfUnderliyng = null; // Use underlyingIndex
}
/**
* 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.
*
* @param evaluationTime The time on which this products value should be observed.
* @param model The model used to price the product.
* @return The random variable representing the value of the product discounted to evaluation time
* @throws net.finmath.exception.CalculationException Thrown if the valuation fails, specific cause may be available via the <code>cause()</code> method.
*/
@Override
public RandomVariable getValue(final double evaluationTime, final AssetModelMonteCarloSimulationModel model) throws CalculationException {
// Get underlying and numeraire
// Get S(T)
final RandomVariable underlyingAtMaturity = model.getAssetValue(maturity, underlyingIndex);
// The payoff: values = max(underlying - strike, 0) = V(T) = max(S(T)-K,0)
RandomVariable values = underlyingAtMaturity.sub(strike).mult(callOrPutSign.toInteger()).floor(0.0);
// Discounting...
final RandomVariable numeraireAtMaturity = model.getNumeraire(maturity);
final RandomVariable monteCarloWeights = model.getMonteCarloWeights(maturity);
values = values.div(numeraireAtMaturity).mult(monteCarloWeights);
// ...to evaluation time.
final RandomVariable numeraireAtEvalTime = model.getNumeraire(evaluationTime);
final RandomVariable monteCarloWeightsAtEvalTime = model.getMonteCarloWeights(evaluationTime);
values = values.mult(numeraireAtEvalTime).div(monteCarloWeightsAtEvalTime);
return values;
}
@Override
public Map<String, Object> getValues(final double evaluationTime, final Model model) {
final Map<String, Object> result = new HashMap<>();
try {
final double value = getValue(evaluationTime, (AssetModelMonteCarloSimulationModel) model).getAverage();
result.put("value", value);
} catch (final CalculationException e) {
result.put("exception", e);
}
return result;
}
@Override
public String toString() {
return "EuropeanOption [maturity=" + maturity + ", strike=" + strike + ", underlyingIndex=" + underlyingIndex
+ ", nameOfUnderliyng=" + nameOfUnderliyng + "]";
}
public double getMaturity() {
return maturity;
}
public double getStrike() {
return strike;
}
public CallOrPut getCallOrPut() {
return callOrPutSign;
}
public Integer getUnderlyingIndex() {
return underlyingIndex;
}
public String getNameOfUnderliyng() {
return nameOfUnderliyng;
}
}