webcab.lib.finance.pricing.contracts.standard
Class AsianOption

java.lang.Object
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  +--webcab.lib.finance.pricing.contracts.GeneralContractCommon
        |
        +--webcab.lib.finance.pricing.contracts.FixedExchangeMomentsContractCommon
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              +--webcab.lib.finance.pricing.contracts.FixedExchangeMarkovContractCommon
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                    +--webcab.lib.finance.pricing.core.contracts.RegularPayoffContractCommon
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                          +--webcab.lib.finance.pricing.contracts.standard.AsianOption

All Implemented Interfaces:

FixedExchangeMarkovContract, FixedExchangeMomentsContract, GeneralContract, RegularPayoffContract, Serializable

public class AsianOption

extends RegularPayoffContractCommon

implements RegularPayoffContract

Implements an asian option. This is the Markovian version of the contract so it requires the arithmetic or geometric average to be a model variable. Therefore, when constructing the compound model you must include as a submodel an instance of AverageModel. If you prefer a simpler way of pricing an asian option you can use the path dependent version (AsianOptionPathDependent) which does not need a model for the average.

There are four types of asian options:

• average rate call (or average price call): payoff = max(average - strike price, 0)
• average rate put (or average rate put): payoff = max(strike price - average, 0)
• average strike call: payoff = max(final price - average price)
• average strike put: payoff = max(average price - final price)

The average can be arithmetic or geometric.

Implicitly the average of the first price found in the global context graph is used. You can also specify the exact name for an average context to be used. This must be the one you gave as the first parameter in AverageModel constructor.

See Also:

Serialized Form

Field Summary

static int	ARITHMETIC
static int	CALL
static int	GEOMETRIC
static int	PUT
static int	RATE
static int	STRIKE

Fields inherited from class webcab.lib.finance.pricing.contracts.GeneralContractCommon

BUYER_INITIATED, NO_EARLY_EXERCISE, SELLER_INITIATED

Constructor Summary

AsianOption(int callPut, int strikeRate, int arithmGeom, double maturity, double strike, boolean isAmerican)
Creates a new asian option.

AsianOption(String underlyingContextName, int callPut, int strikeRate, int arithmGeom, double maturity, double strike, boolean isAmerican)
Creates a new asian option using a specified average context.

Method Summary

int	getEarlyExercise()
double	getExpiry() Returns the maturity time for this contract.
double[]	getMoments() Returns an array containing the moments of all cash exchanges (payoffs).
int	getNMoments() Returns the total number of payoffs for the contract.
double	getPayoff(int moment, ContextGraph contextGraph, StochasticDifferentialModel updatedModel) Returns the amount exchanged at a moment specified by its index in the payoff moments vector (the vector returned by method getMoments()).
boolean	needsUpdatedModel() Returns whether this contract is a multi-order contract.

Methods inherited from class webcab.lib.finance.pricing.core.contracts.RegularPayoffContractCommon

getMaxDependencyOrder

Methods inherited from class webcab.lib.finance.pricing.contracts.FixedExchangeMarkovContractCommon

getPayoff

Methods inherited from class webcab.lib.finance.pricing.contracts.FixedExchangeMomentsContractCommon

getAccumulatedCashflow, getFirstMoment

Methods inherited from class java.lang.Object

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

Methods inherited from interface webcab.lib.finance.pricing.core.contracts.RegularPayoffContract

getMaxDependencyOrder

Methods inherited from interface webcab.lib.finance.pricing.contracts.FixedExchangeMomentsContract

getFirstMoment, getPayoff

Methods inherited from interface webcab.lib.finance.pricing.contracts.GeneralContract

getAccumulatedCashflow

Field Detail

CALL

public static final int CALL

See Also:

Constant Field Values

PUT

public static final int PUT

See Also:

Constant Field Values

STRIKE

public static final int STRIKE

See Also:

Constant Field Values

RATE

public static final int RATE

See Also:

Constant Field Values

ARITHMETIC

public static final int ARITHMETIC

See Also:

Constant Field Values

GEOMETRIC

public static final int GEOMETRIC

See Also:

Constant Field Values

Constructor Detail

AsianOption

public AsianOption(int callPut,
                   int strikeRate,
                   int arithmGeom,
                   double maturity,
                   double strike,
                   boolean isAmerican)
            throws InvalidParametersException

Creates a new asian option.

Parameters:

callPut - either CALL or PUT

strikeRate - either STRIKE or RATE

arithmGeom - specifies the type of averaging used. Either ARITHMETIC or GEOMETRIC

maturity - the expiry time (in years, absolute time)

strike - the strike price - used only for rate (price) asian options

isAmerican - specifies if the buyer can exercise the option earlier (American style option).

Throws:

InvalidParametersException

AsianOption

public AsianOption(String underlyingContextName,
                   int callPut,
                   int strikeRate,
                   int arithmGeom,
                   double maturity,
                   double strike,
                   boolean isAmerican)
            throws InvalidParametersException

Creates a new asian option using a specified average context.

Parameters:

underlyingContextName - the name of the average context. This should be the first parameter given to the AverageModel constructor.

callPut - either CALL or PUT

strikeRate - either STRIKE or RATE

arithmGeom - specifies the type of averaging used. Either ARITHMETIC or GEOMETRIC

maturity - The expiry time (in years, absolute time)

strike - the strike price - used only for rate (price) asian options

isAmerican - specifies if the buyer can exercise the option earlier (American style option).

Throws:

InvalidParametersException

Method Detail

getExpiry

public double getExpiry()

Description copied from interface: GeneralContract

Returns the maturity time for this contract.

Specified by:

getExpiry in interface GeneralContract

Specified by:

getExpiry in class GeneralContractCommon

Returns:

double

getMoments

public double[] getMoments()

Description copied from interface: FixedExchangeMomentsContract

Returns an array containing the moments of all cash exchanges (payoffs). It is required that this array is sorted in ascending order. The moments are given as absolute times, not time relative to settlement date.

Specified by:

getMoments in interface FixedExchangeMomentsContract

Specified by:

getMoments in class FixedExchangeMomentsContractCommon

Returns:

double[]

getNMoments

public int getNMoments()

Description copied from interface: FixedExchangeMomentsContract

Returns the total number of payoffs for the contract. This number must be equal with the length of the vector returned by the getMoments() method.

Specified by:

getNMoments in interface FixedExchangeMomentsContract

Specified by:

getNMoments in class FixedExchangeMomentsContractCommon

Returns:

int

getPayoff

public double getPayoff(int moment,
                        ContextGraph contextGraph,
                        StochasticDifferentialModel updatedModel)
                 throws BondsException

Description copied from interface: FixedExchangeMarkovContract

Returns the amount exchanged at a moment specified by its index in the payoff moments vector (the vector returned by method getMoments()). Only the current values of the variables are available (the current context graph).

Specified by:

getPayoff in interface FixedExchangeMarkovContract

Specified by:

getPayoff in class FixedExchangeMarkovContractCommon

Parameters:

moment - the index of the moment for which the payoff is computed (the current moment)

contextGraph - the context graph produced by the model. The context graph contains a snapshot of the models' variables at the current moment. See ContextGraph for information on how to search for a specific variable on which the contract is dependent.

updatedModel - an instance of the model used to price the contract. It can be used with a pricer to evaluate an underlying contract (in case we have a second-order contract like, for example, a bond option). The initial values for this models' variables are implicitly set to the current values. If the higher order contract is path dependent and needs the values from the underlying contract at previous moments of time, you need to set the initial values of the model to the values that existed at that moment of time. You can use the path to find the historic context and then use the updatedModel.setInitialContext() method to set the initial values.

Returns:

double which represents the cash flow resulting from a contract at a given point in time.

Throws:

BondsException

getEarlyExercise

public int getEarlyExercise()

Overrides:

getEarlyExercise in class GeneralContractCommon

needsUpdatedModel

public boolean needsUpdatedModel()

Description copied from interface: GeneralContract

Returns whether this contract is a multi-order contract. That is if it must evaluate another contract in order to compute the payoffs. If this is true, the updatedModel parameter of getAccumulatedCashflow() method is needed. This information is used by the pricing algorithm to decide if it is necessary to initialize the above mentioned parameter. The overall efficiency of the algorithm is improved if the initialization is not performed.

Specified by:

needsUpdatedModel in interface GeneralContract

Overrides:

needsUpdatedModel in class GeneralContractCommon

Returns:

if the return value is false the updatedModel parameter is not correctly initialized and must not be used.