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

java.lang.Object
  |
  +--webcab.lib.finance.pricing.contracts.GeneralContractCommon
        |
        +--webcab.lib.finance.pricing.contracts.FixedExchangeMomentsContractCommon
              |
              +--webcab.lib.finance.pricing.contracts.standard.FloorForward

All Implemented Interfaces:

FixedExchangeMomentsContract, GeneralContract, Serializable

public class FloorForward

extends FixedExchangeMomentsContractCommon

implements FixedExchangeMomentsContract

Implements a floor which can be used only with forward curve models. Two such models are presently provided: HJM and SimplifiedBGM

A floor guarantees to the holder that floating interest rates will not exceed a predefined maximum level. If the rates go beyond this level, the holder will be compensated by receiving the fraction that is beneath the minimum from a fixed premium.

Observation: As the payments are made regularly a standard floor uses a floating rate at moment t the forward rate registered at time t - dt with dt maturity. In arrears floors use the current forward rate, not the one registered in the last step. This contract is a standard floor. To evaluate an in arrears floor you should use the CapSpot contract with a suitable model for the forward rate (you can safely use the spot rate models as models for one forward rate). If, for efficiency or convenience, you want to use other models than HJM and SimplifiedBGM, you can use CapSpot also to price standard floors

See Also:

Serialized Form

Field Summary

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

BUYER_INITIATED, NO_EARLY_EXERCISE, SELLER_INITIATED

Constructor Summary

FloorForward(double principal, double settlement, double floorRate, double tenor, double expiry)
Creates a new FloorForwardt contract which uses the first interest rate model found.

FloorForward(String interestRateContextName, double principal, double firstResetDate, double floorRate, double tenor, double expiry)
Creates a new FloorForward contract which uses a specified interest rate model (identified using the context).

Method Summary

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, Path contextHistory, 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.contracts.FixedExchangeMomentsContractCommon

getAccumulatedCashflow, getFirstMoment

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

getEarlyExercise

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.contracts.FixedExchangeMomentsContract

getFirstMoment

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

getAccumulatedCashflow

Constructor Detail

FloorForward

public FloorForward(double principal,
                    double settlement,
                    double floorRate,
                    double tenor,
                    double expiry)

Creates a new FloorForwardt contract which uses the first interest rate model found. The payoff of this contract is: principal * max(floorRate - floatingRate, 0).

Parameters:

principal - the sum which is insured against interest rate fluctuations

floorRate - the minimum admissible interest rate without compensation

tenor - the period between two consecutive regular payments

expiry - the maturity time of the contract

FloorForward

public FloorForward(String interestRateContextName,
                    double principal,
                    double firstResetDate,
                    double floorRate,
                    double tenor,
                    double expiry)
             throws InvalidParametersException

Creates a new FloorForward contract which uses a specified interest rate model (identified using the context). The payoff of this contract is: principal * max(floorRate - floatingRate, 0).

Parameters:

interestRateContextName - the context providing the floating interest rate

principal - the sum which is insured against interest rate fluctuations

firstResetDate - the moment when the first payment takes place

floorRate - the minimum admissible interest rate without compensation

tenor - the period between two consecutive regular payments

expiry - the maturity time of the contract

Method Detail

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,
                        Path contextHistory,
                        StochasticDifferentialModel updatedModel)
                 throws BondsException

Description copied from interface: FixedExchangeMomentsContract

Returns the amount exchanged at a moment specified by its index in the payoff moments vector (the vector returned by method getMoments()).

Specified by:

getPayoff in interface FixedExchangeMomentsContract

Specified by:

getPayoff in class FixedExchangeMomentsContractCommon

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.

contextHistory - provides access to previous values of all the models' variables. The full history of the simulation between settlement and the current moment is accessible.

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 for 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

Throws:

BondsException

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

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.