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@domokane
domokane committed Sep 3, 2024
1 parent 09ad349 commit 7c214aa
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Showing 3 changed files with 144 additions and 137 deletions.
72 changes: 38 additions & 34 deletions financepy/market/volatility/fx_vol_surface.py
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Original file line number Diff line number Diff line change
Expand Up @@ -101,7 +101,7 @@ def obj_fast(params, *args):

sigma_k_25d_c_ms = vol_function(vol_type_value, params, f, k_25d_c_ms, t)

V_25d_C_MS = bs_value(
v_25d_c_ms = bs_value(
s,
t,
k_25d_c_ms,
Expand All @@ -113,7 +113,7 @@ def obj_fast(params, *args):

sigma_k_25d_p_ms = vol_function(vol_type_value, params, f, k_25d_p_ms, t)

V_25d_P_MS = bs_value(
v_25d_p_ms = bs_value(
s,
t,
k_25d_p_ms,
Expand All @@ -123,7 +123,7 @@ def obj_fast(params, *args):
OptionTypes.EUROPEAN_PUT.value,
)

v_25d_ms = V_25d_C_MS + V_25d_P_MS
v_25d_ms = v_25d_c_ms + v_25d_p_ms
term2 = (v_25d_ms - v_25d_ms_target) ** 2

###########################################################################
Expand Down Expand Up @@ -218,16 +218,16 @@ def solve_to_horizon_fast(
)

# USE MARKET STRANGLE VOL TO DETERMINE PRICE OF A MARKET STRANGLE
V_25d_C_MS = bs_value(
v_25d_c_ms = bs_value(
s, t, k_25d_c_ms, rd, rf, vol_25d_ms, OptionTypes.EUROPEAN_CALL.value
)

V_25d_P_MS = bs_value(
v_25d_p_ms = bs_value(
s, t, k_25d_p_ms, rd, rf, vol_25d_ms, OptionTypes.EUROPEAN_PUT.value
)

# Market price of strangle in the domestic currency
v_25d_ms = V_25d_C_MS + V_25d_P_MS
v_25d_ms = v_25d_c_ms + v_25d_p_ms

# Determine parameters of vol surface using minimisation
tol = 1e-8
Expand Down Expand Up @@ -450,11 +450,13 @@ def solve_for_strike(
else:
phi = -1.0

F0T = spot_fx_rate * for_df / dom_df
fwd_fx_rate = spot_fx_rate * for_df / dom_df
vsqrtt = volatility * np.sqrt(t_del)
arg = delta_target * phi / for_df # CHECK THIS !!!
norm_inv_delta = norminvcdf(arg)
K = F0T * np.exp(-vsqrtt * (phi * norm_inv_delta - vsqrtt / 2.0))
K = fwd_fx_rate * np.exp(
-vsqrtt * (phi * norm_inv_delta - vsqrtt / 2.0)
)
return K

elif delta_method_value == FinFXDeltaMethod.FORWARD_DELTA.value:
Expand All @@ -467,11 +469,13 @@ def solve_for_strike(
else:
phi = -1.0

F0T = spot_fx_rate * for_df / dom_df
fwd_fx_rate = spot_fx_rate * for_df / dom_df
vsqrtt = volatility * np.sqrt(t_del)
arg = delta_target * phi # CHECK THIS!!!!!!!!
norm_inv_delta = norminvcdf(arg)
K = F0T * np.exp(-vsqrtt * (phi * norm_inv_delta - vsqrtt / 2.0))
K = fwd_fx_rate * np.exp(
-vsqrtt * (phi * norm_inv_delta - vsqrtt / 2.0)
)
return K

elif delta_method_value == FinFXDeltaMethod.SPOT_DELTA_PREM_ADJ.value:
Expand Down Expand Up @@ -537,8 +541,8 @@ def __init__(
foreign_curve: DiscountCurve,
tenors: list,
atm_vols: (list, np.ndarray),
ms25deltaVols: (list, np.ndarray),
rr25deltaVols: (list, np.ndarray),
ms_25_delta_vols: (list, np.ndarray),
rr_25_delta_vols: (list, np.ndarray),
atm_method: FinFXATMMethod = FinFXATMMethod.FWD_DELTA_NEUTRAL,
delta_method: FinFXDeltaMethod = FinFXDeltaMethod.SPOT_DELTA,
vol_func_type: VolFuncTypes = VolFuncTypes.CLARK,
Expand Down Expand Up @@ -569,16 +573,16 @@ def __init__(
if len(atm_vols) != self.num_vol_curves:
raise FinError("Number ATM vols must equal number of tenors")

if len(ms25deltaVols) != self.num_vol_curves:
if len(ms_25_delta_vols) != self.num_vol_curves:
raise FinError("Number MS25d vols must equal number of tenors")

if len(rr25deltaVols) != self.num_vol_curves:
if len(rr_25_delta_vols) != self.num_vol_curves:
raise FinError("Number RR25d vols must equal number of tenors")

self.tenors = tenors
self.atm_vols = np.array(atm_vols) / 100.0
self.ms25deltaVols = np.array(ms25deltaVols) / 100.0
self.rr25deltaVols = np.array(rr25deltaVols) / 100.0
self.ms_25_delta_vols = np.array(ms_25_delta_vols) / 100.0
self.rr_25_delta_vols = np.array(rr_25_delta_vols) / 100.0

self.atm_method = atm_method
self.delta_method = delta_method
Expand Down Expand Up @@ -770,8 +774,8 @@ def build_vol_surface(self):
for i in range(0, num_vol_curves):

atm_vol = self.atm_vols[i]
ms25 = self.ms25deltaVols[i]
rr25 = self.rr25deltaVols[i]
ms25 = self.ms_25_delta_vols[i]
rr25 = self.rr_25_delta_vols[i]
s25 = atm_vol + ms25 + rr25 / 2.0
s50 = atm_vol
s75 = atm_vol + ms25 - rr25 / 2.0
Expand Down Expand Up @@ -840,8 +844,8 @@ def build_vol_surface(self):
r_f = self.rf[i]
k_atm = self.k_atm[i]
atm_vol = self.atm_vols[i]
ms_25d_vol = self.ms25deltaVols[i]
rr_25d_vol = self.rr25deltaVols[i]
ms_25d_vol = self.ms_25_delta_vols[i]
rr_25d_vol = self.rr_25_delta_vols[i]

# print(t, rd, rf, k_atm, atm_vol, ms_25d_vol, rr_25d_vol)

Expand Down Expand Up @@ -939,11 +943,11 @@ def check_calibration(self, verbose: bool, tol: float = 1e-6):
print("IN ATM VOL: %9.6f %%" % (100.0 * self.atm_vols[i]))
print(
"IN MKT STRANGLE 25d VOL: %9.6f %%"
% (100.0 * self.ms25deltaVols[i])
% (100.0 * self.ms_25_delta_vols[i])
)
print(
"IN RSK REVERSAL 25d VOL: %9.6f %%"
% (100.0 * self.rr25deltaVols[i])
% (100.0 * self.rr_25_delta_vols[i])
)

call = FXVanillaOption(
Expand Down Expand Up @@ -1036,14 +1040,14 @@ def check_calibration(self, verbose: bool, tol: float = 1e-6):
# THESE STRIKES ARE DETERMINED BY SETTING DELTA TO 0.25/-0.25
###################################################################

ms_vol = self.atm_vols[i] + self.ms25deltaVols[i]
ms_vol = self.atm_vols[i] + self.ms_25_delta_vols[i]

if verbose:

print("======================================================")
print(
"MKT STRANGLE VOL IN: %9.6f %%"
% (100.0 * self.ms25deltaVols[i])
% (100.0 * self.ms_25_delta_vols[i])
)

call.strike_fx_rate = self.k_25d_c_ms[i]
Expand Down Expand Up @@ -1254,19 +1258,19 @@ def check_calibration(self, verbose: bool, tol: float = 1e-6):
)
print(
"RR = VOL_K_25_C - VOL_K_25_P => RR_IN: %9.6f %% RR_OUT: %9.6f %%"
% (100.0 * self.rr25deltaVols[i], 100.0 * sigma_RR)
% (100.0 * self.rr_25_delta_vols[i], 100.0 * sigma_RR)
)
print(
"========================================================="
)

diff = sigma_RR - self.rr25deltaVols[i]
diff = sigma_RR - self.rr_25_delta_vols[i]

if np.abs(diff) > tol:
print(
"FAILED FIT TO 25d RRV IN: % 9.6f OUT: % 9.6f DIFF: % 9.6f"
% (
self.rr25deltaVols[i] * 100.0,
self.rr_25_delta_vols[i] * 100.0,
sigma_RR * 100.0,
diff * 100.0,
)
Expand All @@ -1285,7 +1289,7 @@ def implied_dbns(self, low_fx, high_fx, num_intervals):
f = self.fwd[i_tenor]
t_exp = self.t_exp[i_tenor]

dFX = (high_fx - low_fx) / num_intervals
d_fx = (high_fx - low_fx) / num_intervals

dom_df = self.domestic_curve._df(t_exp)
for_df = self.foreign_curve._df(t_exp)
Expand All @@ -1296,9 +1300,9 @@ def implied_dbns(self, low_fx, high_fx, num_intervals):
Ks = []
vols = []

for iK in range(0, num_intervals):
for ik in range(0, num_intervals):

k = low_fx + iK * dFX
k = low_fx + ik * d_fx

vol = vol_function(
self.vol_func_type.value,
Expand Down Expand Up @@ -1334,8 +1338,8 @@ def plot_vol_curves(self):
for tenor_index in range(0, self.num_vol_curves):

atm_vol = self.atm_vols[tenor_index] * 100
ms_vol = self.ms25deltaVols[tenor_index] * 100
rr_vol = self.rr25deltaVols[tenor_index] * 100
ms_vol = self.ms_25_delta_vols[tenor_index] * 100
rr_vol = self.rr_25_delta_vols[tenor_index] * 100

low_k = self.k_25d_p[tenor_index] * 0.75
high_k = self.k_25d_c[tenor_index] * 1.25
Expand Down Expand Up @@ -1419,8 +1423,8 @@ def __repr__(self):
s += label_to_string("FWD FX", self.fwd[i])

s += label_to_string("ATM VOLS", self.atm_vols[i] * 100.0)
s += label_to_string("MS VOLS", self.ms25deltaVols[i] * 100.0)
s += label_to_string("RR VOLS", self.rr25deltaVols[i] * 100.0)
s += label_to_string("MS VOLS", self.ms_25_delta_vols[i] * 100.0)
s += label_to_string("RR VOLS", self.rr_25_delta_vols[i] * 100.0)

s += label_to_string("ATM Strike", self.k_atm[i])
s += label_to_string("ATM Delta", self.delta_atm[i])
Expand Down
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