/* -*- mode: c++; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*- */

/*

Copyright (C) 2008 Jose Aparicio

This file is part of QuantLib, a free-software/open-source library

for financial quantitative analysts and developers - http://quantlib.org/

QuantLib is free software: you can redistribute it and/or modify it

under the terms of the QuantLib license. You should have received a

copy of the license along with this program; if not, please email

<quantlib-dev@lists.sf.net>. The license is also available online at

<http://quantlib.org/license.shtml>.

This program is distributed in the hope that it will be useful, but WITHOUT

ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS

FOR A PARTICULAR PURPOSE. See the license for more details.

*/

#include <ql/quantlib.hpp>

#include <boost/timer.hpp>

#include <iostream>

#include <iomanip>

using namespace std;

using namespace QuantLib;

#if defined(QL_ENABLE_SESSIONS)

namespace QuantLib {

Integer sessionId() { return 0; }

}

#endif

int main(int, char* []) {

try {

boost::timer timer;

std::cout << std::endl;

/*********************

*** MARKET DATA ***

*********************/

Calendar calendar = TARGET();

Date todaysDate(15, May, 2007);

// must be a business day

todaysDate = calendar.adjust(todaysDate);

Settings::instance().evaluationDate() = todaysDate;

// dummy curve

boost::shared_ptr<Quote> flatRate(new SimpleQuote(0.01));

Handle<YieldTermStructure> tsCurve(

boost::shared_ptr<FlatForward>(

new FlatForward(todaysDate, Handle<Quote>(flatRate),

Actual365Fixed())));

/*

In Lehmans Brothers "guide to exotic credit derivatives"

p. 32 there's a simple case, zero flat curve with a flat CDS

curve with constant market spreads of 150 bp and RR = 50%

corresponds to a flat 3% hazard rate. The implied 1-year

survival probability is 97.04% and the 2-years is 94.18%

*/

// market

Real recovery_rate = 0.5;

Real quoted_spreads[] = { 0.0150, 0.0150, 0.0150, 0.0150 };

vector<Period> tenors;

tenors.push_back(3*Months);

tenors.push_back(6*Months);

tenors.push_back(1*Years);

tenors.push_back(2*Years);

vector<Date> maturities;

for (Size i=0; i<4; i++) {

maturities.push_back(calendar.adjust(todaysDate + tenors[i],

Following));

}

std::vector<boost::shared_ptr<DefaultProbabilityHelper> > instruments;

for (Size i=0; i<4; i++) {

instruments.push_back(boost::shared_ptr<DefaultProbabilityHelper>(

new SpreadCdsHelper(

Handle<Quote>(boost::shared_ptr<Quote>(

new SimpleQuote(quoted_spreads[i]))),

tenors[i],

0,

calendar,

Quarterly,

Following,

DateGeneration::TwentiethIMM,

Actual365Fixed(),

recovery_rate,

tsCurve)));

}

// Bootstrap hazard rates

boost::shared_ptr<PiecewiseDefaultCurve<HazardRate, BackwardFlat> >

hazardRateStructure(

new PiecewiseDefaultCurve<HazardRate, BackwardFlat>(

todaysDate,

instruments,

Actual365Fixed()));

vector<pair<Date, Real> > hr_curve_data = hazardRateStructure->nodes();

cout << "Calibrated hazard rate values: " << endl ;

for (Size i=0; i<hr_curve_data.size(); i++) {

cout << "hazard rate on " << hr_curve_data[i].first << " is "

<< hr_curve_data[i].second << endl;

}

cout << endl;

cout << "Some survival probability values: " << endl ;

cout << "1Y survival probability: "

<< io::percent(hazardRateStructure->survivalProbability(

todaysDate + 1*Years))

<< endl

<< " expected: "

<< io::percent(0.9704)

<< endl;

cout << "2Y survival probability: "

<< io::percent(hazardRateStructure->survivalProbability(

todaysDate + 2*Years))

<< endl

<< " expected: "

<< io::percent(0.9418)

<< endl;

cout << endl << endl;

// reprice instruments

Real nominal = 1000000.0;

Handle<DefaultProbabilityTermStructure> probability(hazardRateStructure);

boost::shared_ptr<PricingEngine> engine(

new MidPointCdsEngine(probability, recovery_rate, tsCurve));

Schedule cdsSchedule =

MakeSchedule().from(todaysDate).to(maturities[0])

.withFrequency(Quarterly)

.withCalendar(calendar)

.withTerminationDateConvention(Unadjusted)

.withRule(DateGeneration::TwentiethIMM);

CreditDefaultSwap cds_3m(Protection::Seller,

nominal,

quoted_spreads[0],

cdsSchedule,

Following,

Actual365Fixed());

cdsSchedule =

MakeSchedule().from(todaysDate).to(maturities[1])

.withFrequency(Quarterly)

.withCalendar(calendar)

.withTerminationDateConvention(Unadjusted)

.withRule(DateGeneration::TwentiethIMM);

CreditDefaultSwap cds_6m(Protection::Seller,

nominal,

quoted_spreads[1],

cdsSchedule,

Following,

Actual365Fixed());

cdsSchedule =

MakeSchedule().from(todaysDate).to(maturities[2])

.withFrequency(Quarterly)

.withCalendar(calendar)

.withTerminationDateConvention(Unadjusted)

.withRule(DateGeneration::TwentiethIMM);

CreditDefaultSwap cds_1y(Protection::Seller,

nominal,

quoted_spreads[2],

cdsSchedule,

Following,

Actual365Fixed());

cdsSchedule =

MakeSchedule().from(todaysDate).to(maturities[3])

.withFrequency(Quarterly)

.withCalendar(calendar)

.withTerminationDateConvention(Unadjusted)

.withRule(DateGeneration::TwentiethIMM);

CreditDefaultSwap cds_2y(Protection::Seller,

nominal,

quoted_spreads[3],

cdsSchedule,

Following,

Actual365Fixed());

cds_3m.setPricingEngine(engine);

cds_6m.setPricingEngine(engine);

cds_1y.setPricingEngine(engine);

cds_2y.setPricingEngine(engine);

cout << "Repricing of quoted CDSs employed for calibration: " << endl;

cout << "3M fair spread: " << io::rate(cds_3m.fairSpread()) << endl

<< " NPV: " << cds_3m.NPV() << endl

<< " default leg: " << cds_3m.defaultLegNPV() << endl

<< " coupon leg: " << cds_3m.couponLegNPV() << endl

<< endl;

cout << "6M fair spread: " << io::rate(cds_6m.fairSpread()) << endl

<< " NPV: " << cds_6m.NPV() << endl

<< " default leg: " << cds_6m.defaultLegNPV() << endl

<< " coupon leg: " << cds_6m.couponLegNPV() << endl

<< endl;

cout << "1Y fair spread: " << io::rate(cds_1y.fairSpread()) << endl

<< " NPV: " << cds_1y.NPV() << endl

<< " default leg: " << cds_1y.defaultLegNPV() << endl

<< " coupon leg: " << cds_1y.couponLegNPV() << endl

<< endl;

cout << "2Y fair spread: " << io::rate(cds_2y.fairSpread()) << endl

<< " NPV: " << cds_2y.NPV() << endl

<< " default leg: " << cds_2y.defaultLegNPV() << endl

<< " coupon leg: " << cds_2y.couponLegNPV() << endl

<< endl;

cout << endl << endl;

Real seconds = timer.elapsed();

Integer hours = Integer(seconds/3600);

seconds -= hours * 3600;

Integer minutes = Integer(seconds/60);

seconds -= minutes * 60;

cout << "Run completed in ";

if (hours > 0)

cout << hours << " h ";

if (hours > 0 || minutes > 0)

cout << minutes << " m ";

cout << fixed << setprecision(0)

<< seconds << " s" << endl;

return 0;

} catch (exception& e) {

cerr << e.what() << endl;

return 1;

} catch (...) {

cerr << "unknown error" << endl;

return 1;

}

}