irCapFloorVolatilitySurfaceBuilder

First introduced in version 3.00.6

Syntax

irCapFloorVolatilitySurfaceBuilder(referenceDate, currency, iborIndex, quoteTerms, quoteStrikes, quotes, discountCurve, forwardCurve, [volType='Normal'], [model='SABR'], [surfaceName])

Details

Builds an interest rate cap/floor option volatility surface.

Parameters

referenceDate is a DATE scalar that specifies the reference date of the surface.

currency is a STRING scalar that specifies the currency of the surface. Currently, only "CNY" is supported.

iborIndex is a STRING scalar that specifies the reference rate of the surface. Valid values are:

"LPR_1Y": 1-year Loan Prime Rate.
"LPR_5Y": 5-year Loan Prime Rate.

quoteTerms is a STRING or DURATION vector that specifies the tenors corresponding to the market quotes.

quoteStrikes is a numeric vector that specifies the strikes for the option quotes.

quotes is a numeric matrix that specifies the market quote matrix. Its shape is (size(quoteTerms), size(quoteStrikes)). The value in row i and column j represents the quote for strike quoteStrikes[j] at tenor quoteTerms[i].

discountCurve is an MKTDATA object that specifies the discount curve (IrYieldCurve).

forwardCurve is an MKTDATA object that specifies the forward curve (IrYieldCurve).

volType (optional) is a STRING scalar that specifies the volatility type. Valid values are:

"Normal" (default): normal volatility.
"Lognormal": lognormal volatility.

model (optional) is a STRING scalar that specifies the model used to build the surface. Valid values are:

"SABR" (default): Stochastic Alpha Beta Rho model (Beta=0).
"Linear": linear model.
"CubicSpline": cubic spline model.

surfaceName (optional) is a STRING scalar that specifies the surface name. The default is "IRCAPFLOORVOLSURF/{iborIndex}".

Returns

An object of type MKTDATA that indicates the interest rate cap/floor option volatility surface (IrCapFloorVolatilitySurface). The surface fields are described below:


Field	Type	Description
surfaceName	STRING	The name of the surface.
mktDataType	STRING	Market data type. Always returns 'Surface'.
version	INT	The format version used to parse the data. No action is required. By default, the latest format version of the current Server is returned.
referenceDate	STRING	The reference date of the surface.
surfaceType	STRING	The type of the surface. Always returns 'IrCapFloorVolatilitySurface'.
smileMethod	STRING	The volatility smile method, corresponding to the model specified by the model input parameter.
termDates	DATE vector	The tenor dates corresponding to the volatility smiles in the surface.
volSmiles	ANY vector	Each element in the vector is a volatility smile of type DICT(STRING, ANY) and contains the following members: 'strikes': strike prices. 'vols': volatilities corresponding to the strikes. It has the same length as 'strikes'.
currency	STRING	The currency of the surface.
iborIndex	STRING	The reference rate of the surface.
volType	STRING	Volatility type.

Examples

This example shows how to build an interest rate cap/floor option volatility surface based on CNY LPR 1Y.

/*Defines a curve creation function for building the discount curve (discountCurve) and forward curve (forwardCurve).

  Parameters:
  asOfDate: The curve valuation date.
  zeroRate: The fixed zero-coupon rate.

  Returns:
  A market data object of type IrYieldCurve.*/
def createLpr1yFlatCurve(asOfDate, zeroRate){
    // Set the curve node dates.
    // The dates correspond to 1 day, 3 months, 6 months, 1 year, 2 years, and 3 years after the base date.
    pillarDates = asOfDate + [1, 92, 183, 365, 730, 1095]
    pillarValues = take(zeroRate, size(pillarDates))

    curveDict = {
        "mktDataType": "Curve",
        "curveType": "IrYieldCurve",
        "referenceDate": asOfDate,
        "currency": "CNY", // Curve currency
        "curveName": "CNY_LPR_1Y", // Curve name
        "dayCountConvention": "Actual365", // Day count convention
        "compounding": "Continuous", // Compounding type: continuous compounding
        "interpMethod": "Linear", // Interpolation method: linear interpolation
        "extrapMethod": "Flat", // Extrapolation method: flat
        "frequency": "NoFrequency", // Interest accrual frequency
        // Curve node dates and corresponding zero rates
        "dates": pillarDates,
        "values": pillarValues
    }

    return parseMktData(curveDict)
}

// Base date
aod = 2021.03.18
cnyCurve = createLpr1yFlatCurve(aod, 0.0340)


// Tenors for the interest rate cap/floor option volatility quotes. Each row corresponds to the volatility quotes for one tenor.
quoteTerms = [3M, 6M, 9M, 1y, 2y]

// Strike rates corresponding to the interest rate cap/floor option volatility quotes. Each column corresponds to one strike.
quoteStrikes = [0.0, 0.025, 0.0365, 0.05, 0.07]

/*Constructs the volatility quote matrix.
   Rows represent option tenors (`quoteTerms`).
   Columns represent execution rates (`quoteStrikes`).*/
quotes = matrix(
    0.0072 0.0070 0.0068 0.0067 0.0065,
    0.0064 0.0062 0.0061 0.0060 0.0059,
    0.0060 0.0058 0.0057 0.0056 0.0055,
    0.0063 0.0061 0.0060 0.0059 0.0058,
    0.0071 0.0069 0.0068 0.0067 0.0065
)

capfloorVolSurf = irCapFloorVolatilitySurfaceBuilder(
    aod, // Base date
    "CNY", // Currency
    "LPR_1Y", // Reference rate
    quoteTerms, // Quote tenor
    quoteStrikes, // Execution price
    quotes, // Volatility quote matrix
    cnyCurve, // Discount curve
    cnyCurve, // Forward curve
    model="Linear", // Surface interpolation model
    surfaceName="CNY_LPR_1Y" // Volatility surface name
)

Related functions: parseMktData