tf_quant_finance.experimental.instruments.Swaption

Last updated: 2023-03-16.

tf_quant_finance.experimental.instruments.Swaption#

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Represents a batch of European Swaptions.

tf_quant_finance.experimental.instruments.Swaption(
    swap, expiry_date=None, dtype=None, name=None
)

A European Swaption is a contract that gives the holder an option to enter a swap contract at a future date at a prespecified fixed rate. A swaption that grants the holder to pay fixed rate and receive floating rate is called a payer swaption while the swaption that grants the holder to receive fixed and pay floating payments is called the receiver swaption. Typically the start date (or the inception date) of the swap concides with the expiry of the swaption [1].

The Swaption class can be used to create and price multiple swaptions simultaneously. However all swaptions within an object must be priced using common reference/discount curve.

Example:#

The following example illustrates the construction of an European swaption and calculating its price using the Black model.

import numpy as np
import tensorflow as tf
import tf_quant_finance as tff
dates = tff.datetime
instruments = tff.experimental.instruments
rc = tff.experimental.instruments.rates_common

dtype = np.float64
notional = 1.e6
maturity_date = dates.convert_to_date_tensor([(2025, 2, 8)])
start_date = dates.convert_to_date_tensor([(2022, 2, 8)])
expiry_date = dates.convert_to_date_tensor([(2022, 2, 8)])
valuation_date = dates.convert_to_date_tensor([(2020, 2, 8)])

period3m = dates.periods.months(3)
period6m = dates.periods.months(6)
fix_spec = instruments.FixedCouponSpecs(
    coupon_frequency=period6m, currency='usd', notional=notional,
    coupon_rate=0.03134,
    daycount_convention=instruments.DayCountConvention.ACTUAL_365,
    businessday_rule=dates.BusinessDayConvention.NONE)
flt_spec = instruments.FloatCouponSpecs(
    coupon_frequency=period3m, reference_rate_term=period3m,
    reset_frequency=period3m, currency='usd', notional=notional,
    businessday_rule=dates.BusinessDayConvention.NONE,
    coupon_basis=0., coupon_multiplier=1.,
    daycount_convention=instruments.DayCountConvention.ACTUAL_365)

swap = instruments.InterestRateSwap(start_date, maturity_date,
                                    [fix_spec], [flt_spec],
                                    dtype=dtype)
swaption = instruments.Swaption(swap, expiry_date, dtype=dtype)

curve_dates = valuation_date + dates.periods.years([1, 2, 3, 5, 7, 10, 30])

reference_curve = instruments.RateCurve(
    curve_dates,
    np.array([
        0.02834814, 0.03077457, 0.03113739, 0.03130794, 0.03160892,
        0.03213901, 0.03257991
    ], dtype=np.float64),
    valuation_date=valuation_date,
    dtype=np.float64)
market = instruments.InterestRateMarket(
    reference_curve=reference_curve, discount_curve=reference_curve)

price = swaption.price(
        valuation_date,
        market,
        model=instruments.InterestRateModelType.LOGNORMAL_RATE,
        pricing_context=0.5))
# Expected result: 24145.254011

References:#

[1]: Leif B.G. Andersen and Vladimir V. Piterbarg. Interest Rate Modeling, Volume I: Foundations and Vanilla Models. Chapter 5. 2010.

Args:#

  • swap: An instance of InterestRateSwap specifying the interest rate swaps underlying the swaptions. The batch size of the swaptions being created would be the same as the batch size of the swap.

  • expiry_date: An optional rank 1 DateTensor specifying the expiry dates for each swaption. The shape of the input should be the same as the batch size of the swap input. Default value: None in which case the option expity date is the same as the start date of each underlying swap.

  • dtype: tf.Dtype. If supplied the dtype for the real variables or ops either supplied to the Swaption object or created by the Swaption object. Default value: None which maps to the default dtype inferred by TensorFlow.

  • name: Python str. The name to give to the ops created by this class. Default value: None which maps to ‘swaption’.

Methods#

price

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price(
    valuation_date, market, model=None, pricing_context=None, name=None
)

Returns the present value of the swaption on the valuation date.

Args:#

  • valuation_date: A scalar DateTensor specifying the date on which valuation is being desired.

  • market: A namedtuple of type InterestRateMarket which contains the necessary information for pricing the FRA instrument.

  • model: An optional input of type InterestRateModelType to specify which model to use for pricing. Default value: None in which case LOGNORMAL_RATE model is used.

  • pricing_context: An optional input to provide additional parameters (such as model parameters) relevant for pricing.

  • name: Python str. The name to give to the ops created by this function. Default value: None which maps to ‘price’.

Returns:#

A Rank 1 Tensor of real type containing the modeled price of each IRS contract based on the input market data.

Raises:#

  • ValueError: If an unsupported model is supplied to the function.

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