Class VannaVolgaTouch

java.lang.Object
com.quantfinlib.fx.VannaVolgaTouch
public final class VannaVolgaTouch extends Object
Vanna-volga adjusted one-touch (pays at expiry), the FX market convention for smile-consistent touch prices (Wystup 2006, FX Options and Structured Products, section 1.5 on vanna-volga pricing; Bossens, Rayée, Skantzos and Deelstra 2010, "Vanna-volga methods applied to FX derivatives", IJTAF 13(8)). 
  OT_VV = OT_BS(σ_atm) + p · Σᵢ xᵢ · [BS(Kᵢ; σᵢ) − BS(Kᵢ; σ_atm)]

where x solves the vanna-volga system (VannaVolga.weightsFor(double, double, double, double)) for the one-touch's own vega, vanna and volga at the ATM vol, and p is the Black-Scholes no-touch (survival) probability at the ATM vol. The survival weight reflects that the hedge is unwound when the barrier trades, and makes the adjustment vanish as spot approaches the barrier. The one-touch Greeks are central finite differences of TouchOption.oneTouch(double, double, double, double, double, double, double) (steps 1e-4 in vol and 1e-4·S in spot). Rate, carry and expiry are the pillars' own.

  • Method Summary

    Modifier and Type
    Method
    Description
    static double
    oneTouch(VannaVolga pillars, double spot, double barrier, double payout)
    Vanna-volga one-touch price with survival-probability weighting.
    static double
    smileCost(VannaVolga pillars, double spot, double barrier, double payout)
    The unweighted vanna-volga smile cost Σ xᵢ · pillar cost for the one-touch (the adjustment before the survival weight).

    Methods inherited from class Object

    clone, equals, finalize, getClass, hashCode, notify, notifyAll, toString, wait, wait, wait

  • Method Details

    • oneTouch

      public static double oneTouch(VannaVolga pillars, double spot, double barrier, double payout)
      Vanna-volga one-touch price with survival-probability weighting.

    • smileCost

      public static double smileCost(VannaVolga pillars, double spot, double barrier, double payout)
      The unweighted vanna-volga smile cost Σ xᵢ · pillar cost for the one-touch (the adjustment before the survival weight).