Merge branch 'github-231' into 'master'

Github 231

See merge request qs/ore-github!44

Author: mgroncki

Docs/UserGuide/parameterisation/curveconfig.tex

@@ -162,6 +162,7 @@ \subsubsection{FX Volatility Structures}
     <DayCounter>A365</DayCounter>
     <Calendar>US,JP</Calendar>
     <Conventions>USD-JPY-FXOPTION</Conventions>
+    <SmileExtrapolation>UseInterpolator</SmileExtrapolation>
   </FXVolatility>
 \end{minted}
 \caption{FX option volatility configuration Smile / Delta}
@@ -273,6 +274,10 @@ \subsubsection{FX Volatility Structures}
   data input. See \ref{sss:fx_option_conv} for more details.
 \item BaseVolatility1: For `ATMTriangulated' this denotes one of the surfaces we want to triangulate from
 \item BaseVolatility2: For `ATMTriangulated' this denotes one of the surfaces we want to triangulate from
+\item SmileExtrapolation [Optional]: Applicable only in case of SmileType Delta. Indicates the extrapolation in the 
+smile direction. The allowable values are None, UseInterpolator (or Linear) and Flat. Both Flat and None give flat 
+extrapolation. UseInterpolator indicates that the configured interpolation should be continued in the strike 
+direction in order to extrapolate. Default if not provided value is Flat.
 \end{itemize}
 
 \subsubsection{Equity Curve Structures}

OREData/ored/configuration/fxvolcurveconfig.cpp

@@ -1,5 +1,6 @@
 /*
  Copyright (C) 2016 Quaternion Risk Management Ltd
+ Copyright (C) 2024 Skandinaviska Enskilda Banken AB (publ)
  All rights reserved.
 
  This file is part of ORE, a free-software/open-source library
@@ -33,11 +34,11 @@ FXVolatilityCurveConfig::FXVolatilityCurveConfig(const string& curveID, const st
                                                  const string& fxForeignCurveID, const string& fxDomesticCurveID,
                                                  const DayCounter& dayCounter, const Calendar& calendar,
                                                  const SmileInterpolation& interp, const string& conventionsID,
-                                                 const std::vector<Size>& smileDelta)
+                                                 const std::vector<Size>& smileDelta, const string& smileExtrapolation)
     : CurveConfig(curveID, curveDescription), dimension_(dimension), expiries_(expiries), dayCounter_(dayCounter),
       calendar_(calendar), fxSpotID_(fxSpotID), fxForeignYieldCurveID_(fxForeignCurveID),
       fxDomesticYieldCurveID_(fxDomesticCurveID), conventionsID_(conventionsID), smileDelta_(smileDelta),
-      smileInterpolation_(interp) {
+      smileInterpolation_(interp), smileExtrapolation_(smileExtrapolation) {
     populateRequiredCurveIds();
 }
 
@@ -134,14 +135,17 @@ void FXVolatilityCurveConfig::fromXML(XMLNode* node) {
                     smileDelta_ = parseListOfValues<Size>(sDelta, &parseInteger);
             } else if (smileType == "Delta") {
                 dimension_ = Dimension::SmileDelta;
-                // only read smile interpolation method if dimension is smile.
+                // only read smile interpolation and extrapolation method if dimension is smile.
                 if (smileInterp == "" || smileInterp == "Linear") {
                     smileInterpolation_ = SmileInterpolation::Linear;
                 } else if (smileInterp == "Cubic") {
                     smileInterpolation_ = SmileInterpolation::Cubic;
                 } else {
                     QL_FAIL("SmileInterpolation " << smileInterp << " not supported");
                 }
+
+                smileExtrapolation_ = XMLUtils::getChildValue(node, "SmileExtrapolation", false, "Flat");
+
                 deltas_ = XMLUtils::getChildrenValuesAsStrings(node, "Deltas", true);
 
                 // check that these are valid deltas
@@ -235,6 +239,8 @@ XMLNode* FXVolatilityCurveConfig::toXML(XMLDocument& doc) {
         } else {
             QL_FAIL("Unknown SmileInterpolation in FXVolatilityCurveConfig::toXML()");
         }
+        if (!smileExtrapolation_.empty())
+            XMLUtils::addChild(doc, node, "SmileExtrapolation", smileExtrapolation_);
         XMLUtils::addChild(doc, node, "Conventions", to_string(conventionsID_));
         XMLUtils::addGenericChildAsList(doc, node, "Deltas", deltas_);
     } else if (dimension_ == Dimension::SmileBFRR) {

OREData/ored/configuration/fxvolcurveconfig.hpp

@@ -1,5 +1,6 @@
 /*
  Copyright (C) 2016 Quaternion Risk Management Ltd
+ Copyright (C) 2024 Skandinaviska Enskilda Banken AB (publ)
  All rights reserved.
 
  This file is part of ORE, a free-software/open-source library
@@ -72,7 +73,8 @@ class FXVolatilityCurveConfig : public CurveConfig {
                             const DayCounter& dayCounter = QuantLib::Actual365Fixed(),
                             const Calendar& calendar = QuantLib::TARGET(),
                             const SmileInterpolation& interp = SmileInterpolation::VannaVolga2,
-                            const string& conventionsID = "", const std::vector<Size>& smileDelta = {25});
+                            const string& conventionsID = "", const std::vector<Size>& smileDelta = {25},
+                            const string& smileExtrapolation = "Flat");
 
     FXVolatilityCurveConfig(const string& curveID, const string& curveDescription, const Dimension& dimension,
                             const string& baseVolatility1, const string& baseVolatility2,
@@ -98,6 +100,7 @@ class FXVolatilityCurveConfig : public CurveConfig {
     const string& fxForeignYieldCurveID() const { return fxForeignYieldCurveID_; }
     const string& fxDomesticYieldCurveID() const { return fxDomesticYieldCurveID_; }
     const SmileInterpolation& smileInterpolation() const { return smileInterpolation_; }
+    const std::string& smileExtrapolation() const { return smileExtrapolation_; }
     const string& conventionsID() const { return conventionsID_; }
     const std::vector<Size>& smileDelta() const { return smileDelta_; }
     const vector<string>& quotes() override;
@@ -111,6 +114,7 @@ class FXVolatilityCurveConfig : public CurveConfig {
     //@{
     Dimension& dimension() { return dimension_; }
     SmileInterpolation& smileInterpolation() { return smileInterpolation_; }
+    string& smileExtrapolation() { return smileExtrapolation_; }
     vector<string>& deltas() { return deltas_; }
     DayCounter& dayCounter() { return dayCounter_; }
     Calendar& calendar() { return calendar_; }
@@ -140,6 +144,7 @@ class FXVolatilityCurveConfig : public CurveConfig {
     std::vector<Size> smileDelta_;
     std::set<string> requiredYieldCurveIDs_;
     SmileInterpolation smileInterpolation_;
+    string smileExtrapolation_;
     string baseVolatility1_;
     string baseVolatility2_;
     string fxIndexTag_;

OREData/ored/marketdata/fxvolcurve.cpp

@@ -217,6 +217,19 @@ void FXVolCurve::buildSmileDeltaCurve(Date asof, FXVolatilityCurveSpec spec, con
         QL_FAIL("Delta FX vol surface: invalid interpolation, expected Linear, Cubic");
     }
 
+    bool flatExtrapolation = true;
+    auto smileExtrapType = parseExtrapolation(config->smileExtrapolation());
+    if (smileExtrapType == Extrapolation::UseInterpolator) {
+        DLOG("Smile extrapolation switched to using interpolator.");
+        flatExtrapolation = false;
+    } else if (smileExtrapType == Extrapolation::None) {
+        DLOG("Smile extrapolation cannot be turned off on its own so defaulting to flat.");
+    } else if (smileExtrapType == Extrapolation::Flat) {
+        DLOG("Smile extrapolation has been set to flat.");
+    } else {
+        DLOG("Smile extrapolation " << smileExtrapType << " not expected so defaulting to flat.");
+    }
+
     // daycounter used for interpolation in time.
     // TODO: push into conventions or config
     DayCounter dc = config->dayCounter();
@@ -227,7 +240,8 @@ void FXVolCurve::buildSmileDeltaCurve(Date asof, FXVolatilityCurveSpec spec, con
                    [](const std::pair<Real, string>& x) { return x.first; });
     vol_ = boost::make_shared<QuantExt::BlackVolatilitySurfaceDelta>(
         asof, dates, putDeltasNum, callDeltasNum, hasATM, blackVolMatrix, dc, cal, fxSpot_, domYts_, forYts_,
-        deltaType_, atmType_, boost::none, switchTenor_, longTermDeltaType_, longTermAtmType_, boost::none, interp);
+        deltaType_, atmType_, boost::none, switchTenor_, longTermDeltaType_, longTermAtmType_, boost::none, interp,
+        flatExtrapolation);
 
     vol_->enableExtrapolation();
 }

xsd/curveconfig.xsd

@@ -159,6 +159,7 @@
       <xs:element type="xs:string" name="BaseVolatility1" minOccurs="0" maxOccurs="1"/>
       <xs:element type="xs:string" name="BaseVolatility2" minOccurs="0" maxOccurs="1"/>
       <xs:element type="reportConfiguration" name="Report" minOccurs="0"/>
+      <xs:element type="extrapolationType" name="SmileExtrapolation" minOccurs="0" maxOccurs="1"/>
     </xs:all>
   </xs:complexType>