Why my explicit FDM code isn't working?

Posted by Student T on Feb 17, 2016; 12:15pm
URL: http://quantlib.414.s1.nabble.com/Why-my-explicit-FDM-code-isn-t-working-tp17306.html

Hi,

I attach my entire code at the end of the mail. I want to try the explicit FDM scheme to price a simple option. It worked if I change my code from `ExplictEuler` to `CrankNicolson`, but it reports NA for the option NPV if I used the explicit scheme.

Why can't I simply change to the explicit scheme?

#include <ql/quantlib.hpp>

using namespace QuantLib;

boost::shared_ptr<YieldTermStructure> flatRate(const Date& today, const boost::shared_ptr<Quote>& forward, const DayCounter& dc)

{

    return boost::shared_ptr<YieldTermStructure>(new FlatForward(today, Handle<Quote>(forward), dc));

}

boost::shared_ptr<YieldTermStructure> flatRate(const Date& today, Rate forward, const DayCounter& dc)

{

    return flatRate(today, boost::shared_ptr<Quote>(new SimpleQuote(forward)), dc);

}

boost::shared_ptr<YieldTermStructure> flatRate(const boost::shared_ptr<Quote>& forward, const DayCounter& dc)

{

    return boost::shared_ptr<YieldTermStructure>(new FlatForward(0, NullCalendar(), Handle<Quote>(forward), dc));

}

boost::shared_ptr<YieldTermStructure> flatRate(Rate forward, const DayCounter& dc)

{

    return flatRate(boost::shared_ptr<Quote>(new SimpleQuote(forward)), dc);

}

boost::shared_ptr<GeneralizedBlackScholesProcess>

    makeProcess(const boost::shared_ptr<Quote>& u,

            const boost::shared_ptr<YieldTermStructure>& q,

            const boost::shared_ptr<YieldTermStructure>& r,

            const boost::shared_ptr<BlackVolTermStructure>& vol)

{

    return boost::shared_ptr<BlackScholesMertonProcess>(

            new BlackScholesMertonProcess(Handle<Quote>(u),

                                          Handle<YieldTermStructure>(q),

                                          Handle<YieldTermStructure>(r),

                                          Handle<BlackVolTermStructure>(vol)));

}

boost::shared_ptr<BlackVolTermStructure> flatVol(const Date& today, const boost::shared_ptr<Quote>& vol, const DayCounter& dc)

{

    return boost::shared_ptr<BlackVolTermStructure>(new BlackConstantVol(today, NullCalendar(), Handle<Quote>(vol), dc));

}

boost::shared_ptr<BlackVolTermStructure> flatVol(const Date& today, Volatility vol, const DayCounter& dc)

{

    return flatVol(today, boost::shared_ptr<Quote>(new SimpleQuote(vol)), dc);

}

boost::shared_ptr<BlackVolTermStructure> flatVol(const boost::shared_ptr<Quote>& vol, const DayCounter& dc)

{

    return boost::shared_ptr<BlackVolTermStructure>(new BlackConstantVol(0, NullCalendar(), Handle<Quote>(vol), dc));

}

boost::shared_ptr<BlackVolTermStructure> flatVol(Volatility vol, const DayCounter& dc)

{

    return flatVol(boost::shared_ptr<Quote>(new SimpleQuote(vol)), dc);

}

int main(int argc, char ** argv)

{

    Date today = Date(1, Jan, 2015);

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

    

    boost::shared_ptr<SimpleQuote> spot(new SimpleQuote(100.0));

    boost::shared_ptr<YieldTermStructure> qTS    = flatRate(today, 0.05, Actual360());

    boost::shared_ptr<YieldTermStructure> rTS    = flatRate(today, 0.05, Actual360());

    boost::shared_ptr<BlackVolTermStructure> vTS = flatVol (today, 0.05, Actual360());

    boost::shared_ptr<GeneralizedBlackScholesProcess> stochProcess = makeProcess(spot, qTS, rTS, vTS);

    

    boost::shared_ptr<PricingEngine> engine = boost::shared_ptr<PricingEngine>(

            new FDEuropeanEngine<ExplicitEuler>(stochProcess, 1000, 1000));

    boost::shared_ptr<StrikedTypePayoff> payoff(new PlainVanillaPayoff(Option::Call, 100.0));

    boost::shared_ptr<Exercise> exercise(new EuropeanExercise(Date(1, Jan, 2016)));

    

    EuropeanOption option(payoff, exercise);

    option.setPricingEngine(engine);

    std::cout << option.NPV() << std::endl;

}

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