R/swap_rate.R

In pritamdalal/backtestr: Wrangling Code For Backtesting

#' Cacluate the variance swap-rate for an option chain
#' 
#' Use this function to calculate the variance swap rate for an option chain.
#' @export
#' 
swap_rate <- function(df_otm, d2x){
    
    #question/challenge/exercise - can you create a functional to this so
    #that you don't have to repeat the numerical integration code
    dbl_time_to_expiration <- d2x/252
    
    dbl_strike_intervals <- 
        df_otm$strike[2:nrow(df_otm)] -
        df_otm$strike[1:nrow(df_otm)-1]
    
    # using bid prices
    left_points_bid <- 
        df_otm$bid[1:nrow(df_otm)-1] * 
        (df_otm$strike[1:nrow(df_otm)-1])^-2
    
    left_sum_bid <- 
        (2/dbl_time_to_expiration) * 
        sum(dbl_strike_intervals * left_points_bid)
    
    right_points_bid <- 
        df_otm$bid[2:nrow(df_otm)] * 
        (df_otm$strike[2:nrow(df_otm)])^-2
    
    right_sum_bid <- 
        (2/dbl_time_to_expiration) * 
        sum(dbl_strike_intervals * right_points_bid)
    
    dbl_swap_rate_bid <- mean(c(left_sum_bid,right_sum_bid))
    dbl_swap_rate_bid <- sqrt(dbl_swap_rate_bid)
    
    # using ask prices
    left_points_ask <- 
        df_otm$ask[1:nrow(df_otm)-1] * 
        (df_otm$strike[1:nrow(df_otm)-1])^-2
    
    left_sum_ask <- 
        (2/dbl_time_to_expiration) * 
        sum(dbl_strike_intervals * left_points_ask)
    
    right_points_ask <- 
        df_otm$ask[2:nrow(df_otm)] * 
        (df_otm$strike[2:nrow(df_otm)])^-2
    
    right_sum_ask <- 
        (2/dbl_time_to_expiration) * 
        sum(dbl_strike_intervals * right_points_ask)
    
    dbl_swap_rate_ask <- mean(c(left_sum_ask,right_sum_ask))
    dbl_swap_rate_ask <- sqrt(dbl_swap_rate_ask)
    
    #using mid prices
    left_points_mid <- 
        df_otm$mid[1:nrow(df_otm)-1] * 
        (df_otm$strike[1:nrow(df_otm)-1])^-2
    
    left_sum_mid <- 
        (2/dbl_time_to_expiration) * 
        sum(dbl_strike_intervals * left_points_mid)
    
    right_points_mid <- 
        df_otm$mid[2:nrow(df_otm)] * 
        (df_otm$strike[2:nrow(df_otm)])^-2
    
    right_sum_mid <- 
        (2/dbl_time_to_expiration) * 
        sum(dbl_strike_intervals * right_points_mid)
    
    dbl_swap_rate_mid <- mean(c(left_sum_mid,right_sum_mid))
    dbl_swap_rate_mid <- sqrt(dbl_swap_rate_mid)
    
    # make this a named vector
    dbl_swap_rate = c(dbl_swap_rate_bid, dbl_swap_rate_ask, dbl_swap_rate_mid)
    
}