ContinuouslyCompoundedForwardProcess.java

  1. package org.drip.dynamics.lmm;

  3. /*
  4.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  5.  */

  7. /*!
  8.  * Copyright (C) 2020 Lakshmi Krishnamurthy
  9.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  10.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  11.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  12.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  13.  * Copyright (C) 2015 Lakshmi Krishnamurthy
  14.  * 
  15.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  16.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  17.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  18.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  19.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  20.  *      and computational support.
  21.  *  
  22.  *      https://lakshmidrip.github.io/DROP/
  23.  *  
  24.  *  DROP is composed of three modules:
  25.  *  
  26.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  27.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  28.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  29.  * 
  30.  *  DROP Product Core implements libraries for the following:
  31.  *  - Fixed Income Analytics
  32.  *  - Loan Analytics
  33.  *  - Transaction Cost Analytics
  34.  * 
  35.  *  DROP Portfolio Core implements libraries for the following:
  36.  *  - Asset Allocation Analytics
  37.  *  - Asset Liability Management Analytics
  38.  *  - Capital Estimation Analytics
  39.  *  - Exposure Analytics
  40.  *  - Margin Analytics
  41.  *  - XVA Analytics
  42.  * 
  43.  *  DROP Computational Core implements libraries for the following:
  44.  *  - Algorithm Support
  45.  *  - Computation Support
  46.  *  - Function Analysis
  47.  *  - Model Validation
  48.  *  - Numerical Analysis
  49.  *  - Numerical Optimizer
  50.  *  - Spline Builder
  51.  *  - Statistical Learning
  52.  * 
  53.  *  Documentation for DROP is Spread Over:
  54.  * 
  55.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  56.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  57.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  58.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  59.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  60.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  61.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  62.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  63.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  64.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  65.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  66.  * 
  67.  *  Licensed under the Apache License, Version 2.0 (the "License");
  68.  *      you may not use this file except in compliance with the License.
  69.  *   
  70.  *  You may obtain a copy of the License at
  71.  *      http://www.apache.org/licenses/LICENSE-2.0
  72.  *  
  73.  *  Unless required by applicable law or agreed to in writing, software
  74.  *      distributed under the License is distributed on an "AS IS" BASIS,
  75.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  76.  *  
  77.  *  See the License for the specific language governing permissions and
  78.  *      limitations under the License.
  79.  */

  81. /**
  82.  * <i>ContinuouslyCompoundedForwardProcess</i> implements the Continuously Compounded Forward Rate Process
  83.  * defined in the LIBOR Market Model. The References are:
  84.  *
  85.  *  <br><br>
  86.  *  <ul>
  87.  *      <li>
  88.  *          Goldys, B., M. Musiela, and D. Sondermann (1994): <i>Log-normality of Rates and Term Structure
  89.  *              Models</i> <b>The University of New South Wales</b>
  90.  *      </li>
  91.  *      <li>
  92.  *          Musiela, M. (1994): <i>Nominal Annual Rates and Log-normal Volatility Structure</i> <b>The
  93.  *              University of New South Wales</b>
  94.  *      </li>
  95.  *      <li>
  96.  *          Brace, A., D. Gatarek, and M. Musiela (1997): The Market Model of Interest Rate Dynamics
  97.  *              <i>Mathematical Finance</i> <b>7 (2)</b> 127-155
  98.  *      </li>
  99.  *  </ul>
  100.  *
  101.  *  <br><br>
  102.  *  <ul>
  103.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
  104.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics</a></li>
  105.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/dynamics/README.md">HJM, Hull White, LMM, and SABR Dynamic Evolution Models</a></li>
  106.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/dynamics/lmm/README.md">LMM Based Latent State Evolution</a></li>
  107.  *  </ul>
  108.  *
  109.  * @author Lakshmi Krishnamurthy
  110.  */

  112. public class ContinuouslyCompoundedForwardProcess {
  113.     private int _iSpotDate = java.lang.Integer.MIN_VALUE;
  114.     private org.drip.measure.stochastic.R1R1ToR1 _funcR1R1ToR1 = null;

  116.     /**
  117.      * ContinuouslyCompoundedForwardProcess Constructor
  118.      * 
  119.      * @param iSpotDate The Spot Date
  120.      * @param funcR1R1ToR1 The Stochastic Forward Rate Function
  121.      * 
  122.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  123.      */

  125.     public ContinuouslyCompoundedForwardProcess (
  126.         final int iSpotDate,
  127.         final org.drip.measure.stochastic.R1R1ToR1 funcR1R1ToR1)
  128.         throws java.lang.Exception
  129.     {
  130.         if (null == (_funcR1R1ToR1 = funcR1R1ToR1))
  131.             throw new java.lang.Exception ("ContinuouslyCompoundedForwardProcess ctr: Invalid Inputs");

  133.         _iSpotDate = iSpotDate;
  134.     }

  136.     /**
  137.      * Retrieve the Spot Date
  138.      * 
  139.      * @return The Spot Date
  140.      */

  142.     public int spotDate()
  143.     {
  144.         return _iSpotDate;
  145.     }

  147.     /**
  148.      * Retrieve the Stochastic Forward Rate Function
  149.      * 
  150.      * @return The Stochastic Forward Rate Function
  151.      */

  153.     public org.drip.measure.stochastic.R1R1ToR1 stochasticForwardRateFunction()
  154.     {
  155.         return _funcR1R1ToR1;
  156.     }

  158.     /**
  159.      * Retrieve a Realized Zero-Coupon Bond Price
  160.      * 
  161.      * @param iMaturityDate The Maturity Date
  162.      * 
  163.      * @return The Realized Zero-Coupon Bond Price
  164.      * 
  165.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  166.      */

  168.     public double realizedZeroCouponPrice (
  169.         final int iMaturityDate)
  170.         throws java.lang.Exception
  171.     {
  172.         if (iMaturityDate <= _iSpotDate)
  173.             throw new java.lang.Exception
  174.                 ("ContinuouslyCompoundedForwardProcess::realizedZeroCouponPrice => Invalid Maturity Date");

  176.         return java.lang.Math.exp (-1. * _funcR1R1ToR1.integralRealization (0., iMaturityDate - _iSpotDate));
  177.     }

  179.     /**
  180.      * Compute the Realized/Expected Instantaneous Forward Rate Integral to the Target Date
  181.      * 
  182.      * @param iTargetDate The Target Date
  183.      * @param bRealized TRUE - Compute the Realized (TRUE) / Expected (FALSE) Instantaneous Forward Rate
  184.      *  Integral
  185.      * 
  186.      * @return The Realized/Expected Instantaneous Forward Rate Integral
  187.      * 
  188.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  189.      */

  191.     public double instantaneousForwardRateIntegral (
  192.         final int iTargetDate,
  193.         final boolean bRealized)
  194.         throws java.lang.Exception
  195.     {
  196.         if (iTargetDate <= _iSpotDate)
  197.             throw new java.lang.Exception
  198.                 ("ContinuouslyCompoundedForwardProcess::instantaneousForwardRateIntegral => Invalid Target Date");

  200.         return bRealized ? java.lang.Math.exp (-1. * _funcR1R1ToR1.integralRealization (0., iTargetDate -
  201.             _iSpotDate)) : java.lang.Math.exp (-1. * _funcR1R1ToR1.integralExpectation (0., iTargetDate -
  202.                 _iSpotDate));
  203.     }

  205.     /**
  206.      * Retrieve a Realized/Expected Value of the Discount to the Target Date
  207.      * 
  208.      * @param iTargetDate The Target Date
  209.      * @param bRealized TRUE - Compute the Realized (TRUE) / Expected (FALSE) Instantaneous Forward Rate
  210.      *  Integral
  211.      * 
  212.      * @return The Realized/Expected Value of the Discount to the Target Date
  213.      * 
  214.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  215.      */

  217.     public double discountFunctionValue (
  218.         final int iTargetDate,
  219.         final boolean bRealized)
  220.         throws java.lang.Exception
  221.     {
  222.         if (iTargetDate <= _iSpotDate)
  223.             throw new java.lang.Exception
  224.                 ("ContinuouslyCompoundedForwardProcess::discountFunctionValue => Invalid Target Date");

  226.         return bRealized ? java.lang.Math.exp (-1. * _funcR1R1ToR1.integralRealization (0., iTargetDate -
  227.             _iSpotDate)) : java.lang.Math.exp (-1. * _funcR1R1ToR1.integralExpectation (0., iTargetDate -
  228.                 _iSpotDate));
  229.     }

  231.     /**
  232.      * Retrieve a Realized/Expected Value of the LIBOR Rate at the Target Date
  233.      * 
  234.      * @param iTargetDate The Target Date
  235.      * @param strTenor The LIBOR Tenor
  236.      * @param bRealized TRUE - Compute the Realized (TRUE) / Expected (FALSE) LIBOR Rate
  237.      * 
  238.      * @return The Realized/Expected Value of the LIBOR Rate at the Target Date
  239.      * 
  240.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  241.      */

  243.     public double liborRate (
  244.         final int iTargetDate,
  245.         final java.lang.String strTenor,
  246.         final boolean bRealized)
  247.         throws java.lang.Exception
  248.     {
  249.         if (iTargetDate <= _iSpotDate)
  250.             throw new java.lang.Exception
  251.                 ("ContinuouslyCompoundedForwardProcess::liborRate => Invalid Inputs");

  253.         return (discountFunctionValue (new org.drip.analytics.date.JulianDate (iTargetDate).addTenor
  254.             (strTenor).julian(), bRealized) / discountFunctionValue (iTargetDate, bRealized) - 1.) /
  255.                 org.drip.analytics.support.Helper.TenorToYearFraction (strTenor);
  256.     }
  257. }
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