ConditionalPriceDistribution.java

  1. package org.drip.execution.bayesian;

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

  80. /**
  81.  * <i>ConditionalPriceDistribution</i> holds the Price Distribution Conditional on a given Drift. The
  82.  * References are:
  83.  * 
  84.  * <br><br>
  85.  *  <ul>
  86.  *      <li>
  87.  *          Bertsimas, D., and A. W. Lo (1998): Optimal Control of Execution Costs <i>Journal of Financial
  88.  *              Markets</i> <b>1</b> 1-50
  89.  *      </li>
  90.  *      <li>
  91.  *          Almgren, R., and N. Chriss (2000): Optimal Execution of Portfolio Transactions <i>Journal of
  92.  *              Risk</i> <b>3 (2)</b> 5-39
  93.  *      </li>
  94.  *      <li>
  95.  *          Brunnermeier, L. K., and L. H. Pedersen (2005): Predatory Trading <i>Journal of Finance</i> <b>60
  96.  *              (4)</b> 1825-1863
  97.  *      </li>
  98.  *      <li>
  99.  *          Almgren, R., and J. Lorenz (2006): Bayesian Adaptive Trading with a Daily Cycle <i>Journal of
  100.  *              Trading</i> <b>1 (4)</b> 38-46
  101.  *      </li>
  102.  *      <li>
  103.  *          Kissell, R., and R. Malamut (2007): Algorithmic Decision Making Framework <i>Journal of
  104.  *              Trading</i> <b>1 (1)</b> 12-21
  105.  *      </li>
  106.  *  </ul>
  107.  *
  108.  *  <br><br>
  109.  *  <ul>
  110.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
  111.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/TransactionCostAnalyticsLibrary.md">Transaction Cost Analytics</a></li>
  112.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/execution/README.md">Optimal Impact/Capture Based Trading Trajectories - Deterministic, Stochastic, Static, and Dynamic</a></li>
  113.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/execution/bayesian/README.md">Bayesian Price Based Optimal Execution</a></li>
  114.  *  </ul>
  115.  * 
  116.  * @author Lakshmi Krishnamurthy
  117.  */

  119. public class ConditionalPriceDistribution extends org.drip.measure.gaussian.R1UnivariateNormal {
  120.     private double _dblTime = java.lang.Double.NaN;
  121.     private double _dblPriceVolatility = java.lang.Double.NaN;
  122.     private double _dblConditionalDrift = java.lang.Double.NaN;

  124.     /**
  125.      * ConditionalPriceDistribution Constructor
  126.      * 
  127.      * @param dblConditionalDrift The Conditional Drift
  128.      * @param dblPriceVolatility The Price Volatility
  129.      * @param dblTime The Distribution Time Horizon
  130.      * 
  131.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  132.      */

  134.     public ConditionalPriceDistribution (
  135.         final double dblConditionalDrift,
  136.         final double dblPriceVolatility,
  137.         final double dblTime)
  138.         throws java.lang.Exception
  139.     {
  140.         super (dblConditionalDrift * dblTime, dblPriceVolatility * java.lang.Math.sqrt (dblTime));

  142.         if (!org.drip.numerical.common.NumberUtil.IsValid (_dblTime = dblTime) || 0. >= _dblTime ||
  143.             !org.drip.numerical.common.NumberUtil.IsValid (_dblConditionalDrift = dblConditionalDrift) ||
  144.                 !org.drip.numerical.common.NumberUtil.IsValid (_dblPriceVolatility = dblPriceVolatility))
  145.             throw new java.lang.Exception ("ConditionalPriceDistribution Constructor => Invalid Inputs");
  146.     }

  148.     /**
  149.      * Retrieve the Distribution Time Horizon
  150.      * 
  151.      * @return The Distribution Time Horizon
  152.      */

  154.     public double time()
  155.     {
  156.         return _dblTime;
  157.     }

  159.     /**
  160.      * Retrieve the Distribution Price Volatility
  161.      * 
  162.      * @return The Distribution Price Volatility
  163.      */

  165.     public double priceVolatility()
  166.     {
  167.         return _dblPriceVolatility;
  168.     }

  170.     /**
  171.      * Retrieve the Distribution Conditional Drift
  172.      * 
  173.      * @return The Distribution Conditional Drift
  174.      */

  176.     public double conditionalDrift()
  177.     {
  178.         return _dblConditionalDrift;
  179.     }

  181.     /**
  182.      * Generate s Single Price Volatility Swings
  183.      * 
  184.      * @return The Price Volatility Swings
  185.      * 
  186.      * @throws java.lang.Exception Thrown if the Swing cannot be generated
  187.      */

  189.     public double priceVolatilitySwing()
  190.         throws java.lang.Exception
  191.     {
  192.         return _dblPriceVolatility * org.drip.measure.gaussian.NormalQuadrature.InverseCDF
  193.             (java.lang.Math.random()) * java.lang.Math.sqrt (_dblTime);
  194.     }

  196.     /**
  197.      * Generate the given Number of Price Volatility Swings
  198.      * 
  199.      * @param iNumRealization The Number of Swings to be generated
  200.      * 
  201.      * @return Array of the Price Volatility Swings
  202.      */

  204.     public double[] priceVolatilitySwings (
  205.         final int iNumRealization)
  206.     {
  207.         if (0 >= iNumRealization) return null;

  209.         double[] adblVolatilitySwings = new double[iNumRealization];

  211.         double dblVolatilityTimeSQRT = _dblPriceVolatility * java.lang.Math.sqrt (_dblTime);

  213.         for (int i = 0; i < iNumRealization; ++i) {
  214.             try {
  215.                 adblVolatilitySwings[i] = org.drip.measure.gaussian.NormalQuadrature.InverseCDF
  216.                     (java.lang.Math.random()) * dblVolatilityTimeSQRT;
  217.             } catch (java.lang.Exception e) {
  218.                 e.printStackTrace();

  220.                 return null;
  221.             }
  222.         }

  224.         return adblVolatilitySwings;
  225.     }
  226. }
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