LinearImpactTrajectoryEstimator.java
package org.drip.execution.capture;
/*
* -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
*/
/*!
* Copyright (C) 2020 Lakshmi Krishnamurthy
* Copyright (C) 2019 Lakshmi Krishnamurthy
* Copyright (C) 2018 Lakshmi Krishnamurthy
* Copyright (C) 2017 Lakshmi Krishnamurthy
* Copyright (C) 2016 Lakshmi Krishnamurthy
*
* This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
* asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
* analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
* equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
* numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
* and computational support.
*
* https://lakshmidrip.github.io/DROP/
*
* DROP is composed of three modules:
*
* - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
* - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
* - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
*
* DROP Product Core implements libraries for the following:
* - Fixed Income Analytics
* - Loan Analytics
* - Transaction Cost Analytics
*
* DROP Portfolio Core implements libraries for the following:
* - Asset Allocation Analytics
* - Asset Liability Management Analytics
* - Capital Estimation Analytics
* - Exposure Analytics
* - Margin Analytics
* - XVA Analytics
*
* DROP Computational Core implements libraries for the following:
* - Algorithm Support
* - Computation Support
* - Function Analysis
* - Model Validation
* - Numerical Analysis
* - Numerical Optimizer
* - Spline Builder
* - Statistical Learning
*
* Documentation for DROP is Spread Over:
*
* - Main => https://lakshmidrip.github.io/DROP/
* - Wiki => https://github.com/lakshmiDRIP/DROP/wiki
* - GitHub => https://github.com/lakshmiDRIP/DROP
* - Repo Layout Taxonomy => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
* - Javadoc => https://lakshmidrip.github.io/DROP/Javadoc/index.html
* - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
* - Release Versions => https://lakshmidrip.github.io/DROP/version.html
* - Community Credits => https://lakshmidrip.github.io/DROP/credits.html
* - Issues Catalog => https://github.com/lakshmiDRIP/DROP/issues
* - JUnit => https://lakshmidrip.github.io/DROP/junit/index.html
* - Jacoco => https://lakshmidrip.github.io/DROP/jacoco/index.html
*
* Licensed under the Apache License, Version 2.0 (the "License");
* you may not use this file except in compliance with the License.
*
* You may obtain a copy of the License at
* http://www.apache.org/licenses/LICENSE-2.0
*
* Unless required by applicable law or agreed to in writing, software
* distributed under the License is distributed on an "AS IS" BASIS,
* WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
*
* See the License for the specific language governing permissions and
* limitations under the License.
*/
/**
* <i>LinearImpactTrajectoryEstimator</i> estimates the Price/Cost Distribution associated with the Trading
* Trajectory generated using the Linear Market Impact Evolution Parameters. The References are:
*
* <br><br>
* <ul>
* <li>
* Almgren, R., and N. Chriss (1999): Value under Liquidation <i>Risk</i> <b>12 (12)</b>
* </li>
* <li>
* Almgren, R., and N. Chriss (2000): Optimal Execution of Portfolio Transactions <i>Journal of
* Risk</i> <b>3 (2)</b> 5-39
* </li>
* <li>
* Bertsimas, D., and A. W. Lo (1998): Optimal Control of Execution Costs <i>Journal of Financial
* Markets</i> <b>1</b> 1-50
* </li>
* <li>
* Chan, L. K. C., and J. Lakonishak (1995): The Behavior of Stock Prices around Institutional
* Trades <i>Journal of Finance</i> <b>50</b> 1147-1174
* </li>
* <li>
* Keim, D. B., and A. Madhavan (1997): Transaction Costs and Investment Style: An Inter-exchange
* Analysis of Institutional Equity Trades <i>Journal of Financial Economics</i> <b>46</b>
* 265-292
* </li>
* </ul>
*
* <br><br>
* <ul>
* <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
* <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/TransactionCostAnalyticsLibrary.md">Transaction Cost Analytics</a></li>
* <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>
* <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/execution/capture/README.md">Execution Trajectory Transaction Cost Capture</a></li>
* </ul>
*
* @author Lakshmi Krishnamurthy
*/
public class LinearImpactTrajectoryEstimator extends org.drip.execution.capture.TrajectoryShortfallEstimator
{
/**
* LinearImpactTrajectoryEstimator Constructor
*
* @param tt The Trading Trajectory Instance
*
* @throws java.lang.Exception Thrown if the Inputs are Invalid
*/
public LinearImpactTrajectoryEstimator (
final org.drip.execution.strategy.DiscreteTradingTrajectory tt)
throws java.lang.Exception
{
super (tt);
}
@Override public org.drip.measure.gaussian.R1UnivariateNormal totalCostDistributionSynopsis (
final org.drip.execution.dynamics.ArithmeticPriceEvolutionParameters apep)
{
if (null == apep) return null;
double dblMarketCoreVolatility = java.lang.Double.NaN;
org.drip.execution.dynamics.LinearPermanentExpectationParameters lpep =
(org.drip.execution.dynamics.LinearPermanentExpectationParameters) apep;
double dblPermanentLinearImpactParameter = ((org.drip.execution.impact.TransactionFunctionLinear)
lpep.linearPermanentExpectation().epochImpactFunction()).slope();
org.drip.execution.impact.TransactionFunctionLinear tflTemporaryExpectation =
(org.drip.execution.impact.TransactionFunctionLinear)
apep.temporaryExpectation().epochImpactFunction();
double dblTemporaryLinearImpactParameter = tflTemporaryExpectation.slope();
double dblTemporaryOffsetImpactParameter = tflTemporaryExpectation.offset();
org.drip.execution.strategy.DiscreteTradingTrajectory tt = trajectory();
double[] adblExecutionTimeNode = tt.executionTimeNode();
org.drip.execution.parameters.ArithmeticPriceDynamicsSettings apds =
lpep.arithmeticPriceDynamicsSettings();
try {
dblMarketCoreVolatility = apds.epochVolatility();
} catch (java.lang.Exception e) {
e.printStackTrace();
return null;
}
double dblMarketCoreDrift = apds.drift();
double[] adblHoldings = tt.holdings();
int iNumTimeNode = adblHoldings.length;
double dblUnscaledTotalCostVariance = 0.;
double dblTotalCostMean = 0.5 * dblPermanentLinearImpactParameter * adblHoldings[0] *
adblHoldings[0];
for (int i = 1; i < iNumTimeNode; ++i) {
double dblHoldingsIncrement = adblHoldings[i] - adblHoldings[i - 1];
double dblTimeInterval = adblExecutionTimeNode[i] - adblExecutionTimeNode[i - 1];
dblUnscaledTotalCostVariance = dblUnscaledTotalCostVariance + dblTimeInterval * adblHoldings[i] *
adblHoldings[i];
dblTotalCostMean = dblTotalCostMean + dblTemporaryOffsetImpactParameter * java.lang.Math.abs
(dblHoldingsIncrement) + (dblTemporaryLinearImpactParameter - 0.5 *
dblPermanentLinearImpactParameter * dblTimeInterval) / dblTimeInterval *
dblHoldingsIncrement * dblHoldingsIncrement - dblMarketCoreDrift * dblTimeInterval *
adblHoldings[i];
}
try {
return new org.drip.measure.gaussian.R1UnivariateNormal (dblTotalCostMean,
dblMarketCoreVolatility * java.lang.Math.sqrt (dblUnscaledTotalCostVariance));
} catch (java.lang.Exception e) {
e.printStackTrace();
}
return null;
}
}