ArithmeticPriceDynamicsSettings.java

  1. package org.drip.execution.parameters;

  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>ArithmeticPriceDynamicsSettings</i> contains the Arithmetic Price Evolution Dynamics Parameters used in
  82.  * the Almgren and Chriss (2000) Optimal Trajectory Generation Scheme. The References are:
  83.  * 
  84.  * <br><br>
  85.  *  <ul>
  86.  *      <li>
  87.  *          Almgren, R., and N. Chriss (1999): Value under Liquidation <i>Risk</i> <b>12 (12)</b>
  88.  *      </li>
  89.  *      <li>
  90.  *          Almgren, R., and N. Chriss (2000): Optimal Execution of Portfolio Transactions <i>Journal of
  91.  *              Risk</i> <b>3 (2)</b> 5-39
  92.  *      </li>
  93.  *      <li>
  94.  *          Bertsimas, D., and A. W. Lo (1998): Optimal Control of Execution Costs <i>Journal of Financial
  95.  *              Markets</i> <b>1</b> 1-50
  96.  *      </li>
  97.  *      <li>
  98.  *          Chan, L. K. C., and J. Lakonishak (1995): The Behavior of Stock Prices around Institutional
  99.  *              Trades <i>Journal of Finance</i> <b>50</b> 1147-1174
  100.  *      </li>
  101.  *      <li>
  102.  *          Keim, D. B., and A. Madhavan (1997): Transaction Costs and Investment Style: An Inter-exchange
  103.  *              Analysis of Institutional Equity Trades <i>Journal of Financial Economics</i> <b>46</b>
  104.  *              265-292
  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/parameters/README.md">Empirical Market Impact Coefficients Calibration</a></li>
  114.  *  </ul>
  115.  *
  116.  * @author Lakshmi Krishnamurthy
  117.  */

  119. public class ArithmeticPriceDynamicsSettings {
  120.     private double _dblDrift = java.lang.Double.NaN;
  121.     private double _dblSerialCorrelation = java.lang.Double.NaN;
  122.     private org.drip.function.definition.R1ToR1 _r1ToR1Volatility = null;

  124.     /**
  125.      * Construct the Asset Dynamics Settings from the Annual Returns Parameters
  126.      * 
  127.      * @param dblAnnualReturnsExpectation The Asset Annual Expected Returns
  128.      * @param dblAnnualReturnsVolatility The Asset Annual Returns Volatility
  129.      * @param dblSerialCorrelation The Asset Serial Correlation
  130.      * @param dblPrice The Asset Price
  131.      * 
  132.      * @return The Asset Dynamics Settings from the Annual Returns Parameters
  133.      */

  135.     public static final ArithmeticPriceDynamicsSettings FromAnnualReturnsSettings (
  136.         final double dblAnnualReturnsExpectation,
  137.         final double dblAnnualReturnsVolatility,
  138.         final double dblSerialCorrelation,
  139.         final double dblPrice)
  140.     {
  141.         if (!org.drip.numerical.common.NumberUtil.IsValid (dblAnnualReturnsExpectation) ||
  142.             !org.drip.numerical.common.NumberUtil.IsValid (dblAnnualReturnsVolatility) ||
  143.                 !org.drip.numerical.common.NumberUtil.IsValid (dblPrice))
  144.             return null;

  146.         try {
  147.             return new ArithmeticPriceDynamicsSettings (dblPrice * dblAnnualReturnsExpectation / 250., new
  148.                 org.drip.function.r1tor1.FlatUnivariate (dblPrice * dblAnnualReturnsVolatility /
  149.                     java.lang.Math.sqrt (250.)), dblSerialCorrelation);
  150.         } catch (java.lang.Exception e) {
  151.             e.printStackTrace();
  152.         }

  154.         return null;
  155.     }

  157.     /**
  158.      * ArithmeticPriceDynamicsSettings Constructor
  159.      * 
  160.      * @param dblDrift The Asset Daily Arithmetic Drift
  161.      * @param r1ToR1Volatility The R^1 To R^1 Volatility Function
  162.      * @param dblSerialCorrelation The Asset Serial Correlation
  163.      * 
  164.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  165.      */

  167.     public ArithmeticPriceDynamicsSettings (
  168.         final double dblDrift,
  169.         final org.drip.function.definition.R1ToR1 r1ToR1Volatility,
  170.         final double dblSerialCorrelation)
  171.         throws java.lang.Exception
  172.     {
  173.         if (!org.drip.numerical.common.NumberUtil.IsValid (_dblDrift = dblDrift) || null == (_r1ToR1Volatility =
  174.             r1ToR1Volatility)|| !org.drip.numerical.common.NumberUtil.IsValid (_dblSerialCorrelation =
  175.                 dblSerialCorrelation) || 1. < _dblSerialCorrelation || -1. > _dblSerialCorrelation)
  176.             throw new java.lang.Exception ("ArithmeticPriceDynamicsSettings Constructor => Invalid Inputs!");
  177.     }

  179.     /**
  180.      * Retrieve the Asset Annual Logarithmic Drift
  181.      *  
  182.      * @return The Asset Annual Logarithmic Drift
  183.      */

  185.     public double drift()
  186.     {
  187.         return _dblDrift;
  188.     }

  190.     /**
  191.      * Retrieve the Asset Annual Volatility
  192.      *  
  193.      * @return The Asset Annual Volatility
  194.      * 
  195.      * @throws java.lang.Exception - Thrown if the Inputs are Invalid
  196.      */

  198.     public double epochVolatility()
  199.         throws java.lang.Exception
  200.     {
  201.         return _r1ToR1Volatility.evaluate (0.);
  202.     }

  204.     /**
  205.      * Retrieve the Asset Annual Volatility Function
  206.      *  
  207.      * @return The Asset Annual Volatility Function
  208.      */

  210.     public org.drip.function.definition.R1ToR1 volatilityFunction()
  211.     {
  212.         return _r1ToR1Volatility;
  213.     }

  215.     /**
  216.      * Retrieve the Asset Serial Correlation
  217.      *  
  218.      * @return The Asset Serial Correlation
  219.      */

  221.     public double serialCorrelation()
  222.     {
  223.         return _dblSerialCorrelation;
  224.     }
  225. }
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