NumeraireInducedMeasureShift.java

  1. package org.drip.exposure.csadynamics;

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

  79. /**
  80.  * <i>NumeraireInducedMeasureShift</i> computes the Shift of the Forward Terminal Distribution between the
  81.  * Non-CSA and the CSA Cases. The References are:
  82.  *  
  83.  * <br><br>
  84.  *      <ul>
  85.  *          <li>
  86.  *              Antonov, A., and M. Arneguy (2009): Analytical Formulas for Pricing CMS Products in the LIBOR
  87.  *                  Market Model with Stochastic Volatility 
  88.  *                  https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=1352606 <b>eSSRN</b>
  89.  *          </li>
  90.  *          <li>
  91.  *              Burgard, C., and M. Kjaer (2009): Modeling and successful Management of Credit Counter-party
  92.  *                  Risk of Derivative Portfolios <i>ICBI Conference</i> <b>Rome</b>
  93.  *          </li>
  94.  *          <li>
  95.  *              Gregory, J. (2009): Being Two-faced over Counter-party Credit Risk <i>Risk</i> <b>20 (2)</b>
  96.  *                  86-90
  97.  *          </li>
  98.  *          <li>
  99.  *              Johannes, M., and S. Sundaresan (2007): Pricing Collateralized Swaps <i>Journal of
  100.  *                  Finance</i> <b>62</b> 383-410
  101.  *          </li>
  102.  *          <li>
  103.  *              Piterbarg, V. (2010): Funding Beyond Discounting: Collateral Agreements and Derivatives
  104.  *                  Pricing <i>Risk</i> <b>21 (2)</b> 97-102
  105.  *          </li>
  106.  *      </ul>
  107.  *
  108.  *  <br><br>
  109.  *  <ul>
  110.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
  111.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ExposureAnalyticsLibrary.md">Exposure Analytics</a></li>
  112.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/exposure/README.md">Exposure Group Level Collateralized/Uncollateralized Exposure</a></li>
  113.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/exposure/csadynamics/README.md">CSA Numeraire Basis/Measure Dynamics</a></li>
  114.  *  </ul>
  115.  * 
  116.  * @author Lakshmi Krishnamurthy
  117.  */

  119. public class NumeraireInducedMeasureShift
  120. {
  121.     private double _csaForward = java.lang.Double.NaN;
  122.     private double _noCSAForward = java.lang.Double.NaN;
  123.     private double _terminalVariance = java.lang.Double.NaN;

  125.     /**
  126.      * NumeraireInducedMeasureShift Constructor
  127.      * 
  128.      * @param csaForward The CSA Implied Forward Value
  129.      * @param noCSAForward The No CSA Implied Forward Value
  130.      * @param terminalVariance The Terminal Variance of the Underlying
  131.      * 
  132.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  133.      */

  135.     public NumeraireInducedMeasureShift (
  136.         final double csaForward,
  137.         final double noCSAForward,
  138.         final double terminalVariance)
  139.         throws java.lang.Exception
  140.     {
  141.         if (!org.drip.numerical.common.NumberUtil.IsValid (_csaForward = csaForward) ||
  142.             !org.drip.numerical.common.NumberUtil.IsValid (_noCSAForward = noCSAForward) ||
  143.             !org.drip.numerical.common.NumberUtil.IsValid (_terminalVariance = terminalVariance))
  144.         {
  145.             throw new java.lang.Exception ("NumeraireInducedMeasureShift Constructor => Invalid Inputs");
  146.         }
  147.     }

  149.     /**
  150.      * Return the Value of the Forward Contract under CSA
  151.      * 
  152.      * @return The Value of the Forward Contract under CSA
  153.      */

  155.     public double csaForward()
  156.     {
  157.         return _csaForward;
  158.     }

  160.     /**
  161.      * Return the Value of the Forward Contract under No CSA Criterion
  162.      * 
  163.      * @return The Value of the Forward Contract under No CSA Criterion
  164.      */

  166.     public double noCSAForward()
  167.     {
  168.         return _noCSAForward;
  169.     }

  171.     /**
  172.      * Return the Terminal Variance of the Underlying
  173.      * 
  174.      * @return The Terminal Variance of the Underlying
  175.      */

  177.     public double terminalVariance()
  178.     {
  179.         return _terminalVariance;
  180.     }

  182.     /**
  183.      * Return the Linear Strike Coefficient of the Relative Measure Differential
  184.      * 
  185.      * @return The Linear Strike Coefficient of the Relative Measure Differential
  186.      */

  188.     public double alpha1()
  189.     {
  190.         return (_noCSAForward - _csaForward) / _terminalVariance;
  191.     }

  193.     /**
  194.      * Return the Constant Strike Coefficient of the Relative Measure Differential
  195.      * 
  196.      * @return The Constant Strike Coefficient of the Relative Measure Differential
  197.      */

  199.     public double alpha0()
  200.     {
  201.         return 1. - alpha1() * _csaForward;
  202.     }

  204.     /**
  205.      * Compute the No CSA/CSA Density Re-scaling using the Antonov and Arneguy (2009) Linear Proxy Approach
  206.      * 
  207.      * @param k The Strike at which the Density Re-scaling is Sought
  208.      * 
  209.      * @return The No CSA/CSA Density Re-scaling using the Antonov and Arneguy (2009) Linear Proxy Approach
  210.      * 
  211.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  212.      */

  214.     public double densityRescale (
  215.         final double k)
  216.         throws java.lang.Exception
  217.     {
  218.         if (!org.drip.numerical.common.NumberUtil.IsValid (k))
  219.         {
  220.             throw new java.lang.Exception ("NumeraireInducedMeasureShift::densityRescale => Invalid Inputs");
  221.         }

  223.         double dblAlpha1 = (_noCSAForward - _csaForward) / _terminalVariance;
  224.         return 1. - dblAlpha1 * _csaForward + dblAlpha1 * k;
  225.     }
  226. }
Created with JaCoCo 0.7.9.201702052155