MarketCorrelation.java

  1. package org.drip.exposure.universe;

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

  78. /**
  79.  * <i>MarketCorrelation</i> holds the Cross Latent State Correlations needed for computing the Valuation
  80.  * Adjustment. The References are:
  81.  *  
  82.  * <br><br>
  83.  *      <ul>
  84.  *          <li>
  85.  *              Burgard, C., and M. Kjaer (2013): Funding Costs, Funding Strategies <i>Risk</i> <b>23
  86.  *                  (12)</b> 82-87
  87.  *          </li>
  88.  *          <li>
  89.  *              Burgard, C., and M. Kjaer (2014): In the Balance <i>Risk</i> <b>24 (11)</b> 72-75
  90.  *          </li>
  91.  *          <li>
  92.  *              Burgard, C., and M. Kjaer (2014): PDE Representations of Derivatives with Bilateral Counter-
  93.  *                  party Risk and Funding Costs <i>Journal of Credit Risk</i> <b>7 (3)</b> 1-19
  94.  *          </li>
  95.  *          <li>
  96.  *              Gregory, J. (2009): Being Two-faced over Counter-party Credit Risk <i>Risk</i> <b>20 (2)</b>
  97.  *                  86-90
  98.  *          </li>
  99.  *          <li>
  100.  *              Piterbarg, V. (2010): Funding Beyond Discounting: Collateral Agreements and Derivatives
  101.  *                  Pricing <i>Risk</i> <b>21 (2)</b> 97-102
  102.  *          </li>
  103.  *          <li>
  104.  *      </ul>
  105.  *
  106.  *  <br><br>
  107.  *  <ul>
  108.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
  109.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ExposureAnalyticsLibrary.md">Exposure Analytics</a></li>
  110.  *      <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>
  111.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/exposure/universe/README.md">Exposure Generation - Market States Simulation</a></li>
  112.  *  </ul>
  113.  * 
  114.  * @author Lakshmi Krishnamurthy
  115.  */

  117. public class MarketCorrelation
  118. {
  119.     private double[][] _matrix = null;
  120.     private java.util.List<org.drip.state.identifier.LatentStateLabel> _latentStateLabelList = null;

  122.     private java.util.Map<java.lang.String, java.lang.Integer> _latentStateIndexMap = new
  123.         java.util.HashMap<java.lang.String, java.lang.Integer>();

  125.     /**
  126.      * MarketCorrelation Constructor
  127.      * 
  128.      * @param latentStateLabelList The Latent State Label List
  129.      * @param matrix The Square Correlation Matrix
  130.      * 
  131.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  132.      */

  134.     public MarketCorrelation (
  135.         final java.util.List<org.drip.state.identifier.LatentStateLabel> latentStateLabelList,
  136.         final double[][] matrix)
  137.         throws java.lang.Exception
  138.     {
  139.         if (null == (_latentStateLabelList = latentStateLabelList) ||
  140.             null == (_matrix = matrix))
  141.         {
  142.             throw new java.lang.Exception ("MarketCorrelation Constructor => Invalid Inputs");
  143.         }

  145.         int latentStateCount = _latentStateLabelList.size();

  147.         if (0 == latentStateCount || latentStateCount != _matrix.length)
  148.         {
  149.             throw new java.lang.Exception ("MarketCorrelation Constructor => Invalid Inputs");
  150.         }

  152.         for (int latentStateIndex = 0; latentStateIndex < latentStateCount; ++latentStateIndex)
  153.         {
  154.             org.drip.state.identifier.LatentStateLabel latentStateLabel = _latentStateLabelList.get
  155.                 (latentStateIndex);

  157.             if (null == latentStateLabel ||
  158.                 null == _matrix[latentStateIndex] ||
  159.                 latentStateCount != _matrix[latentStateIndex].length)
  160.             {
  161.                 throw new java.lang.Exception ("MarketCorrelation Constructor => Invalid Inputs");
  162.             }

  164.             for (int matrixColumnIndex = 0; matrixColumnIndex < latentStateCount; ++matrixColumnIndex)
  165.             {
  166.                 double correlationEntry = _matrix[latentStateIndex][matrixColumnIndex];

  168.                 if (!org.drip.numerical.common.NumberUtil.IsValid (correlationEntry) ||
  169.                     (latentStateIndex == matrixColumnIndex && 1 != correlationEntry) ||
  170.                     (latentStateIndex != matrixColumnIndex && (1 < correlationEntry ||
  171.                         -1 < correlationEntry)))
  172.                 {
  173.                     throw new java.lang.Exception ("MarketCorrelation Constructor => Invalid Inputs");
  174.                 }
  175.             }

  177.             java.lang.String latentStateLabelFQN = latentStateLabel.fullyQualifiedName();

  179.             if (_latentStateIndexMap.containsKey (latentStateLabelFQN))
  180.             {
  181.                 throw new java.lang.Exception ("MarketCorrelation Constructor => Invalid Inputs");
  182.             }

  184.             _latentStateIndexMap.put (
  185.                 latentStateLabelFQN,
  186.                 latentStateIndex
  187.             );
  188.         }
  189.     }

  191.     /**
  192.      * Retrieve the Latent State Label List
  193.      * 
  194.      * @return The Latent State Label List
  195.      */

  197.     public java.util.List<org.drip.state.identifier.LatentStateLabel> latentStateLabelList()
  198.     {
  199.         return _latentStateLabelList;
  200.     }

  202.     /**
  203.      * Retrieve the Cross-Latent State Correlation Matrix
  204.      * 
  205.      * @return The Cross-Latent State Correlation Matrix
  206.      */

  208.     public double[][] matrix()
  209.     {
  210.         return _matrix;
  211.     }

  213.     /**
  214.      * Check if the Latent State  is available in the Correlation Matrix
  215.      * 
  216.      * @param latentStateLabel The Latent State Label
  217.      * 
  218.      * @return TRUE - The Latent State  is available in the Correlation Matrix
  219.      */

  221.     public boolean latentStateExists (
  222.         final org.drip.state.identifier.LatentStateLabel latentStateLabel)
  223.     {
  224.         return null != latentStateLabel && _latentStateIndexMap.containsKey
  225.             (latentStateLabel.fullyQualifiedName());
  226.     }

  228.     /**
  229.      * Retrieve the Cross State Correlation
  230.      * 
  231.      * @param latentStateLabel1 Latent State Label #1
  232.      * @param latentStateLabel2 Latent State Label #2
  233.      * 
  234.      * @return The Cross State Correlation
  235.      */

  237.     public double entry (
  238.         final org.drip.state.identifier.LatentStateLabel latentStateLabel1,
  239.         final org.drip.state.identifier.LatentStateLabel latentStateLabel2)
  240.     {
  241.         return !latentStateExists (latentStateLabel1) || !latentStateExists (latentStateLabel2) ? 0. :
  242.             _matrix[_latentStateIndexMap.get (latentStateLabel1.fullyQualifiedName())]
  243.                 [_latentStateIndexMap.get (latentStateLabel2.fullyQualifiedName())];
  244.     }

  246.     /**
  247.      * Synthesize a MarketCorrelation Instance for the Custom Latent State List
  248.      * 
  249.      * @param customLatentStateLabelList The Custom Latent State List
  250.      * 
  251.      * @return The MarketCorrelation Instance for the Custom Latent State List
  252.      */

  254.     public MarketCorrelation customMarketCorrelation (
  255.         final java.util.List<org.drip.state.identifier.LatentStateLabel> customLatentStateLabelList)
  256.     {
  257.         if (null == customLatentStateLabelList)
  258.         {
  259.             return null;
  260.         }

  262.         int customLatentStateCount = customLatentStateLabelList.size();

  264.         if (0 == customLatentStateCount)
  265.         {
  266.             return null;
  267.         }

  269.         double[][] customMatix = new double[customLatentStateCount][customLatentStateCount];

  271.         for (int customLatentStateIndexOuter = 0; customLatentStateIndexOuter < customLatentStateCount;
  272.             ++customLatentStateIndexOuter)
  273.         {
  274.             for (int customLatentStateIndexInner = 0; customLatentStateIndexInner < customLatentStateCount;
  275.                 ++customLatentStateIndexInner)
  276.             {
  277.                 customMatix[customLatentStateIndexOuter][customLatentStateIndexInner] =
  278.                     customLatentStateIndexOuter == customLatentStateIndexInner ? 1. :
  279.                     entry (
  280.                         customLatentStateLabelList.get (customLatentStateIndexOuter),
  281.                         customLatentStateLabelList.get (customLatentStateIndexInner)
  282.                     );
  283.             }
  284.         }

  286.         try
  287.         {
  288.             return new MarketCorrelation (
  289.                 customLatentStateLabelList,
  290.                 customMatix
  291.             );
  292.         }
  293.         catch (java.lang.Exception e)
  294.         {
  295.             e.printStackTrace();
  296.         }

  298.         return null;
  299.     }
  300. }
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