MarketCorrelation.java
package org.drip.exposure.universe;
/*
* -*- 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
*
* 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>MarketCorrelation</i> holds the Cross Latent State Correlations needed for computing the Valuation
* Adjustment. The References are:
*
* <br><br>
* <ul>
* <li>
* Burgard, C., and M. Kjaer (2013): Funding Costs, Funding Strategies <i>Risk</i> <b>23
* (12)</b> 82-87
* </li>
* <li>
* Burgard, C., and M. Kjaer (2014): In the Balance <i>Risk</i> <b>24 (11)</b> 72-75
* </li>
* <li>
* Burgard, C., and M. Kjaer (2014): PDE Representations of Derivatives with Bilateral Counter-
* party Risk and Funding Costs <i>Journal of Credit Risk</i> <b>7 (3)</b> 1-19
* </li>
* <li>
* Gregory, J. (2009): Being Two-faced over Counter-party Credit Risk <i>Risk</i> <b>20 (2)</b>
* 86-90
* </li>
* <li>
* Piterbarg, V. (2010): Funding Beyond Discounting: Collateral Agreements and Derivatives
* Pricing <i>Risk</i> <b>21 (2)</b> 97-102
* </li>
* <li>
* </ul>
*
* <br><br>
* <ul>
* <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
* <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ExposureAnalyticsLibrary.md">Exposure Analytics</a></li>
* <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>
* <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>
* </ul>
*
* @author Lakshmi Krishnamurthy
*/
public class MarketCorrelation
{
private double[][] _matrix = null;
private java.util.List<org.drip.state.identifier.LatentStateLabel> _latentStateLabelList = null;
private java.util.Map<java.lang.String, java.lang.Integer> _latentStateIndexMap = new
java.util.HashMap<java.lang.String, java.lang.Integer>();
/**
* MarketCorrelation Constructor
*
* @param latentStateLabelList The Latent State Label List
* @param matrix The Square Correlation Matrix
*
* @throws java.lang.Exception Thrown if the Inputs are Invalid
*/
public MarketCorrelation (
final java.util.List<org.drip.state.identifier.LatentStateLabel> latentStateLabelList,
final double[][] matrix)
throws java.lang.Exception
{
if (null == (_latentStateLabelList = latentStateLabelList) ||
null == (_matrix = matrix))
{
throw new java.lang.Exception ("MarketCorrelation Constructor => Invalid Inputs");
}
int latentStateCount = _latentStateLabelList.size();
if (0 == latentStateCount || latentStateCount != _matrix.length)
{
throw new java.lang.Exception ("MarketCorrelation Constructor => Invalid Inputs");
}
for (int latentStateIndex = 0; latentStateIndex < latentStateCount; ++latentStateIndex)
{
org.drip.state.identifier.LatentStateLabel latentStateLabel = _latentStateLabelList.get
(latentStateIndex);
if (null == latentStateLabel ||
null == _matrix[latentStateIndex] ||
latentStateCount != _matrix[latentStateIndex].length)
{
throw new java.lang.Exception ("MarketCorrelation Constructor => Invalid Inputs");
}
for (int matrixColumnIndex = 0; matrixColumnIndex < latentStateCount; ++matrixColumnIndex)
{
double correlationEntry = _matrix[latentStateIndex][matrixColumnIndex];
if (!org.drip.numerical.common.NumberUtil.IsValid (correlationEntry) ||
(latentStateIndex == matrixColumnIndex && 1 != correlationEntry) ||
(latentStateIndex != matrixColumnIndex && (1 < correlationEntry ||
-1 < correlationEntry)))
{
throw new java.lang.Exception ("MarketCorrelation Constructor => Invalid Inputs");
}
}
java.lang.String latentStateLabelFQN = latentStateLabel.fullyQualifiedName();
if (_latentStateIndexMap.containsKey (latentStateLabelFQN))
{
throw new java.lang.Exception ("MarketCorrelation Constructor => Invalid Inputs");
}
_latentStateIndexMap.put (
latentStateLabelFQN,
latentStateIndex
);
}
}
/**
* Retrieve the Latent State Label List
*
* @return The Latent State Label List
*/
public java.util.List<org.drip.state.identifier.LatentStateLabel> latentStateLabelList()
{
return _latentStateLabelList;
}
/**
* Retrieve the Cross-Latent State Correlation Matrix
*
* @return The Cross-Latent State Correlation Matrix
*/
public double[][] matrix()
{
return _matrix;
}
/**
* Check if the Latent State is available in the Correlation Matrix
*
* @param latentStateLabel The Latent State Label
*
* @return TRUE - The Latent State is available in the Correlation Matrix
*/
public boolean latentStateExists (
final org.drip.state.identifier.LatentStateLabel latentStateLabel)
{
return null != latentStateLabel && _latentStateIndexMap.containsKey
(latentStateLabel.fullyQualifiedName());
}
/**
* Retrieve the Cross State Correlation
*
* @param latentStateLabel1 Latent State Label #1
* @param latentStateLabel2 Latent State Label #2
*
* @return The Cross State Correlation
*/
public double entry (
final org.drip.state.identifier.LatentStateLabel latentStateLabel1,
final org.drip.state.identifier.LatentStateLabel latentStateLabel2)
{
return !latentStateExists (latentStateLabel1) || !latentStateExists (latentStateLabel2) ? 0. :
_matrix[_latentStateIndexMap.get (latentStateLabel1.fullyQualifiedName())]
[_latentStateIndexMap.get (latentStateLabel2.fullyQualifiedName())];
}
/**
* Synthesize a MarketCorrelation Instance for the Custom Latent State List
*
* @param customLatentStateLabelList The Custom Latent State List
*
* @return The MarketCorrelation Instance for the Custom Latent State List
*/
public MarketCorrelation customMarketCorrelation (
final java.util.List<org.drip.state.identifier.LatentStateLabel> customLatentStateLabelList)
{
if (null == customLatentStateLabelList)
{
return null;
}
int customLatentStateCount = customLatentStateLabelList.size();
if (0 == customLatentStateCount)
{
return null;
}
double[][] customMatix = new double[customLatentStateCount][customLatentStateCount];
for (int customLatentStateIndexOuter = 0; customLatentStateIndexOuter < customLatentStateCount;
++customLatentStateIndexOuter)
{
for (int customLatentStateIndexInner = 0; customLatentStateIndexInner < customLatentStateCount;
++customLatentStateIndexInner)
{
customMatix[customLatentStateIndexOuter][customLatentStateIndexInner] =
customLatentStateIndexOuter == customLatentStateIndexInner ? 1. :
entry (
customLatentStateLabelList.get (customLatentStateIndexOuter),
customLatentStateLabelList.get (customLatentStateIndexInner)
);
}
}
try
{
return new MarketCorrelation (
customLatentStateLabelList,
customMatix
);
}
catch (java.lang.Exception e)
{
e.printStackTrace();
}
return null;
}
}