MarketVertexEntity.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.  * 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>MarketVertexEntity</i> holds the Realizations at a Market Trajectory Vertex of the given XVA Entity
  81.  * (i.e., Dealer/Client). The References are:
  82.  *  
  83.  * <br><br>
  84.  *      <ul>
  85.  *          <li>
  86.  *              Burgard, C., and M. Kjaer (2013): Funding Costs, Funding Strategies <i>Risk</i> <b>23
  87.  *                  (12)</b> 82-87
  88.  *          </li>
  89.  *          <li>
  90.  *              Burgard, C., and M. Kjaer (2014): In the Balance <i>Risk</i> <b>24 (11)</b> 72-75
  91.  *          </li>
  92.  *          <li>
  93.  *              Burgard, C., and M. Kjaer (2014): PDE Representations of Derivatives with Bilateral Counter-
  94.  *                  party Risk and Funding Costs <i>Journal of Credit Risk</i> <b>7 (3)</b> 1-19
  95.  *          </li>
  96.  *          <li>
  97.  *              Gregory, J. (2009): Being Two-faced over Counter-party Credit Risk <i>Risk</i> <b>20 (2)</b>
  98.  *                  86-90
  99.  *          </li>
  100.  *          <li>
  101.  *              Piterbarg, V. (2010): Funding Beyond Discounting: Collateral Agreements and Derivatives
  102.  *                  Pricing <i>Risk</i> <b>21 (2)</b> 97-102
  103.  *          </li>
  104.  *          <li>
  105.  *      </ul>
  106.  *
  107.  *  <br><br>
  108.  *  <ul>
  109.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
  110.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ExposureAnalyticsLibrary.md">Exposure Analytics</a></li>
  111.  *      <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>
  112.  *      <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>
  113.  *  </ul>
  114.  * 
  115.  * @author Lakshmi Krishnamurthy
  116.  */

  118. public class MarketVertexEntity
  119. {
  120.     private double _hazardRate = java.lang.Double.NaN;
  121.     private double _seniorRecoveryRate = java.lang.Double.NaN;
  122.     private double _seniorFundingSpread = java.lang.Double.NaN;
  123.     private double _survivalProbability = java.lang.Double.NaN;
  124.     private double _seniorFundingReplicator = java.lang.Double.NaN;
  125.     private double _subordinateRecoveryRate = java.lang.Double.NaN;
  126.     private double _subordinateFundingSpread = java.lang.Double.NaN;
  127.     private double _subordinateFundingReplicator = java.lang.Double.NaN;

  129.     /**
  130.      * Instance of Senior MarketVertexEntity
  131.      * 
  132.      * @param timeWidth The Time Width of the Node
  133.      * @param hazardRate The Hazard Rate Latent State
  134.      * @param seniorRecoveryRate The Recovery Rate Latent State
  135.      * @param seniorFundingSpread The Funding Spread Latent State
  136.      * @param baseRate The Period Base Discount Rate
  137.      * @param previousMarketVertexEntity The Previous Instance of MarketVertexEntity
  138.      * 
  139.      * @return Instance of Senior MarketVertexEntity
  140.      */

  142.     public static final MarketVertexEntity Senior (
  143.         final double timeWidth,
  144.         final double hazardRate,
  145.         final double seniorRecoveryRate,
  146.         final double seniorFundingSpread,
  147.         final double baseRate,
  148.         final org.drip.exposure.universe.MarketVertexEntity previousMarketVertexEntity)
  149.     {
  150.         if (null == previousMarketVertexEntity)
  151.         {
  152.             return null;
  153.         }

  155.         try
  156.         {
  157.             return new org.drip.exposure.universe.MarketVertexEntity (
  158.                 previousMarketVertexEntity.survivalProbability()
  159.                     * java.lang.Math.exp (-1. * hazardRate * timeWidth),
  160.                 hazardRate,
  161.                 seniorRecoveryRate,
  162.                 seniorFundingSpread,
  163.                 previousMarketVertexEntity.seniorFundingReplicator() *
  164.                     java.lang.Math.exp ((baseRate + seniorFundingSpread) * timeWidth),
  165.                 java.lang.Double.NaN,
  166.                 java.lang.Double.NaN,
  167.                 java.lang.Double.NaN
  168.             );
  169.         }
  170.         catch (java.lang.Exception e)
  171.         {
  172.             e.printStackTrace();
  173.         }

  175.         return null;
  176.     }

  178.     /**
  179.      * Instance of Senior MarketVertexEntity
  180.      * 
  181.      * @param timeWidth The Time Width of the Node
  182.      * @param hazardRate The Hazard Rate Latent State
  183.      * @param seniorRecoveryRate The Recovery Rate Latent State
  184.      * @param seniorFundingSpread The Funding Spread Latent State
  185.      * @param baseRate The Period Base Discount Rate
  186.      * 
  187.      * @return Instance of Senior MarketVertexEntity
  188.      */

  190.     public static final MarketVertexEntity Senior (
  191.         final double timeWidth,
  192.         final double hazardRate,
  193.         final double seniorRecoveryRate,
  194.         final double seniorFundingSpread,
  195.         final double baseRate)
  196.     {
  197.         try
  198.         {
  199.             return Senior (
  200.                 timeWidth,
  201.                 hazardRate,
  202.                 seniorRecoveryRate,
  203.                 seniorFundingSpread,
  204.                 baseRate,
  205.                 new MarketVertexEntity (
  206.                     1.,
  207.                     hazardRate,
  208.                     seniorRecoveryRate,
  209.                     seniorFundingSpread,
  210.                     1.,
  211.                     java.lang.Double.NaN,
  212.                     java.lang.Double.NaN,
  213.                     java.lang.Double.NaN
  214.                 )
  215.             );
  216.         }
  217.         catch (java.lang.Exception e)
  218.         {
  219.             e.printStackTrace();
  220.         }

  222.         return null;
  223.     }

  225.     /**
  226.      * Instance of Senior + Subordinate MarketVertexEntity
  227.      * 
  228.      * @param timeWidth The Time Width
  229.      * @param hazardRate The Hazard Rate Latent State
  230.      * @param seniorRecoveryRate The Senior Recovery Rate Latent State
  231.      * @param seniorFundingSpread The Senior Funding Spread Latent State
  232.      * @param subordinateRecoveryRate The Subordinate Recovery Rate Latent State
  233.      * @param subordinateFundingSpread The Subordinate Funding Spread Latent State
  234.      * @param baseRate The Period Base Discount Rate
  235.      * @param previousMarketVertexEntity The Previous Instance of MarketVertexEntity
  236.      * 
  237.      * @return Instance of Senior MarketVertexEntity
  238.      */

  240.     public static final MarketVertexEntity SeniorSubordinate (
  241.         final double timeWidth,
  242.         final double hazardRate,
  243.         final double seniorRecoveryRate,
  244.         final double seniorFundingSpread,
  245.         final double subordinateRecoveryRate,
  246.         final double subordinateFundingSpread,
  247.         final double baseRate,
  248.         final org.drip.exposure.universe.MarketVertexEntity previousMarketVertexEntity)
  249.     {
  250.         if (null == previousMarketVertexEntity)
  251.         {
  252.             return null;
  253.         }

  255.         try
  256.         {
  257.             return new org.drip.exposure.universe.MarketVertexEntity (
  258.                 previousMarketVertexEntity.survivalProbability() *
  259.                     java.lang.Math.exp (-1. * hazardRate * timeWidth),
  260.                 hazardRate,
  261.                 seniorRecoveryRate,
  262.                 seniorFundingSpread,
  263.                 previousMarketVertexEntity.seniorFundingReplicator() *
  264.                     java.lang.Math.exp ((baseRate + seniorFundingSpread) * timeWidth),
  265.                 subordinateRecoveryRate,
  266.                 subordinateFundingSpread,
  267.                 previousMarketVertexEntity.subordinateFundingReplicator() *
  268.                     java.lang.Math.exp ((baseRate + subordinateFundingSpread) * timeWidth)
  269.             );
  270.         }
  271.         catch (java.lang.Exception e)
  272.         {
  273.             e.printStackTrace();
  274.         }

  276.         return null;
  277.     }

  279.     /**
  280.      * Instance of Senior + Subordinate MarketVertexEntity
  281.      * 
  282.      * @param timeWidth The Time Width
  283.      * @param hazardRate The Hazard Rate Latent State
  284.      * @param seniorRecoveryRate The Senior Recovery Rate Latent State
  285.      * @param seniorFundingSpread The Senior Funding Spread Latent State
  286.      * @param subordinateRecoveryRate The Subordinate Recovery Rate Latent State
  287.      * @param subordinateFundingSpread The Subordinate Funding Spread Latent State
  288.      * @param baseRate The Period Base Discount Rate
  289.      * 
  290.      * @return Instance of Senior MarketVertexEntity
  291.      */

  293.     public static final MarketVertexEntity SeniorSubordinate (
  294.         final double timeWidth,
  295.         final double hazardRate,
  296.         final double seniorRecoveryRate,
  297.         final double seniorFundingSpread,
  298.         final double subordinateRecoveryRate,
  299.         final double subordinateFundingSpread,
  300.         final double baseRate)
  301.     {
  302.         try
  303.         {
  304.             return SeniorSubordinate (
  305.                 timeWidth,
  306.                 hazardRate,
  307.                 seniorRecoveryRate,
  308.                 seniorFundingSpread,
  309.                 subordinateRecoveryRate,
  310.                 subordinateFundingSpread,
  311.                 baseRate,
  312.                 new MarketVertexEntity (
  313.                     1.,
  314.                     hazardRate,
  315.                     seniorRecoveryRate,
  316.                     seniorFundingSpread,
  317.                     1.,
  318.                     subordinateRecoveryRate,
  319.                     subordinateFundingSpread,
  320.                     1.
  321.                 )
  322.             );
  323.         }
  324.         catch (java.lang.Exception e)
  325.         {
  326.             e.printStackTrace();
  327.         }

  329.         return null;
  330.     }

  332.     /**
  333.      * MarketVertexEntity Constructor
  334.      * 
  335.      * @param survivalProbability The Realized Entity Survival Probability
  336.      * @param hazardRate The Realized Entity Hazard Rate Latent State
  337.      * @param seniorRecoveryRate The Entity Senior Recovery Rate Latent State
  338.      * @param seniorFundingSpread The Entity Senior Funding Spread Latent State
  339.      * @param seniorFundingReplicator The Entity Senior Funding Replicator Vertex Latent State
  340.      * @param subordinateRecoveryRate The Entity Subordinate Recovery Rate Latent State
  341.      * @param subordinateFundingSpread The Entity Subordinate Funding Spread Latent State
  342.      * @param subordinateFundingReplicator The Entity Subordinate Funding Replicator Vertex Latent State
  343.      * 
  344.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  345.      */

  347.     public MarketVertexEntity (
  348.         final double survivalProbability,
  349.         final double hazardRate,
  350.         final double seniorRecoveryRate,
  351.         final double seniorFundingSpread,
  352.         final double seniorFundingReplicator,
  353.         final double subordinateRecoveryRate,
  354.         final double subordinateFundingSpread,
  355.         final double subordinateFundingReplicator)
  356.         throws java.lang.Exception
  357.     {
  358.         if (!org.drip.numerical.common.NumberUtil.IsValid (_survivalProbability = survivalProbability) ||
  359.             !org.drip.numerical.common.NumberUtil.IsValid (_hazardRate = hazardRate) ||
  360.             !org.drip.numerical.common.NumberUtil.IsValid (_seniorRecoveryRate = seniorRecoveryRate) ||
  361.             !org.drip.numerical.common.NumberUtil.IsValid (_seniorFundingSpread = seniorFundingSpread) ||
  362.             !org.drip.numerical.common.NumberUtil.IsValid (_seniorFundingReplicator = seniorFundingReplicator))
  363.         {
  364.             throw new java.lang.Exception ("MarketVertexEntity Constructor => Invalid Inputs");
  365.         }

  367.         _subordinateRecoveryRate = subordinateRecoveryRate;
  368.         _subordinateFundingSpread = subordinateFundingSpread;
  369.         _subordinateFundingReplicator = subordinateFundingReplicator;
  370.     }

  372.     /**
  373.      * Retrieve the Realized Entity Survival Probability
  374.      * 
  375.      * @return The Realized Entity Survival Probability
  376.      */

  378.     public double survivalProbability()
  379.     {
  380.         return _survivalProbability;
  381.     }

  383.     /**
  384.      * Retrieve the Realized Entity Hazard Rate Vertex Latent State
  385.      * 
  386.      * @return The Realized Entity Hazard Rate Vertex Latent State
  387.      */

  389.     public double hazardRate()
  390.     {
  391.         return _hazardRate;
  392.     }

  394.     /**
  395.      * Retrieve the Realized Entity Senior Recovery Rate Vertex Latent State
  396.      * 
  397.      * @return The Realized Entity Senior Recovery Rate Vertex Latent State
  398.      */

  400.     public double seniorRecoveryRate()
  401.     {
  402.         return _seniorRecoveryRate;
  403.     }

  405.     /**
  406.      * Retrieve the Realized Entity Senior Funding Spread Vertex Latent State
  407.      * 
  408.      * @return The Realized Entity Senior Funding Spread Vertex Latent State
  409.      */

  411.     public double seniorFundingSpread()
  412.     {
  413.         return _seniorFundingSpread;
  414.     }

  416.     /**
  417.      * Retrieve the Realized Entity Senior Funding Replicator Vertex Latent State
  418.      * 
  419.      * @return The Realized Entity Senior Funding Replicator Vertex Latent State
  420.      */

  422.     public double seniorFundingReplicator()
  423.     {
  424.         return _seniorFundingReplicator;
  425.     }

  427.     /**
  428.      * Retrieve the Realized Entity Subordinate Recovery Rate Vertex Latent State
  429.      * 
  430.      * @return The Realized Entity Subordinate Recovery Rate Vertex Latent State
  431.      */

  433.     public double subordinateRecoveryRate()
  434.     {
  435.         return _subordinateRecoveryRate;
  436.     }

  438.     /**
  439.      * Retrieve the Realized Entity Subordinate Funding Spread Vertex Latent State
  440.      * 
  441.      * @return The Realized Entity Subordinate Funding Spread Vertex Latent State
  442.      */

  444.     public double subordinateFundingSpread()
  445.     {
  446.         return _subordinateFundingSpread;
  447.     }

  449.     /**
  450.      * Retrieve the Realized Entity Subordinate Funding Replicator Vertex Latent State
  451.      * 
  452.      * @return The Realized Entity Subordinate Funding Replicator Vertex Latent State
  453.      */

  455.     public double subordinateFundingReplicator()
  456.     {
  457.         return _subordinateFundingReplicator;
  458.     }
  459. }
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