BlackLittermanProcessor.java
package org.drip.json.assetallocation;
/*
* -*- 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
* Copyright (C) 2017 Lakshmi Krishnamurthy
* Copyright (C) 2016 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>BlackLittermanProcessor</i> Sets Up and Executes a JSON Based In/Out Processing Service for the Black
* Litterman Bayesian View Incorporation/Parameter Estimation.
*
* <br><br>
* <ul>
* <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ComputationalCore.md">Computational Core Module</a></li>
* <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ComputationSupportLibrary.md">Computation Support</a></li>
* <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/json">RFC-4627 Compliant JSON Encoder/Decoder (Parser)</a></li>
* <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/json/assetallocation">JSON Based In/Out Service</a></li>
* </ul>
*
* @author Lakshmi Krishnamurthy
*/
public class BlackLittermanProcessor {
/**
* JSON Based in/out Bayesian Co-variance/Returns Estimation Thunker
*
* @param jsonParameter Bayesian Co-variance/Returns Estimation Parameters
*
* @return JSON Bayesian Co-variance/Returns Estimation Response
*/
@SuppressWarnings ("unchecked") public static final org.drip.json.simple.JSONObject Estimate (
final org.drip.json.simple.JSONObject jsonParameter)
{
java.lang.String[] astrAssetID = org.drip.json.parser.Converter.StringArrayEntry (jsonParameter,
"AssetSet");
double[][] aadblAssetSpaceViewProjection = org.drip.json.parser.Converter.DualDoubleArrayEntry
(jsonParameter, "AssetSpaceViewProjection");
double dblTau = java.lang.Double.NaN;
double dblRiskAversion = java.lang.Double.NaN;
double dblRiskFreeRate = java.lang.Double.NaN;
org.drip.measure.gaussian.R1MultivariateNormal viewDistribution = null;
org.drip.portfolioconstruction.bayesian.BlackLittermanCombinationEngine blce = null;
int iNumView = null == aadblAssetSpaceViewProjection ? 0 : aadblAssetSpaceViewProjection.length;
java.lang.String[] astrProjectionName = 0 == iNumView? null : new java.lang.String[iNumView];
double[] adblAssetEquilibriumWeight = org.drip.json.parser.Converter.DoubleArrayEntry (jsonParameter,
"AssetEquilibriumWeight");
double[][] aadblAssetExcessReturnsCovariance = org.drip.json.parser.Converter.DualDoubleArrayEntry
(jsonParameter, "AssetExcessReturnsCovariance");
double[] adblProjectionExpectedExcessReturns = org.drip.json.parser.Converter.DoubleArrayEntry
(jsonParameter, "ProjectionExpectedExcessReturns");
double[][] aadblProjectionExcessReturnsCovariance =
org.drip.json.parser.Converter.DualDoubleArrayEntry (jsonParameter,
"ProjectionExcessReturnsCovariance");
for (int i = 0; i < iNumView ; ++i)
astrProjectionName[i] = "PROJECTION #" + i;
try {
dblTau = org.drip.json.parser.Converter.DoubleEntry (jsonParameter, "Tau");
dblRiskAversion = org.drip.json.parser.Converter.DoubleEntry (jsonParameter, "Delta");
dblRiskFreeRate = org.drip.json.parser.Converter.DoubleEntry (jsonParameter, "RiskFreeRate");
viewDistribution = org.drip.measure.gaussian.R1MultivariateNormal.Standard (new
org.drip.measure.continuous.MultivariateMeta (astrProjectionName),
adblProjectionExpectedExcessReturns, aadblProjectionExcessReturnsCovariance);
blce = new org.drip.portfolioconstruction.bayesian.BlackLittermanCombinationEngine
(org.drip.portfolioconstruction.allocator.ForwardReverseHoldingsAllocation.Reverse
(org.drip.portfolioconstruction.asset.Portfolio.Standard (astrAssetID,
adblAssetEquilibriumWeight), aadblAssetExcessReturnsCovariance, dblRiskAversion), new
org.drip.portfolioconstruction.bayesian.PriorControlSpecification (false,
dblRiskFreeRate, dblTau), new
org.drip.portfolioconstruction.bayesian.ProjectionSpecification
(viewDistribution, aadblAssetSpaceViewProjection));
} catch (java.lang.Exception e) {
e.printStackTrace();
return null;
}
org.drip.portfolioconstruction.bayesian.BlackLittermanCustomConfidenceOutput blo = blce.customConfidenceRun();
if (null == blo) return null;
org.drip.measure.bayesian.R1MultivariateConvolutionMetrics jpm = blo.jointPosteriorMetrics();
org.drip.measure.continuous.R1Multivariate r1mPrior = jpm.prior();
org.drip.measure.continuous.R1Multivariate r1mJoint = jpm.joint();
org.drip.measure.continuous.R1Multivariate r1mPosterior = jpm.posterior();
if (null == r1mPrior || !(r1mPrior instanceof org.drip.measure.gaussian.R1MultivariateNormal) || null
== r1mJoint || !(r1mJoint instanceof org.drip.measure.gaussian.R1MultivariateNormal) || null ==
r1mPosterior || !(r1mPosterior instanceof org.drip.measure.gaussian.R1MultivariateNormal))
return null;
org.drip.measure.gaussian.R1MultivariateNormal r1mnPrior =
(org.drip.measure.gaussian.R1MultivariateNormal) r1mPrior;
org.drip.measure.gaussian.R1MultivariateNormal r1mnJoint =
(org.drip.measure.gaussian.R1MultivariateNormal) r1mJoint;
org.drip.measure.gaussian.R1MultivariateNormal r1mnPosterior =
(org.drip.measure.gaussian.R1MultivariateNormal) r1mPosterior;
org.drip.json.simple.JSONObject jsonResponse = new org.drip.json.simple.JSONObject();
jsonResponse.put ("Tau", dblTau);
jsonResponse.put ("Delta", dblRiskAversion);
jsonResponse.put ("RiskFreeRate", dblRiskFreeRate);
jsonResponse.put ("ScopingSet", org.drip.json.parser.Converter.Array (astrAssetID));
jsonResponse.put ("ScopingExpectedExcessReturns", org.drip.json.parser.Converter.Array
(r1mnPrior.mean()));
jsonResponse.put ("ScopingExcessReturnsCovariance", org.drip.json.parser.Converter.Array
(r1mnPrior.covariance().covarianceMatrix()));
jsonResponse.put ("ProjectionExpectedExcessReturns", org.drip.json.parser.Converter.Array
(adblProjectionExpectedExcessReturns));
jsonResponse.put ("ViewScopingProjectionLoading", org.drip.json.parser.Converter.Array
(aadblAssetSpaceViewProjection));
jsonResponse.put ("JointExcessReturnsCovariance", org.drip.json.parser.Converter.Array
(r1mnJoint.covariance().covarianceMatrix()));
jsonResponse.put ("PosteriorExcessReturnsCovariance", org.drip.json.parser.Converter.Array
(r1mnPosterior.covariance().covarianceMatrix()));
jsonResponse.put ("PriorExpectedExcessReturn", org.drip.json.parser.Converter.Array
(r1mPrior.mean()));
jsonResponse.put ("PosteriorExpectedExcessReturn", org.drip.json.parser.Converter.Array
(r1mPosterior.mean()));
return jsonResponse;
}
}