NetLiabilityStream.java

  1. package org.drip.portfolioconstruction.alm;

  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.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  13.  * 
  14.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  15.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  16.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  17.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  18.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  19.  *      and computational support.
  20.  *  
  21.  *      https://lakshmidrip.github.io/DROP/
  22.  *  
  23.  *  DROP is composed of three modules:
  24.  *  
  25.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  26.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  27.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  28.  * 
  29.  *  DROP Product Core implements libraries for the following:
  30.  *  - Fixed Income Analytics
  31.  *  - Loan Analytics
  32.  *  - Transaction Cost Analytics
  33.  * 
  34.  *  DROP Portfolio Core implements libraries for the following:
  35.  *  - Asset Allocation Analytics
  36.  *  - Asset Liability Management Analytics
  37.  *  - Capital Estimation Analytics
  38.  *  - Exposure Analytics
  39.  *  - Margin Analytics
  40.  *  - XVA Analytics
  41.  * 
  42.  *  DROP Computational Core implements libraries for the following:
  43.  *  - Algorithm Support
  44.  *  - Computation Support
  45.  *  - Function Analysis
  46.  *  - Model Validation
  47.  *  - Numerical Analysis
  48.  *  - Numerical Optimizer
  49.  *  - Spline Builder
  50.  *  - Statistical Learning
  51.  * 
  52.  *  Documentation for DROP is Spread Over:
  53.  * 
  54.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  55.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  56.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  57.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  58.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  59.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  60.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  61.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  62.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  63.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  64.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  65.  * 
  66.  *  Licensed under the Apache License, Version 2.0 (the "License");
  67.  *      you may not use this file except in compliance with the License.
  68.  *   
  69.  *  You may obtain a copy of the License at
  70.  *      http://www.apache.org/licenses/LICENSE-2.0
  71.  *  
  72.  *  Unless required by applicable law or agreed to in writing, software
  73.  *      distributed under the License is distributed on an "AS IS" BASIS,
  74.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  75.  *  
  76.  *  See the License for the specific language governing permissions and
  77.  *      limitations under the License.
  78.  */

  80. /**
  81.  * <i>NetLiabilityStream</i> holds the Investor's Horizon, Consumption, and Income Settings needed to
  82.  * generate and value the Net Liability Cash Flow Stream.
  83.  *
  84.  *  <br><br>
  85.  *  <ul>
  86.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
  87.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ALMAnalyticsLibrary.md">Asset Liability Management Analytics</a></li>
  88.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/portfolioconstruction/README.md">Portfolio Construction under Allocation Constraints</a></li>
  89.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/portfolioconstruction/alm/README.md">Sharpe-Tint Asset Liability Manager</a></li>
  90.  *  </ul>
  91.  *
  92.  * @author Lakshmi Krishnamurthy
  93.  */

  95. public class NetLiabilityStream
  96. {
  97.     private double _afterTaxIncome = java.lang.Double.NaN;
  98.     private org.drip.portfolioconstruction.alm.InvestorCliffSettings _investorCliffSettings = null;
  99.     private org.drip.portfolioconstruction.alm.ExpectedBasicConsumption _expectedBasicConsumption = null;
  100.     private org.drip.portfolioconstruction.alm.ExpectedNonFinancialIncome _expectedNonFinancialIncome = null;

  102.     /**
  103.      * NetLiabilityStream Constructor
  104.      * 
  105.      * @param investorCliffSettings The Investor's Time Cliff Settings
  106.      * @param expectedNonFinancialIncome The Investor's Non-Financial Income Settings
  107.      * @param expectedBasicConsumption The Investor's Basic Consumption Settings
  108.      * @param afterTaxIncome The Basic After-Tax Income
  109.      * 
  110.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  111.      */

  113.     public NetLiabilityStream (
  114.         final org.drip.portfolioconstruction.alm.InvestorCliffSettings investorCliffSettings,
  115.         final org.drip.portfolioconstruction.alm.ExpectedNonFinancialIncome expectedNonFinancialIncome,
  116.         final org.drip.portfolioconstruction.alm.ExpectedBasicConsumption expectedBasicConsumption,
  117.         final double afterTaxIncome)
  118.         throws java.lang.Exception
  119.     {
  120.         if (null == (_investorCliffSettings = investorCliffSettings) ||
  121.             null == (_expectedNonFinancialIncome = expectedNonFinancialIncome) ||
  122.             null == (_expectedBasicConsumption = expectedBasicConsumption) ||
  123.             !org.drip.numerical.common.NumberUtil.IsValid (_afterTaxIncome = afterTaxIncome))
  124.         {
  125.             throw new java.lang.Exception ("NetLiabilityStream Constructor => Invalid Inputs");
  126.         }
  127.     }

  129.     /**
  130.      * Retrieve the Investor's Time Horizon Settings
  131.      * 
  132.      * @return The Investor's Time Horizon Settings
  133.      */

  135.     public org.drip.portfolioconstruction.alm.InvestorCliffSettings investorCliffSettings()
  136.     {
  137.         return _investorCliffSettings;
  138.     }

  140.     /**
  141.      * Retrieve the Investor's Basic Consumption Settings
  142.      * 
  143.      * @return The Investor's Basic Consumption Settings
  144.      */

  146.     public org.drip.portfolioconstruction.alm.ExpectedBasicConsumption basicConsumption()
  147.     {
  148.         return _expectedBasicConsumption;
  149.     }

  151.     /**
  152.      * Retrieve the Investor's Non-Financial Income Settings
  153.      * 
  154.      * @return The Investor's Non-Financial Income Settings
  155.      */

  157.     public org.drip.portfolioconstruction.alm.ExpectedNonFinancialIncome nonFinancialIncome()
  158.     {
  159.         return _expectedNonFinancialIncome;
  160.     }

  162.     /**
  163.      * Retrieve the Basic After-Tax Income
  164.      * 
  165.      * @return The Basic After-Tax Income
  166.      */

  168.     public double afterTaxIncome()
  169.     {
  170.         return _afterTaxIncome;
  171.     }

  173.     /**
  174.      * Generate the NetLiabilityMetrics Instance
  175.      * 
  176.      * @param startAge The Starting Age
  177.      * @param endAge The Ending Age
  178.      * @param discountRate The Discount Rate Instance
  179.      * 
  180.      * @return The NetLiabilityMetrics Instance
  181.      */

  183.     public org.drip.portfolioconstruction.alm.NetLiabilityMetrics generateMetrics (
  184.         final double startAge,
  185.         final double endAge,
  186.         final org.drip.portfolioconstruction.alm.DiscountRate discountRate)
  187.     {
  188.         if (!org.drip.numerical.common.NumberUtil.IsValid (startAge) ||
  189.             !org.drip.numerical.common.NumberUtil.IsValid (endAge) ||
  190.             startAge >= endAge ||
  191.             null == discountRate)
  192.         {
  193.             return null;
  194.         }

  196.         java.util.List<org.drip.portfolioconstruction.alm.NetLiabilityCashFlow> netLiabilityCashFlowList =
  197.             new java.util.ArrayList<org.drip.portfolioconstruction.alm.NetLiabilityCashFlow>();

  199.         double basicConsumptionPV = 0.;
  200.         double workingAgeIncomePV = 0.;
  201.         double pensionBenefitsIncomePV = 0.;

  203.         for (double currentAge = startAge + 1.; currentAge <= endAge; ++currentAge)
  204.         {
  205.             double horizon = currentAge - startAge;

  207.             try
  208.             {
  209.                 boolean isAlive = _investorCliffSettings.isAlive (currentAge);

  211.                 double basicConsumptionDF = discountRate.basicConsumptionDF (horizon);

  213.                 double workingAgeIncomeDF = discountRate.workingAgeIncomeDF (horizon);

  215.                 boolean isRetirement = _investorCliffSettings.retirementIndicator (currentAge);

  217.                 double pensionBenefitsIncomeDF = discountRate.pensionBenefitsIncomeDF (horizon);

  219.                 double basicConsumption = _afterTaxIncome * _expectedBasicConsumption.rate (
  220.                     currentAge,
  221.                     _investorCliffSettings
  222.                 );

  224.                 double workingAgeIncome = !isRetirement && isAlive ?
  225.                     _afterTaxIncome * _expectedNonFinancialIncome.rate (
  226.                         currentAge,
  227.                         _investorCliffSettings
  228.                     ) : 0.;

  230.                 double pensionBenefitsIncome = isRetirement && isAlive ?
  231.                     _afterTaxIncome * _expectedNonFinancialIncome.rate (
  232.                         currentAge,
  233.                         _investorCliffSettings
  234.                     ) : 0.;

  236.                 netLiabilityCashFlowList.add (
  237.                     new org.drip.portfolioconstruction.alm.NetLiabilityCashFlow (
  238.                         currentAge,
  239.                         isRetirement,
  240.                         isAlive,
  241.                         horizon,
  242.                         _afterTaxIncome,
  243.                         workingAgeIncome,
  244.                         pensionBenefitsIncome,
  245.                         basicConsumption,
  246.                         workingAgeIncomeDF,
  247.                         pensionBenefitsIncomeDF,
  248.                         basicConsumptionDF
  249.                     )
  250.                 );

  252.                 basicConsumptionPV += basicConsumption * basicConsumptionDF;
  253.                 workingAgeIncomePV += workingAgeIncome * workingAgeIncomeDF;
  254.                 pensionBenefitsIncomePV += pensionBenefitsIncome * pensionBenefitsIncomeDF;
  255.             }
  256.             catch (java.lang.Exception e)
  257.             {
  258.                 e.printStackTrace();

  260.                 return null;
  261.             }
  262.         }

  264.         try
  265.         {
  266.             return new org.drip.portfolioconstruction.alm.NetLiabilityMetrics (
  267.                 netLiabilityCashFlowList,
  268.                 workingAgeIncomePV,
  269.                 pensionBenefitsIncomePV,
  270.                 basicConsumptionPV
  271.             );
  272.         }
  273.         catch (java.lang.Exception e)
  274.         {
  275.             e.printStackTrace();
  276.         }

  278.         return null;
  279.     }
  280. }
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