CapitalAllocationLine.java
- package org.drip.portfolioconstruction.mpt;
- /*
- * -*- 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>CapitalAllocationLine</i> implements the Efficient Half-line created from the Combination of the Risk
- * Free Asset and the Tangency Point of the CAPM Market Portfolio.
- *
- * <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/AssetAllocationAnalyticsLibrary.md">Asset Allocation Analytics</a></li>
- * <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>
- * <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/portfolioconstruction/mpt/README.md">Security Characteristic Capital Allocation Lines</a></li>
- * </ul>
- * <br><br>
- *
- * @author Lakshmi Krishnamurthy
- */
- public class CapitalAllocationLine
- {
- private double _riskFreeRate = java.lang.Double.NaN;
- private org.drip.portfolioconstruction.asset.PortfolioMetrics _tangencyPortfolioMetrics = null;
- /**
- * CapitalAllocationLine Constructor
- *
- * @param riskFreeRate The Risk Free Rate
- * @param tangencyPortfolioMetrics The Tangency Portfolio Metrics
- *
- * @throws java.lang.Exception Thrown if the Inputs are Invalid
- */
- public CapitalAllocationLine (
- final double riskFreeRate,
- final org.drip.portfolioconstruction.asset.PortfolioMetrics tangencyPortfolioMetrics)
- throws java.lang.Exception
- {
- if (!org.drip.numerical.common.NumberUtil.IsValid (_riskFreeRate = riskFreeRate) ||
- null == (_tangencyPortfolioMetrics = tangencyPortfolioMetrics))
- {
- throw new java.lang.Exception ("CapitalAllocationLine Constructor => Invalid Inputs");
- }
- }
- /**
- * Retrieve the Risk-Free Rate
- *
- * @return The Risk-Free Rate
- */
- public double riskFreeRate()
- {
- return _riskFreeRate;
- }
- /**
- * Retrieve the Tangency Portfolio Metrics
- *
- * @return The Tangency Portfolio Metrics
- */
- public org.drip.portfolioconstruction.asset.PortfolioMetrics tangencyPortfolioMetrics()
- {
- return _tangencyPortfolioMetrics;
- }
- /**
- * Calculate the Combination Portfolio's Expected Returns from the corresponding Standard Deviation
- *
- * @param combinationPortfolioStandardDeviation The Combination Portfolio's Standard Deviation
- *
- * @return The Combination Portfolio's Expected Returns
- *
- * @throws java.lang.Exception Thrown if the Inputs are Invalid
- */
- public double combinationPortfolioExpectedReturn (
- final double combinationPortfolioStandardDeviation)
- throws java.lang.Exception
- {
- if (!org.drip.numerical.common.NumberUtil.IsValid (combinationPortfolioStandardDeviation))
- {
- throw new java.lang.Exception
- ("CapitalAllocationLine::combinationPortfolioExpectedReturn => Invalid Inputs");
- }
- return _riskFreeRate + combinationPortfolioStandardDeviation * (
- _tangencyPortfolioMetrics.excessReturnsMean() - _riskFreeRate
- ) / _tangencyPortfolioMetrics.excessReturnsStandardDeviation();
- }
- /**
- * Compute the Combination Portfolio's Standard Deviation
- *
- * @param combinationPortfolioExpectedReturn The Expected Returns of the Combination Portfolio
- *
- * @return The Combination Portfolio's Standard Deviation
- *
- * @throws java.lang.Exception Thrown if the Inputs are Invalid
- */
- public double combinationPortfolioStandardDeviation (
- final double combinationPortfolioExpectedReturn)
- throws java.lang.Exception
- {
- if (!org.drip.numerical.common.NumberUtil.IsValid (combinationPortfolioExpectedReturn))
- {
- throw new java.lang.Exception
- ("CapitalAllocationLine::combinationPortfolioStandardDeviation => Invalid Inputs");
- }
- return (combinationPortfolioExpectedReturn - _riskFreeRate) / (
- _tangencyPortfolioMetrics.excessReturnsMean() - _riskFreeRate
- ) * _tangencyPortfolioMetrics.excessReturnsStandardDeviation();
- }
- }