RollingWindowCorrelation8.java
package org.drip.sample.anfuso2017;
import java.util.ArrayList;
import java.util.List;
import org.drip.measure.crng.RandomNumberGenerator;
import org.drip.measure.discrete.CorrelatedPathVertexDimension;
import org.drip.measure.statistics.MultivariateDiscrete;
import org.drip.numerical.common.FormatUtil;
import org.drip.service.env.EnvManager;
/*
* -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
*/
/*!
* Copyright (C) 2020 Lakshmi Krishnamurthy
* Copyright (C) 2019 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>RollingWindowCorrelation8</i> demonstrates computing the Correlation on a Rolling Window Basis between
* Two Correlated Series as illustrated in Table 8 of Anfuso, Karyampas, and Nawroth (2017).
*
* <br><br>
* <ul>
* <li>
* Anfuso, F., D. Karyampas, and A. Nawroth (2017): A Sound Basel III Compliant Framework for
* Back-testing Credit Exposure Models
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2264620 <b>eSSRN</b>
* </li>
* <li>
* Diebold, F. X., T. A. Gunther, and A. S. Tay (1998): Evaluating Density Forecasts with
* Applications to Financial Risk Management, International Economic Review 39 (4) 863-883
* </li>
* <li>
* Kenyon, C., and R. Stamm (2012): Discounting, LIBOR, CVA, and Funding: Interest Rate and Credit
* Pricing, Palgrave Macmillan
* </li>
* <li>
* Wikipedia (2018): Probability Integral Transform
* https://en.wikipedia.org/wiki/Probability_integral_transform
* </li>
* <li>
* Wikipedia (2019): p-value https://en.wikipedia.org/wiki/P-value
* </li>
* </ul>
*
* <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/ModelValidationAnalyticsLibrary.md">Model Validation Analytics Library</a></li>
* <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/README.md">DROP API Construction and Usage</a></li>
* <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/anfuso2017/README.md">Anfuso, Karyampas, and Nawroth (2013) Replications</a></li>
* </ul>
* <br><br>
*
* @author Lakshmi Krishnamurthy
*/
public class RollingWindowCorrelation8
{
public static final void main (
final String[] argumentArray)
throws Exception
{
EnvManager.InitEnv ("");
int pathCount = 1;
int vertexCount = 390;
int rollingWindow = 26;
double[][] correlation =
{
{1.000, 0.161}, // SNP500
{0.161, 1.000}, // CHFUSD
};
CorrelatedPathVertexDimension correlatedPathVertexDimension = new CorrelatedPathVertexDimension (
new RandomNumberGenerator(),
correlation,
vertexCount,
pathCount,
false,
null
);
double[][] correlatedSequence =
correlatedPathVertexDimension.straightMultiPathVertexRd()[0].flatform();
List<double[]> windowSequence = new ArrayList<double[]>();
for (int rollingIndex = 0; rollingIndex < rollingWindow; ++rollingIndex)
{
windowSequence.add (correlatedSequence[rollingIndex]);
}
double[][] rollingWindowSequence = new double[rollingWindow][2];
System.out.println ("\t|---------------------------------------------||");
System.out.println ("\t| Time Series Rolling Window Correlation ||");
System.out.println ("\t|---------------------------------------------||");
System.out.println ("\t| L -> R: ||");
System.out.println ("\t| - SNP500 ||");
System.out.println ("\t| - CHFUSD ||");
System.out.println ("\t| - SNP500 vs. CHFUSD Correlation ||");
System.out.println ("\t| - CHFUSD vs. SNP500 Correlation ||");
System.out.println ("\t|---------------------------------------------||");
for (int index = rollingWindow; index < vertexCount; ++index)
{
windowSequence.toArray (rollingWindowSequence);
MultivariateDiscrete multivariateDiscrete = new MultivariateDiscrete (rollingWindowSequence);
double[][] rollingWindowCorrelation = multivariateDiscrete.correlation();
System.out.println ("\t| " +
FormatUtil.FormatDouble (correlatedSequence[index][0], 1, 8, 1.) + " | " +
FormatUtil.FormatDouble (correlatedSequence[index][1], 1, 8, 1.) + " | " +
FormatUtil.FormatDouble (rollingWindowCorrelation[0][1], 2, 1, 100.) + "% | " +
FormatUtil.FormatDouble (rollingWindowCorrelation[1][0], 2, 1, 100.) + "% ||"
);
if (index < vertexCount - 1)
{
windowSequence.remove (0);
windowSequence.add (correlatedSequence[index + 1]);
}
}
System.out.println ("\t|---------------------------------------------||");
EnvManager.TerminateEnv();
}
}