IdzorekAndrogue2003.java

  1. package org.drip.sample.blacklitterman;

  3. import org.drip.numerical.common.FormatUtil;
  4. import org.drip.numerical.linearalgebra.Matrix;
  5. import org.drip.service.env.EnvManager;

  7. /*
  8.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  9.  */

  11. /*!
  12.  * Copyright (C) 2020 Lakshmi Krishnamurthy
  13.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  14.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  15.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  16.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  17.  * 
  18.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  19.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  20.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  21.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  22.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  23.  *      and computational support.
  24.  *  
  25.  *      https://lakshmidrip.github.io/DROP/
  26.  *  
  27.  *  DROP is composed of three modules:
  28.  *  
  29.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  30.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  31.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  32.  * 
  33.  *  DROP Product Core implements libraries for the following:
  34.  *  - Fixed Income Analytics
  35.  *  - Loan Analytics
  36.  *  - Transaction Cost Analytics
  37.  * 
  38.  *  DROP Portfolio Core implements libraries for the following:
  39.  *  - Asset Allocation Analytics
  40.  *  - Asset Liability Management Analytics
  41.  *  - Capital Estimation Analytics
  42.  *  - Exposure Analytics
  43.  *  - Margin Analytics
  44.  *  - XVA Analytics
  45.  * 
  46.  *  DROP Computational Core implements libraries for the following:
  47.  *  - Algorithm Support
  48.  *  - Computation Support
  49.  *  - Function Analysis
  50.  *  - Model Validation
  51.  *  - Numerical Analysis
  52.  *  - Numerical Optimizer
  53.  *  - Spline Builder
  54.  *  - Statistical Learning
  55.  * 
  56.  *  Documentation for DROP is Spread Over:
  57.  * 
  58.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  59.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  60.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  61.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  62.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  63.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  64.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  65.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  66.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  67.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  68.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  69.  * 
  70.  *  Licensed under the Apache License, Version 2.0 (the "License");
  71.  *      you may not use this file except in compliance with the License.
  72.  *   
  73.  *  You may obtain a copy of the License at
  74.  *      http://www.apache.org/licenses/LICENSE-2.0
  75.  *  
  76.  *  Unless required by applicable law or agreed to in writing, software
  77.  *      distributed under the License is distributed on an "AS IS" BASIS,
  78.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  79.  *  
  80.  *  See the License for the specific language governing permissions and
  81.  *      limitations under the License.
  82.  */

  84. /**
  85.  * <i>IdzorekAndrogue2003</i> reconciles the Outputs of the Black-Litterman Model Process. The References
  86.  * are:
  87.  *  
  88.  * <br><br>
  89.  *  <ul>
  90.  *      <li>
  91.  *          He. G., and R. Litterman (1999): <i>The Intuition behind the Black-Litterman Model Portfolios</i>
  92.  *              <b>Goldman Sachs Asset Management</b>
  93.  *      </li>
  94.  *      <li>
  95.  *          Idzorek, T., and J. Androgue (2003):
  96.  *              https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2005/Black%20Litterman.pdf
  97.  *      </li>
  98.  *  </ul>
  99.  *  
  100.  * <br><br>
  101.  *  <ul>
  102.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
  103.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/TransactionCostAnalyticsLibrary.md">Transaction Cost Analytics</a></li>
  104.  *      <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>
  105.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/blacklitterman/README.md">Canonical Black Litterman and Extensions</a></li>
  106.  *  </ul>
  107.  * <br><br>
  108.  *
  109.  * @author Lakshmi Krishnamurthy
  110.  */

  112. public class IdzorekAndrogue2003 {

  114.     public static final void main (
  115.         final String[] astArgs)
  116.         throws Exception
  117.     {
  118.         EnvManager.InitEnv (
  119.             "",
  120.             true
  121.         );

  123.         String[] astrAssetClass = new String[] {
  124.             "US Bonds            ",
  125.             "Global Bonds xUSD   ",
  126.             "World Equity xUS    ",
  127.             "Emerging Equity     ",
  128.             "US Large Cap Growth ",
  129.             "US Large Cap Value  ",
  130.             "US Small Cap Growth ",
  131.             "US Small Cap Value  "
  132.         };

  134.         double[] adblMarketCapitalizationEstimate = new double[] {
  135.              8360741000000.,
  136.             11583275710000.,
  137.              9212460000000.,
  138.               964647000000.,
  139.              5217844438500.,
  140.              5217844438500.,
  141.               459897061500.,
  142.               459897061500.
  143.         };

  145.         double dblDelta = 3.37;

  147.         double[][] aadblAssetExcessReturnsCorrelation = new double[][] {
  148.             { 0.0014,  0.0015, -0.0008, -0.0017, -0.0010, -0.0007, -0.0015, -0.0006},
  149.             { 0.0015,  0.0076,  0.0026, -0.0006, -0.0013, -0.0003, -0.0002,  0.0005},
  150.             {-0.0008,  0.0026,  0.0251,  0.0292,  0.0208,  0.0147,  0.0248,  0.0134},
  151.             {-0.0017, -0.0006,  0.0292,  0.0663,  0.0359,  0.0244,  0.0490,  0.0268},
  152.             {-0.0010, -0.0013,  0.0208,  0.0359,  0.0468,  0.0283,  0.0520,  0.0260},
  153.             {-0.0007, -0.0003,  0.0147,  0.0244,  0.0283,  0.0252,  0.0314,  0.0215},
  154.             {-0.0015, -0.0002,  0.0248,  0.0490,  0.0520,  0.0314,  0.0809,  0.0411},
  155.             {-0.0006,  0.0005,  0.0134,  0.0268,  0.0260,  0.0215,  0.0411,  0.0276}
  156.         };

  158.         double[] adblMarketCapitalizationWeightReconciler = new double[] {
  159.             0.2016,
  160.             0.2793,
  161.             0.2221,
  162.             0.0233,
  163.             0.1258,
  164.             0.1258,
  165.             0.0111,
  166.             0.0111
  167.         };

  169.         double[] adblImpliedReturnsReconciler = new double[] {
  170.             0.0008,
  171.             0.0094,
  172.             0.0395,
  173.             0.0537,
  174.             0.0513,
  175.             0.0368,
  176.             0.0612,
  177.             0.0349
  178.         };

  180.         double dblTotalMarketCapitalization = 0.;
  181.         double[] adblMarketCapitalizationWeight = new double[adblMarketCapitalizationEstimate.length];

  183.         for (int i = 0; i < adblMarketCapitalizationEstimate.length; ++i)
  184.             dblTotalMarketCapitalization += adblMarketCapitalizationEstimate[i];

  186.         for (int i = 0; i < adblMarketCapitalizationEstimate.length; ++i)
  187.             adblMarketCapitalizationWeight[i] = adblMarketCapitalizationEstimate[i] / dblTotalMarketCapitalization;

  189.         double[] adblImpliedReturns = Matrix.Product (
  190.             aadblAssetExcessReturnsCorrelation,
  191.             adblMarketCapitalizationWeight
  192.         );

  194.         System.out.println ("\n\t|------------------------------------------------------------------------------------------------------||");

  196.         System.out.println ("\t|                                          CO-VARIANCE MATRIX                                          ||");

  198.         System.out.println ("\t|------------------------------------------------------------------------------------------------------||");

  200.         for (int i = 0; i < astrAssetClass.length; ++i) {
  201.             String strDump = "\t| " + astrAssetClass[i] + " ";

  203.             for (int j = 0; j < astrAssetClass.length; ++j)
  204.                 strDump += "| " + FormatUtil.FormatDouble (aadblAssetExcessReturnsCorrelation[i][j], 1, 4, 1.) + " ";

  206.             System.out.println (strDump + "||");
  207.         }

  209.         System.out.println ("\t|------------------------------------------------------------------------------------------------------||");

  211.         System.out.println ("\n\t||-------------------------------------------------------------||");

  213.         System.out.println ("\t||         MARKET CAPITALIZATION AND EQUILIBRIUM WEIGHTS       ||");

  215.         System.out.println ("\t||-------------------------------------------------------------||");

  217.         System.out.println ("\t||     ASSET CLASS      =>  CAPITALIZATION |  OUTPUT |  PAPER  ||");

  219.         System.out.println ("\t||-------------------------------------------------------------||");

  221.         for (int i = 0; i < adblMarketCapitalizationEstimate.length; ++i)
  222.             System.out.println (
  223.                 "\t|| " + astrAssetClass[i] + " => " +
  224.                 FormatUtil.FormatDouble (adblMarketCapitalizationEstimate[i], 14, 0, 1.) + " | " +
  225.                 FormatUtil.FormatDouble (adblMarketCapitalizationWeight[i], 2, 2, 100.) + "% | " +
  226.                 FormatUtil.FormatDouble (adblMarketCapitalizationWeightReconciler[i], 2, 2, 100.) + "% ||"
  227.             );

  229.         System.out.println ("\t||-------------------------------------------------------------||\n");

  231.         System.out.println ("\t||-------------------------------------------||");

  233.         System.out.println ("\t||         RISK PREMIUM IMPLIED RETURNS      ||");

  235.         System.out.println ("\t||-------------------------------------------||");

  237.         System.out.println ("\t||     ASSET CLASS      =>  OUTPUT |  PAPER  ||");

  239.         System.out.println ("\t||-------------------------------------------||");

  241.         for (int i = 0; i < adblImpliedReturns.length; ++i)
  242.             System.out.println (
  243.                 "\t|| " + astrAssetClass[i] + " => " +
  244.                 FormatUtil.FormatDouble (dblDelta * adblImpliedReturns[i], 2, 2, 100.) + "% | " +
  245.                 FormatUtil.FormatDouble (adblImpliedReturnsReconciler[i], 2, 2, 100.) + "% ||"
  246.             );

  248.         System.out.println ("\t||-------------------------------------------||\n");

  250.         EnvManager.TerminateEnv();
  251.     }
  252. }
Created with JaCoCo 0.7.9.201702052155