IdzorekAndrogue2003.java
package org.drip.sample.blacklitterman;
import org.drip.numerical.common.FormatUtil;
import org.drip.numerical.linearalgebra.Matrix;
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
* 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>IdzorekAndrogue2003</i> reconciles the Outputs of the Black-Litterman Model Process. The References
* are:
*
* <br><br>
* <ul>
* <li>
* He. G., and R. Litterman (1999): <i>The Intuition behind the Black-Litterman Model Portfolios</i>
* <b>Goldman Sachs Asset Management</b>
* </li>
* <li>
* Idzorek, T., and J. Androgue (2003):
* https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2005/Black%20Litterman.pdf
* </li>
* </ul>
*
* <br><br>
* <ul>
* <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
* <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/TransactionCostAnalyticsLibrary.md">Transaction Cost Analytics</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/blacklitterman/README.md">Canonical Black Litterman and Extensions</a></li>
* </ul>
* <br><br>
*
* @author Lakshmi Krishnamurthy
*/
public class IdzorekAndrogue2003 {
public static final void main (
final String[] astArgs)
throws Exception
{
EnvManager.InitEnv (
"",
true
);
String[] astrAssetClass = new String[] {
"US Bonds ",
"Global Bonds xUSD ",
"World Equity xUS ",
"Emerging Equity ",
"US Large Cap Growth ",
"US Large Cap Value ",
"US Small Cap Growth ",
"US Small Cap Value "
};
double[] adblMarketCapitalizationEstimate = new double[] {
8360741000000.,
11583275710000.,
9212460000000.,
964647000000.,
5217844438500.,
5217844438500.,
459897061500.,
459897061500.
};
double dblDelta = 3.37;
double[][] aadblAssetExcessReturnsCorrelation = new double[][] {
{ 0.0014, 0.0015, -0.0008, -0.0017, -0.0010, -0.0007, -0.0015, -0.0006},
{ 0.0015, 0.0076, 0.0026, -0.0006, -0.0013, -0.0003, -0.0002, 0.0005},
{-0.0008, 0.0026, 0.0251, 0.0292, 0.0208, 0.0147, 0.0248, 0.0134},
{-0.0017, -0.0006, 0.0292, 0.0663, 0.0359, 0.0244, 0.0490, 0.0268},
{-0.0010, -0.0013, 0.0208, 0.0359, 0.0468, 0.0283, 0.0520, 0.0260},
{-0.0007, -0.0003, 0.0147, 0.0244, 0.0283, 0.0252, 0.0314, 0.0215},
{-0.0015, -0.0002, 0.0248, 0.0490, 0.0520, 0.0314, 0.0809, 0.0411},
{-0.0006, 0.0005, 0.0134, 0.0268, 0.0260, 0.0215, 0.0411, 0.0276}
};
double[] adblMarketCapitalizationWeightReconciler = new double[] {
0.2016,
0.2793,
0.2221,
0.0233,
0.1258,
0.1258,
0.0111,
0.0111
};
double[] adblImpliedReturnsReconciler = new double[] {
0.0008,
0.0094,
0.0395,
0.0537,
0.0513,
0.0368,
0.0612,
0.0349
};
double dblTotalMarketCapitalization = 0.;
double[] adblMarketCapitalizationWeight = new double[adblMarketCapitalizationEstimate.length];
for (int i = 0; i < adblMarketCapitalizationEstimate.length; ++i)
dblTotalMarketCapitalization += adblMarketCapitalizationEstimate[i];
for (int i = 0; i < adblMarketCapitalizationEstimate.length; ++i)
adblMarketCapitalizationWeight[i] = adblMarketCapitalizationEstimate[i] / dblTotalMarketCapitalization;
double[] adblImpliedReturns = Matrix.Product (
aadblAssetExcessReturnsCorrelation,
adblMarketCapitalizationWeight
);
System.out.println ("\n\t|------------------------------------------------------------------------------------------------------||");
System.out.println ("\t| CO-VARIANCE MATRIX ||");
System.out.println ("\t|------------------------------------------------------------------------------------------------------||");
for (int i = 0; i < astrAssetClass.length; ++i) {
String strDump = "\t| " + astrAssetClass[i] + " ";
for (int j = 0; j < astrAssetClass.length; ++j)
strDump += "| " + FormatUtil.FormatDouble (aadblAssetExcessReturnsCorrelation[i][j], 1, 4, 1.) + " ";
System.out.println (strDump + "||");
}
System.out.println ("\t|------------------------------------------------------------------------------------------------------||");
System.out.println ("\n\t||-------------------------------------------------------------||");
System.out.println ("\t|| MARKET CAPITALIZATION AND EQUILIBRIUM WEIGHTS ||");
System.out.println ("\t||-------------------------------------------------------------||");
System.out.println ("\t|| ASSET CLASS => CAPITALIZATION | OUTPUT | PAPER ||");
System.out.println ("\t||-------------------------------------------------------------||");
for (int i = 0; i < adblMarketCapitalizationEstimate.length; ++i)
System.out.println (
"\t|| " + astrAssetClass[i] + " => " +
FormatUtil.FormatDouble (adblMarketCapitalizationEstimate[i], 14, 0, 1.) + " | " +
FormatUtil.FormatDouble (adblMarketCapitalizationWeight[i], 2, 2, 100.) + "% | " +
FormatUtil.FormatDouble (adblMarketCapitalizationWeightReconciler[i], 2, 2, 100.) + "% ||"
);
System.out.println ("\t||-------------------------------------------------------------||\n");
System.out.println ("\t||-------------------------------------------||");
System.out.println ("\t|| RISK PREMIUM IMPLIED RETURNS ||");
System.out.println ("\t||-------------------------------------------||");
System.out.println ("\t|| ASSET CLASS => OUTPUT | PAPER ||");
System.out.println ("\t||-------------------------------------------||");
for (int i = 0; i < adblImpliedReturns.length; ++i)
System.out.println (
"\t|| " + astrAssetClass[i] + " => " +
FormatUtil.FormatDouble (dblDelta * adblImpliedReturns[i], 2, 2, 100.) + "% | " +
FormatUtil.FormatDouble (adblImpliedReturnsReconciler[i], 2, 2, 100.) + "% ||"
);
System.out.println ("\t||-------------------------------------------||\n");
EnvManager.TerminateEnv();
}
}