Yamabe2016.java

package org.drip.sample.blacklitterman;

import org.drip.measure.bayesian.R1MultivariateConvolutionMetrics;
import org.drip.measure.continuous.MultivariateMeta;
import org.drip.measure.gaussian.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.portfolioconstruction.allocator.ForwardReverseHoldingsAllocation;
import org.drip.portfolioconstruction.asset.Portfolio;
import org.drip.portfolioconstruction.bayesian.*;
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>Yamabe2016</i> reconciles the Outputs of the Black-Litterman Model Process. The Reference is:
 *  
 * <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>
 *  </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 Yamabe2016 {

    public static final void main (
        final String[] astArgs)
        throws Exception
    {
        EnvManager.InitEnv (
            "",
            true
        );

        double dblTau = 1.0000;
        double dblRiskAversion = 2.6;
        double dblRiskFreeRate = 0.00;

        String[] astrAssetID = new String[] {
            "ASSET A ",
            "ASSET B ",
            "ASSET C ",
            "ASSET D ",
            "ASSET E ",
            "ASSET F "
        };

        double[] adblAssetEquilibriumWeight = new double[] {
            0.2535,
            0.1343,
            0.1265,
            0.1375,
            0.0733,
            0.2749
        };

        double[][] aadblAssetExcessReturnsCovariance = new double[][] {
            {0.00273, 0.00208, 0.00159, 0.00049, 0.00117, 0.00071},
            {0.00208, 0.00277, 0.00130, 0.00046, 0.00111, 0.00056},
            {0.00159, 0.00130, 0.00146, 0.00064, 0.00105, 0.00052},
            {0.00049, 0.00046, 0.00064, 0.00061, 0.00066, 0.00037},
            {0.00117, 0.00111, 0.00105, 0.00066, 0.00139, 0.00066},
            {0.00071, 0.00056, 0.00052, 0.00037, 0.00066, 0.00070}
        };

        double[][] aadblAssetSpaceViewProjection = new double[][] {
            {  0.00,  0.00, -1.00,  0.00,  1.00,  0.00},
            {  0.00,  1.00,  0.00,  0.00, -1.00,  0.00},
            { -1.00,  1.00,  1.00,  0.00,  0.00, -1.00}
        };

        double[] adblProjectionExpectedExcessReturns = new double[] {
            0.0002,
            0.0003,
            0.0001
        };

        double[][] aadblProjectionExcessReturnsCovariance = new double[][] {
            { 0.00075, -0.00053, -0.00033},
            {-0.00053,  0.00195,  0.00110},
            {-0.00033,  0.00110,  0.00217}
        };

        R1MultivariateNormal viewDistribution = R1MultivariateNormal.Standard (
            new MultivariateMeta (
                new String[] {
                    "PROJECTION #1",
                    "PROJECTION #2",
                    "PROJECTION #3"
                }
            ),
            adblProjectionExpectedExcessReturns,
            aadblProjectionExcessReturnsCovariance
        );

        double[] adblAssetSpacePriorReturnsReconciler = new double[] {
            0.003954,
            0.003540,
            0.002782,
            0.001299,
            0.002476,
            0.001594
        };

        double[] adblAssetSpaceJointReturnsReconciler = new double[] {
            0.003755,
            0.003241,
            0.002612,
            0.001305,
            0.002559,
            0.001662
        };

        double[] adblExpectedHistoricalReturns = new double[] {
            0.003559,
            0.000469,
            0.004053,
            0.004527,
            0.000904,
            0.001581
        };

        BlackLittermanCombinationEngine blce = new BlackLittermanCombinationEngine (
            ForwardReverseHoldingsAllocation.Reverse (
                Portfolio.Standard (
                    astrAssetID,
                    adblAssetEquilibriumWeight
                ),
                aadblAssetExcessReturnsCovariance,
                dblRiskAversion
            ),
            new PriorControlSpecification (
                false,
                dblRiskFreeRate,
                dblTau
            ),
            new ProjectionSpecification (
                viewDistribution,
                aadblAssetSpaceViewProjection
            )
        );

        R1MultivariateConvolutionMetrics jpm = blce.customConfidenceRun().jointPosteriorMetrics();

        R1MultivariateNormal priorDistribution = (R1MultivariateNormal) jpm.prior();

        R1MultivariateNormal jointDistribution = (R1MultivariateNormal) jpm.joint();

        R1MultivariateNormal posteriorDistribution = (R1MultivariateNormal) jpm.posterior();

        double[] adblAssetSpacePriorReturns = priorDistribution.mean();

        double[] adblAssetSpaceJointReturns = jointDistribution.mean();

        double[][] aadblAssetSpaceJointCovariance = jointDistribution.covariance().covarianceMatrix();

        double[][] aadblAssetSpacePosteriorCovariance = posteriorDistribution.covariance().covarianceMatrix();

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

        System.out.println ("\t| TAU            =>" + FormatUtil.FormatDouble (dblTau, 1, 2, 1.) + "  ||");

        System.out.println ("\t| RISK AVERSION  =>" + FormatUtil.FormatDouble (dblRiskAversion, 1, 2, 1.) + "  ||");

        System.out.println ("\t| RISK FREE RATE =>" + FormatUtil.FormatDouble (dblRiskFreeRate, 1, 2, 1.) + "% ||");

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

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

        System.out.println ("\t|                       PRIOR CROSS ASSET COVARIANCE MATRIX                              ||");

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

        String strHeader = "\t|    ID    |";

        for (int i = 0; i < astrAssetID.length; ++i)
            strHeader += "  " + astrAssetID[i] + "  |";

        System.out.println (strHeader + "|");

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

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

            for (int j = 0; j < astrAssetID.length; ++j)
                strDump += "|" + FormatUtil.FormatDouble (aadblAssetExcessReturnsCovariance[i][j], 1, 8, 1.) + " ";

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

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

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

        System.out.println ("\t|                    VIEW SCOPING ASSET PROJECTION LOADING                          ||");

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

        strHeader = "\t|     |";

        for (int i = 0; i < astrAssetID.length; ++i)
            strHeader += "  " + astrAssetID[i] + "  |";

        System.out.println (strHeader + "|");

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

        for (int i = 0; i < aadblAssetSpaceViewProjection.length; ++i) {
            String strDump = "\t|  #" + i + " ";

            for (int j = 0; j < astrAssetID.length; ++j)
                strDump += "|" + FormatUtil.FormatDouble (aadblAssetSpaceViewProjection[i][j], 1, 8, 1.) + " ";

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

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

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

        for (int i = 0; i < aadblAssetSpaceViewProjection.length; ++i) {
            String strDump = "\t|  #" + i + " ";

            for (int j = 0; j < aadblAssetSpaceViewProjection.length; ++j)
                strDump += "|" + FormatUtil.FormatDouble (aadblProjectionExcessReturnsCovariance[i][j], 1, 8, 1.) + " ";

            System.out.println (strDump + "|" + FormatUtil.FormatDouble (adblProjectionExpectedExcessReturns[i], 1, 2, 100.) + "% ||");
        }

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

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

        System.out.println ("\t|                       JOINT CROSS ASSET COVARIANCE MATRIX                              ||");

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

        strHeader = "\t|    ID    |";

        for (int i = 0; i < astrAssetID.length; ++i)
            strHeader += "  " + astrAssetID[i] + "  |";

        System.out.println (strHeader + "|");

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

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

            for (int j = 0; j < astrAssetID.length; ++j)
                strDump += "|" + FormatUtil.FormatDouble (aadblAssetSpaceJointCovariance[i][j], 1, 8, 1.) + " ";

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

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

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

        System.out.println ("\t|                     POSTERIOR CROSS ASSET COVARIANCE MATRIX                            ||");

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

        strHeader = "\t|    ID    |";

        for (int i = 0; i < astrAssetID.length; ++i)
            strHeader += "  " + astrAssetID[i] + "  |";

        System.out.println (strHeader + "|");

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

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

            for (int j = 0; j < astrAssetID.length; ++j)
                strDump += "|" + FormatUtil.FormatDouble (aadblAssetSpacePosteriorCovariance[i][j], 1, 8, 1.) + " ";

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

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

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

        System.out.println ("\t|      IMPLIED/PRIOR RETURN       ||");

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

        System.out.println ("\t|     ID     =>  RIOCEE |  YAMABE ||");

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

        for (int i = 0; i < adblAssetSpacePriorReturns.length; ++i) {
            System.out.println (
                "\t| [" + astrAssetID[i] + "] =>" +
                FormatUtil.FormatDouble (adblAssetSpacePriorReturns[i], 1, 4, 100.) + "% |" +
                FormatUtil.FormatDouble (adblAssetSpacePriorReturnsReconciler[i], 1, 4, 100.) + "% ||"
            );
        }

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

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

        System.out.println ("\t|     JOINT/POSTERIOR RETURN      ||");

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

        System.out.println ("\t|     ID     =>  RIOCEE |  YAMABE ||");

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

        for (int i = 0; i < adblAssetSpaceJointReturnsReconciler.length; ++i) {
            System.out.println (
                "\t| [" + astrAssetID[i] + "] =>" +
                FormatUtil.FormatDouble (adblAssetSpaceJointReturns[i], 1, 4, 100.) + "% |" +
                FormatUtil.FormatDouble (adblAssetSpaceJointReturnsReconciler[i], 1, 4, 100.) + "% ||"
            );
        }

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

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

        System.out.println ("\t|     PRIOR/POSTERIOR/HISTORICAL RETURN     ||");

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

        System.out.println ("\t|     ID     =>  PRIOR  |   POST  |   HIST  ||");

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

        for (int i = 0; i < adblAssetSpaceJointReturnsReconciler.length; ++i) {
            System.out.println (
                "\t| [" + astrAssetID[i] + "] =>" +
                FormatUtil.FormatDouble (adblAssetSpacePriorReturns[i], 1, 4, 100.) + "% |" +
                FormatUtil.FormatDouble (adblAssetSpaceJointReturns[i], 1, 4, 100.) + "% |" +
                FormatUtil.FormatDouble (adblExpectedHistoricalReturns[i], 1, 4, 100.) + "% ||"
            );
        }

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

        EnvManager.TerminateEnv();
    }
}