CDSO.java

package org.drip.sample.bloomberg;

import java.util.Map;

import org.drip.analytics.date.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.market.CurveSurfaceQuoteContainer;
import org.drip.param.pricer.CreditPricerParams;
import org.drip.param.valuation.ValuationParams;
import org.drip.pricer.option.BlackScholesAlgorithm;
import org.drip.product.creator.CDSBuilder;
import org.drip.product.definition.CreditDefaultSwap;
import org.drip.product.option.CDSEuropeanOption;
import org.drip.service.env.EnvManager;
import org.drip.service.template.LatentMarketStateBuilder;
import org.drip.state.creator.ScenarioDeterministicVolatilityBuilder;
import org.drip.state.credit.CreditCurve;
import org.drip.state.discount.MergedDiscountForwardCurve;
import org.drip.state.identifier.*;

/*
 * -*- 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>CDSO</i> contains the sample demonstrating the replication of Bloomberg's CDSO functionality.
 *  
 * <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/FixedIncomeAnalyticsLibrary.md">Fixed Income 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/bloomberg/README.md">Bloomberg CDSO CDSW SWPM YAS</a></li>
 *  </ul>
 * <br><br>
 * 
 * @author Lakshmi Krishnamurthy
 */

public class CDSO {

    private static final MergedDiscountForwardCurve MarketFundingCurve (
        final JulianDate dtSpot,
        final String strCurrency,
        final double dblBump)
    {
        return LatentMarketStateBuilder.SmoothFundingCurve (
            dtSpot,
            strCurrency,
            new String[] {
                "02D",
                "07D",
                "14D",
                "30D",
                "60D"
            },
            new double[] {
                0.0017 + dblBump,   //  2D
                0.0017 + dblBump,   //  7D
                0.0018 + dblBump,   // 14D
                0.0020 + dblBump,   // 30D
                0.0023 + dblBump    // 60D
            },
            "ForwardRate",
            new double[] {
                0.0027 + dblBump,
                0.0032 + dblBump,
                0.0041 + dblBump,
                0.0054 + dblBump,
                0.0077 + dblBump,
                0.0104 + dblBump,
                0.0134 + dblBump,
                0.0160 + dblBump
            },
            "ForwardRate",
            new String[] {
                "04Y",
                "05Y",
                "06Y",
                "07Y",
                "08Y",
                "09Y",
                "10Y",
                "11Y",
                "12Y",
                "15Y",
                "20Y",
                "25Y",
                "30Y",
                "40Y",
                "50Y"
            },
            new double[] {
                0.0166 + dblBump,   //  4Y
                0.0206 + dblBump,   //  5Y
                0.0241 + dblBump,   //  6Y
                0.0269 + dblBump,   //  7Y
                0.0292 + dblBump,   //  8Y
                0.0311 + dblBump,   //  9Y
                0.0326 + dblBump,   // 10Y
                0.0340 + dblBump,   // 11Y
                0.0351 + dblBump,   // 12Y
                0.0375 + dblBump,   // 15Y
                0.0393 + dblBump,   // 20Y
                0.0402 + dblBump,   // 25Y
                0.0407 + dblBump,   // 30Y
                0.0409 + dblBump,   // 40Y
                0.0409 + dblBump    // 50Y
            },
            "SwapRate"
        );
    }

    private static final CreditCurve MarketCreditCurve (
        final JulianDate dtSpot,
        final String strCreditCurve,
        final String strManifestMeasure,
        final MergedDiscountForwardCurve dcFunding,
        final double dblBump,
        final boolean bDisplay)
        throws Exception
    {
        String[] astrCDSMaturityTenor = new String[] {
            "06M",
            "01Y",
            "02Y",
            "03Y",
            "04Y",
            "05Y",
            "07Y",
            "10Y"
        };

        double[] adblCDSParSpread = new double[] {
            100. + dblBump, //  6M
            100. + dblBump, //  1Y
            100. + dblBump, //  2Y
            100. + dblBump, //  3Y
            100. + dblBump, //  4Y
            100. + dblBump, //  5Y
            100. + dblBump, //  7Y
            100. + dblBump  // 10Y
        };

        CreditCurve cc = LatentMarketStateBuilder.CreditCurve (
            dtSpot,
            strCreditCurve,
            astrCDSMaturityTenor,
            adblCDSParSpread,
            adblCDSParSpread,
            strManifestMeasure,
            dcFunding
        );

        if (!bDisplay) return cc;

        CreditPricerParams pricerParams = CreditPricerParams.Standard();

        CurveSurfaceQuoteContainer csqc = new CurveSurfaceQuoteContainer();

        csqc.setFundingState (dcFunding);

        csqc.setCreditState (cc);

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

        System.out.println ("\t| CREDIT SPREAD ||");

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

        for (int i = 0; i < adblCDSParSpread.length; ++i)
            System.out.println (
                "\t| " + astrCDSMaturityTenor[i] + " |" +
                FormatUtil.FormatDouble (
                    CDSBuilder.CreateSNAC (
                        dtSpot,
                        astrCDSMaturityTenor[i],
                        0.1,
                        strCreditCurve
                    ).measureValue (
                        ValuationParams.Spot (dtSpot.julian()),
                        pricerParams,
                        csqc,
                        null,
                        strManifestMeasure
                    ),
                3, 3, 1.) + " ||"
            );

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

        return cc;
    }

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

        JulianDate dtSpot = DateUtil.CreateFromYMD (
            2016,
            DateUtil.FEBRUARY,
            2
        );

        JulianDate dtCashPay = DateUtil.CreateFromYMD (
            2016,
            DateUtil.FEBRUARY,
            5
        );

        String strCurrency = "USD";
        String strCreditCurve = "DB";
        String strCDSForwardTenor = "5Y";
        double dblCDSForwardCoupon = 0.1;
        double dblFairPremiumVolatility = 0.3;
        String strManifestMeasure = "FairPremium";
        double dblNotional = 10000000.;
        double dblCreditBump = 10.;
        double dblFundingBump = .0001;

        MergedDiscountForwardCurve dcFunding = MarketFundingCurve (
            dtSpot,
            strCurrency,
            0.
        );

        CreditCurve cc = MarketCreditCurve (
            dtSpot,
            strCreditCurve,
            strManifestMeasure,
            dcFunding,
            0.,
            true
        );

        CreditPricerParams pricerParams = CreditPricerParams.Standard();

        CurveSurfaceQuoteContainer csqc = new CurveSurfaceQuoteContainer();

        csqc.setFundingState (dcFunding);

        csqc.setCreditState (cc);

        JulianDate dtEffective = DateUtil.CreateFromYMD (
            2016,
            DateUtil.MARCH,
            20
        );

        CreditDefaultSwap cdsForward = CDSBuilder.CreateSNAC (
            dtEffective,
            strCDSForwardTenor,
            dblCDSForwardCoupon,
            strCreditCurve
        );

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

        System.out.println ("\t|        UNDERLYING CDS FORWARD       |");

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

        System.out.println ("\t|  Effective Date    : " + cdsForward.effectiveDate());

        System.out.println ("\t|  Maturity Date     : " + cdsForward.maturityDate());

        System.out.println ("\t|  Notional          : " + FormatUtil.FormatDouble (dblNotional, 1, 0, 1.));

        System.out.println ("\t|  Payment Frequency : " + cdsForward.freq());

        System.out.println ("\t|  Currency          : " + cdsForward.payCurrency());

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

        csqc.setCustomVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                dtSpot.julian(),
                VolatilityLabel.Standard (CustomLabel.Standard (cdsForward.name() + "_" + strManifestMeasure)),
                strCurrency,
                dblFairPremiumVolatility
            )
        );

        ValuationParams valParams = new ValuationParams (
            dtSpot,
            dtCashPay,
            strCurrency
        );

        Map<String, Double> mapCDSForwardOutput = cdsForward.value (
            valParams,
            pricerParams,
            csqc,
            null
        );

        double dblStrike = mapCDSForwardOutput.get (strManifestMeasure);

        CDSEuropeanOption cdsOptionPayer = new CDSEuropeanOption (
            cdsForward.name() + "::PAYER_OPT",
            cdsForward,
            strManifestMeasure,
            false,
            dblStrike,
            null,
            new BlackScholesAlgorithm(),
            null
        );

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

        System.out.println ("\t|          OPTION PARAMETERS          |");

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

        System.out.println ("\t| Payer Swaption?  " + true);

        System.out.println ("\t| Exercise Type  : " + "European");

        System.out.println ("\t| Knock Out?       " + true);

        System.out.println ("\t| Strike         : " + FormatUtil.FormatDouble (dblStrike, 1, 0, 1.));

        System.out.println ("\t| Start Date     : " + dtSpot);

        System.out.println ("\t| Cash Pay Date  : " + dtCashPay);

        System.out.println ("\t| Exercise Date  : " + cdsOptionPayer.exerciseDate());

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

        Map<String, Double> mapPayerOptionOutput = cdsOptionPayer.value (
            valParams,
            null,
            csqc,
            null
        );

        double dblOptionPriceBase = mapPayerOptionOutput.get ("Price") / cdsForward.initialNotional();

        CreditCurve ccBumpUp = MarketCreditCurve (
            dtSpot,
            strCreditCurve,
            strManifestMeasure,
            dcFunding,
            dblCreditBump,
            false
        );

        CreditCurve ccBumpDown = MarketCreditCurve (
            dtSpot,
            strCreditCurve,
            strManifestMeasure,
            dcFunding,
            -dblCreditBump,
            false
        );

        csqc.setCreditState (ccBumpUp);

        Map<String, Double> mapPayerOptionOutputCreditBumpUp = cdsOptionPayer.value (
            valParams,
            null,
            csqc,
            null
        );

        double dblOptionPriceCreditBumpUp = mapPayerOptionOutputCreditBumpUp.get ("Price") / cdsForward.initialNotional();

        csqc.setCreditState (ccBumpDown);

        Map<String, Double> mapPayerOptionOutputCreditBumpDown = cdsOptionPayer.value (
            valParams,
            null,
            csqc,
            null
        );

        double dblOptionPriceCreditBumpDown = mapPayerOptionOutputCreditBumpDown.get ("Price") / cdsForward.initialNotional();

        MergedDiscountForwardCurve dcFundingBumpUp = MarketFundingCurve (
            dtSpot,
            strCurrency,
            dblFundingBump
        );

        csqc.setFundingState (dcFundingBumpUp);

        csqc.setCreditState (cc);

        Map<String, Double> mapPayerOptionOutputFundingBumpUp = cdsOptionPayer.value (
            valParams,
            null,
            csqc,
            null
        );

        double dblOptionPriceFundingBumpUp = mapPayerOptionOutputFundingBumpUp.get ("Price") / cdsForward.initialNotional();

        MergedDiscountForwardCurve dcFundingBumpDown = MarketFundingCurve (
            dtSpot,
            strCurrency,
            -dblFundingBump
        );

        csqc.setFundingState (dcFundingBumpDown);

        Map<String, Double> mapPayerOptionOutputFundingBumpDown = cdsOptionPayer.value (
            valParams,
            null,
            csqc,
            null
        );

        double dblOptionPriceFundingBumpDown = mapPayerOptionOutputFundingBumpDown.get ("Price") / cdsForward.initialNotional();

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

        System.out.println ("\t|           OPTION INPUTS AND PRICING           |");

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

        System.out.println ("\t| Valuation Date          : " + dtSpot);

        System.out.println ("\t| Fair Premium Volatility : " + FormatUtil.FormatDouble (dblFairPremiumVolatility, 1, 3, 100.) + "%");

        System.out.println ("\t| Option Premium          : " + FormatUtil.FormatDouble (dblOptionPriceBase, 1, 5, 100.) + "%");

        System.out.println ("\t| Option MTM              : " + FormatUtil.FormatDouble (dblOptionPriceBase * dblNotional, 1, 2, 1.));

        System.out.println ("\t| Credit Spread Delta 01  : " + FormatUtil.FormatDouble (0.5 * (dblOptionPriceCreditBumpUp - dblOptionPriceCreditBumpDown) * dblNotional / dblCreditBump, 1, 2, 1.));

        System.out.println ("\t| Credit Spread Gamma 01  : " + FormatUtil.FormatDouble (0.5 * (dblOptionPriceCreditBumpUp + dblOptionPriceCreditBumpDown - 2. * dblOptionPriceBase) * dblNotional / (dblCreditBump * dblCreditBump), 1, 2, 1.));

        System.out.println ("\t| Funding Spread Delta 01 : " + FormatUtil.FormatDouble (0.5 * (dblOptionPriceFundingBumpUp - dblOptionPriceFundingBumpDown) * dblNotional / (10000. * dblFundingBump), 1, 2, 1.));

        System.out.println ("\t| Funding Spread Gamma 01 : " + FormatUtil.FormatDouble (0.5 * (dblOptionPriceFundingBumpUp + dblOptionPriceFundingBumpDown - 2. * dblOptionPriceBase) * dblNotional / (10000. * 10000. * dblFundingBump * dblFundingBump), 1, 2, 1.));

        System.out.println ("\t| ATM Forward             : " + FormatUtil.FormatDouble (mapPayerOptionOutput.get ("ATMManifestMeasure"), 1, 0, 1.));

        System.out.println ("\t| FPG Delta               : " + FormatUtil.FormatDouble (mapPayerOptionOutput.get ("FPGDelta"), 1, 4, 1.));

        System.out.println ("\t| FPG Gamma               : " + FormatUtil.FormatDouble (mapPayerOptionOutput.get ("FPGGamma"), 1, 4, 1.));

        System.out.println ("\t| FPG Vega                : " + FormatUtil.FormatDouble (mapPayerOptionOutput.get ("FPGVega"), 1, 2, 1.));

        System.out.println ("\t| FPG Theta               : " + FormatUtil.FormatDouble (mapPayerOptionOutput.get ("FPGTheta"), 1, 2, 1.));

        System.out.println ("\t| Vega (1%)               : " + FormatUtil.FormatDouble (mapPayerOptionOutput.get ("Vega") / cdsForward.initialNotional() * dblNotional * 0.01, 1, 2, 1.));

        System.out.println ("\t| Theta                   : " + FormatUtil.FormatDouble (mapPayerOptionOutput.get ("Theta") / cdsForward.initialNotional() * dblNotional / 365.25, 1, 2, 1.));

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

        EnvManager.TerminateEnv();
    }
}