CDSW.java

package org.drip.sample.bloomberg;

/*
 * Credit Products imports
 */

import org.drip.analytics.cashflow.*;
import org.drip.analytics.date.*;
import org.drip.analytics.support.*;
import org.drip.market.otc.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.creator.*;
import org.drip.param.market.CurveSurfaceQuoteContainer;
import org.drip.param.pricer.CreditPricerParams;
import org.drip.param.valuation.*;
import org.drip.product.definition.*;
import org.drip.product.rates.*;
import org.drip.product.creator.*;
import org.drip.service.env.EnvManager;
import org.drip.state.creator.*;
import org.drip.state.credit.CreditCurve;
import org.drip.state.discount.MergedDiscountForwardCurve;
import org.drip.state.identifier.ForwardLabel;

/*
 * -*- 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
 * Copyright (C) 2015 Lakshmi Krishnamurthy
 * Copyright (C) 2014 Lakshmi Krishnamurthy
 * Copyright (C) 2013 Lakshmi Krishnamurthy
 * Copyright (C) 2012 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>CDSW</i> contains the sample demonstrating the replication of Bloomberg's CDSW 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 CDSW {
    private static final java.lang.String FIELD_SEPARATOR = "   ";

    private static final FixFloatComponent OTCIRS (
        final JulianDate dtSpot,
        final String strCurrency,
        final String strMaturityTenor,
        final double dblCoupon)
    {
        FixedFloatSwapConvention ffConv = IBORFixedFloatContainer.ConventionFromJurisdiction (
            strCurrency,
            "ALL",
            strMaturityTenor,
            "MAIN"
        );

        return ffConv.createFixFloatComponent (
            dtSpot,
            strMaturityTenor,
            dblCoupon,
            0.,
            1.
        );
    }

    /*
     * Sample demonstrating building of rates curve from cash/future/swaps
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

    private static MergedDiscountForwardCurve BuildRatesCurveFromInstruments (
        final JulianDate dtStart,
        final String[] astrCashTenor,
        final double[] adblCashRate,
        final String[] astrIRSTenor,
        final double[] adblIRSRate,
        final double dblBump,
        final String strCurrency)
        throws Exception
    {
        int iNumDCInstruments = astrCashTenor.length + adblIRSRate.length;
        int aiDate[] = new int[iNumDCInstruments];
        double adblRate[] = new double[iNumDCInstruments];
        String astrCalibMeasure[] = new String[iNumDCInstruments];
        double adblCompCalibValue[] = new double[iNumDCInstruments];
        CalibratableComponent aCompCalib[] = new CalibratableComponent[iNumDCInstruments];

        // Cash Calibration

        JulianDate dtCashEffective = dtStart.addBusDays (
            1,
            strCurrency
        );

        for (int i = 0; i < astrCashTenor.length; ++i) {
            astrCalibMeasure[i] = "Rate";
            adblRate[i] = java.lang.Double.NaN;
            adblCompCalibValue[i] = adblCashRate[i] + dblBump;

            aCompCalib[i] = SingleStreamComponentBuilder.Deposit (
                dtCashEffective,
                new JulianDate (aiDate[i] = dtCashEffective.addTenor (astrCashTenor[i]).julian()),
                ForwardLabel.Create (
                    strCurrency,
                    astrCashTenor[i]
                )
            );
        }

        // IRS Calibration

        JulianDate dtIRSEffective = dtStart.addBusDays (2, strCurrency);

        for (int i = 0; i < astrIRSTenor.length; ++i) {
            astrCalibMeasure[i + astrCashTenor.length] = "Rate";
            adblRate[i + astrCashTenor.length] = java.lang.Double.NaN;
            adblCompCalibValue[i + astrCashTenor.length] = adblIRSRate[i] + dblBump;

            aiDate[i + astrCashTenor.length] = dtIRSEffective.addTenor (astrIRSTenor[i]).julian();

            aCompCalib[i + astrCashTenor.length] = OTCIRS (
                dtIRSEffective,
                strCurrency,
                astrIRSTenor[i],
                0.
            );
        }

        /*
         * Build the IR curve from the components, their calibration measures, and their calibration quotes.
         */

        return ScenarioDiscountCurveBuilder.NonlinearBuild (
            dtStart,
            strCurrency,
            aCompCalib,
            adblCompCalibValue,
            astrCalibMeasure,
            null
        );
    }

    /*
     * Sample demonstrating creation of credit curve from CDS instruments
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

    private static CreditCurve CreateCreditCurveFromCDS (
        final JulianDate dtStart,
        final double[] adblQuote,
        final String[] astrTenor,
        final String strMeasure,
        final MergedDiscountForwardCurve dc,
        final double dblRecovery,
        final String strCCName,
        final double dblStrike,
        final double dblBump)
        throws Exception
    {
        String[] astrCalibMeasure = new String[adblQuote.length];
        CreditDefaultSwap[] aCDS = new CreditDefaultSwap[adblQuote.length];

        for (int i = 0; i < astrTenor.length; ++i) {
            aCDS[i] = CDSBuilder.CreateSNAC (
                dtStart,
                astrTenor[i],
                dblStrike,
                strCCName
            );

            astrCalibMeasure[i] = strMeasure;
            adblQuote[i] += dblBump;
        }

        /*
         * Build the credit curve from the CDS instruments and the fair premium
         */

        return ScenarioCreditCurveBuilder.Custom (
            strCCName,
            dtStart,
            aCDS,
            dc,
            adblQuote,
            astrCalibMeasure,
            dblRecovery,
            "QuotedSpread".equals (strMeasure)
        );
    }

    /*
     * Sample demonstrating display of survival probability at the calibration instrument maturities
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

    private static final void DisplayInstrumentMaturitySurvival (
        final CreditCurve cc)
        throws java.lang.Exception
    {
        CalibratableComponent[] aCDS = cc.calibComp();

        for (int i = 0; i < aCDS.length; ++i)
            System.out.println (
                aCDS[i].maturityDate() + " | " +
                cc.manifestMeasure (aCDS[i].primaryCode()) + " | " +
                FormatUtil.FormatDouble (1. - cc.survival (aCDS[i].maturityDate()), 1, 3, 1.));
    }

    /*
     * Sample demonstrating the creation of a CDS
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

    private static CreditDefaultSwap CreateCDS (
        final JulianDate dtStart,
        final String strTenor,
        final double dblCoupon,
        final String strCCName)
    {
        return CDSBuilder.CreateSNAC (dtStart, strTenor, dblCoupon, strCCName);
    }

    /*
     * Sample demonstrating the generation of the full set of CDSW measure
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

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

        JulianDate dtCurve = DateUtil.CreateFromYMD (
            2018,
            DateUtil.JANUARY,
            5
        );

        JulianDate dtValue = dtCurve.addDays (1);

        JulianDate dtSettle = dtValue.addBusDays (
            3,
            "USD"
        );

        /*
         * Model the USD ISDA Standard Curve
         */

        double dblRecovery = 0.4;
        double dblNotional = -10.e+06;
        String[] astrCashTenor = new String[] {   "1M",     "2M",     "3M",     "6M",    "12M"};
        double[] adblCashRate = new double[] {0.001864, 0.002289, 0.002638, 0.003965, 0.006759};
        String[] astrIRSTenor = new String[] {   "2Y",     "3Y",     "4Y",     "5Y",     "6Y",     "7Y",
                "8Y",     "9Y",    "10Y",    "12Y",    "15Y",    "20Y",    "25Y",    "30Y"};
        double[] adblIRSRate = new double[] {0.004750, 0.007700, 0.011600, 0.015425, 0.018900, 0.021760,
            0.024105, 0.026095, 0.027750, 0.030400, 0.032890, 0.034855, 0.035805, 0.036345};

        /*
         * Build the USD ISDA Standard Curve
         */

        MergedDiscountForwardCurve dc = BuildRatesCurveFromInstruments (
            dtCurve,
            astrCashTenor,
            adblCashRate,
            astrIRSTenor,
            adblIRSRate,
            0.,
            "USD"
        );

        /*
         * Build the CDS Instrument Quotes
         */

        String[] astrCDSTenor = new String[] {
            "6M", "1Y", "2Y", "3Y", "4Y", "5Y", "7Y", "10Y"
        };
        double[] adblCDSParSpread = new double[] {
            60., 68., 88., 102., 121., 138., 168., 188.
        };

        /*
         * Build the Base Credit Curve
         */

        CreditCurve cc = CreateCreditCurveFromCDS (
            dtValue,
            adblCDSParSpread,
            astrCDSTenor,
            "FairPremium",
            dc,
            dblRecovery,
            "MS",
            0.01,
            0.
        );

        /*
         * Display Survival Probability to the instrument maturities
         */

        DisplayInstrumentMaturitySurvival (cc);

        /*
         * Create the CDS to price. Contract Maturity is 6Y. Traded Spread Input is 0.05 (500 bp).
         */

        CreditDefaultSwap cds = CreateCDS (
            dtValue,
            "6Y",
            0.05,
            "MS"
        );

        ValuationParams valParams = new ValuationParams (
            dtValue,
            dtSettle,
            "USD"
        );

        CreditPricerParams pricerParams = CreditPricerParams.Standard();

        System.out.println ("\n---- Valuation Details ----");

        System.out.println ("Trade Date   : " + dtCurve);

        System.out.println ("Cash Settle  : " + dtSettle);

        System.out.println ("\n---- CDS Details ----");

        System.out.println ("Effective    : " + cds.effectiveDate());

        System.out.println ("Maturity     : " + cds.maturityDate());

        /*
         * Generate the base CDS Measures
         */

        CurveSurfaceQuoteContainer mktParams = MarketParamsBuilder.Credit (
            dc,
            cc
        );

        CaseInsensitiveTreeMap<Double> mapBaseMeasures = cds.value (
            valParams,
            pricerParams,
            mktParams,
            null
        );

        double dblAccrued = mapBaseMeasures.get ("Accrued") * 100. * dblNotional;

        double dblBaseDirtyPV = mapBaseMeasures.get ("DirtyPV");

        double dblPrincipal = mapBaseMeasures.get ("Upfront") * 0.01 * dblNotional;

        System.out.println ("\n---- Base CDS Measures ----");

        System.out.println ("Price        : " + FormatUtil.FormatDouble (mapBaseMeasures.get ("Price"), 1, 2, 1.));

        System.out.println ("Principal    : " + FormatUtil.FormatDouble (dblPrincipal, 1, 0, 1.));

        System.out.println ("Accrued      : " + FormatUtil.FormatDouble (dblAccrued, 1, 0, 1.));

        System.out.println ("Accrual Days : " + FormatUtil.FormatDouble (mapBaseMeasures.get ("AccrualDays"), 1, 0, 1.));

        System.out.println ("Cash Amount  : " + FormatUtil.FormatDouble (dblAccrued + dblPrincipal, 1, 0, 1.));

        System.out.println ("Repl Spread  : " + FormatUtil.FormatDouble (mapBaseMeasures.get ("FairPremium"), 1, 4, 1.));

        /*
         * Build the Bumped 01 Credit Curve
         */

        CreditCurve cc01Bump = CreateCreditCurveFromCDS (
            dtValue,
            adblCDSParSpread,
            astrCDSTenor,
            "FairPremium",
            dc,
            dblRecovery,
            "MS",
            0.01,
            1.
        );

        /*
         * Generate the 1 bp flat Credit Curve bumped  Measures
         */

        CaseInsensitiveTreeMap<Double> mapCreditFlat01Measures = cds.value (
            valParams,
            pricerParams,
            MarketParamsBuilder.Credit (
                dc,
                cc01Bump
            ),
            null
        );

        double dblCreditFlat01DirtyPV = mapCreditFlat01Measures.get ("DirtyPV");

        System.out.println ("CS01         : " + FormatUtil.FormatDouble (dblCreditFlat01DirtyPV - dblBaseDirtyPV, 1, 0, 0.01 * dblNotional));

        /*
         * Build the Bumped 01 Rates Curve
         */

        MergedDiscountForwardCurve dc01Bump = BuildRatesCurveFromInstruments (
            dtCurve,
            astrCashTenor,
            adblCashRate,
            astrIRSTenor,
            adblIRSRate,
            0.0001,
            "USD"
        );

        /*
         * Generate the 1 bp flat Rates Curve bumped  Measures
         */

        CaseInsensitiveTreeMap<Double> mapRatesFlat01Measures = cds.value (
            valParams,
            pricerParams,
            MarketParamsBuilder.Credit (
                dc01Bump,
                cc
            ),
            null
        );

        double dblRatesFlat01DirtyPV = mapRatesFlat01Measures.get ("DirtyPV");

        System.out.println ("IR01         : " + FormatUtil.FormatDouble (dblRatesFlat01DirtyPV - dblBaseDirtyPV, 1, 0, 0.01 * dblNotional));

        /*
         * Generates and displays the coupon period details for the bonds
         */

        System.out.println ("\n---- CDS Coupon Flows ----");

        for (CompositePeriod p : cds.couponPeriods())
            System.out.println (
                DateUtil.YYYYMMDD (p.startDate()) + FIELD_SEPARATOR +
                DateUtil.YYYYMMDD (p.endDate()) + FIELD_SEPARATOR +
                DateUtil.YYYYMMDD (p.payDate()) + FIELD_SEPARATOR +
                FormatUtil.FormatDouble (p.couponDCF(), 1, 3, 1.) + FIELD_SEPARATOR +
                FormatUtil.FormatDouble (p.couponDCF(), 1, 2, 0.01 * dblNotional) + FIELD_SEPARATOR +
                FormatUtil.FormatDouble (dc.df (p.payDate()), 1, 4, 1.) + FIELD_SEPARATOR +
                FormatUtil.FormatDouble (cc.survival (p.payDate()), 1, 4, 1.)
            );

        /*
         * Generate the Quoted Spread Based CDS Measures
         */

        CaseInsensitiveTreeMap<Double> mapQSMeasures = cds.valueFromQuotedSpread (
            valParams,
            pricerParams,
            mktParams,
            null,
            0.05,
            208.
        );

        System.out.println ("\n---- Quoted Spread CDS Measures ----");

        System.out.println ("QS Price     : " + FormatUtil.FormatDouble (mapQSMeasures.get ("Price"), 1, 2, 1.));

        System.out.println ("QS Repl Spd  : " + FormatUtil.FormatDouble (mapQSMeasures.get ("FairPremium"), 1, 4, 1.));

        EnvManager.TerminateEnv();
    }
}