CDSCashFlowMeasures.java

  1. package org.drip.sample.credit;

  3. /*
  4.  * Credit Product import
  5.  */

  7. import org.drip.analytics.cashflow.*;
  8. import org.drip.analytics.date.*;
  9. import org.drip.analytics.daycount.Convention;
  10. import org.drip.numerical.common.FormatUtil;
  11. import org.drip.param.market.CurveSurfaceQuoteContainer;
  12. import org.drip.param.pricer.CreditPricerParams;
  13. import org.drip.param.valuation.*;
  14. import org.drip.product.definition.*;
  15. import org.drip.param.creator.*;
  16. import org.drip.product.creator.*;
  17. import org.drip.service.env.EnvManager;
  18. import org.drip.state.creator.*;
  19. import org.drip.state.credit.CreditCurve;
  20. import org.drip.state.discount.MergedDiscountForwardCurve;

  22. /*
  23.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  24.  */

  26. /*!
  27.  * Copyright (C) 2020 Lakshmi Krishnamurthy
  28.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  29.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  30.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  31.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  32.  * Copyright (C) 2015 Lakshmi Krishnamurthy
  33.  * Copyright (C) 2014 Lakshmi Krishnamurthy
  34.  * Copyright (C) 2013 Lakshmi Krishnamurthy
  35.  * Copyright (C) 2012 Lakshmi Krishnamurthy
  36.  * 
  37.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  38.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  39.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  40.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  41.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  42.  *      and computational support.
  43.  *  
  44.  *      https://lakshmidrip.github.io/DROP/
  45.  *  
  46.  *  DROP is composed of three modules:
  47.  *  
  48.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  49.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  50.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  51.  * 
  52.  *  DROP Product Core implements libraries for the following:
  53.  *  - Fixed Income Analytics
  54.  *  - Loan Analytics
  55.  *  - Transaction Cost Analytics
  56.  * 
  57.  *  DROP Portfolio Core implements libraries for the following:
  58.  *  - Asset Allocation Analytics
  59.  *  - Asset Liability Management Analytics
  60.  *  - Capital Estimation Analytics
  61.  *  - Exposure Analytics
  62.  *  - Margin Analytics
  63.  *  - XVA Analytics
  64.  * 
  65.  *  DROP Computational Core implements libraries for the following:
  66.  *  - Algorithm Support
  67.  *  - Computation Support
  68.  *  - Function Analysis
  69.  *  - Model Validation
  70.  *  - Numerical Analysis
  71.  *  - Numerical Optimizer
  72.  *  - Spline Builder
  73.  *  - Statistical Learning
  74.  * 
  75.  *  Documentation for DROP is Spread Over:
  76.  * 
  77.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  78.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  79.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  80.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  81.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  82.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  83.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  84.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  85.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  86.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  87.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  88.  * 
  89.  *  Licensed under the Apache License, Version 2.0 (the "License");
  90.  *      you may not use this file except in compliance with the License.
  91.  *   
  92.  *  You may obtain a copy of the License at
  93.  *      http://www.apache.org/licenses/LICENSE-2.0
  94.  *  
  95.  *  Unless required by applicable law or agreed to in writing, software
  96.  *      distributed under the License is distributed on an "AS IS" BASIS,
  97.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  98.  *  
  99.  *  See the License for the specific language governing permissions and
  100.  *      limitations under the License.
  101.  */

  103. /**
  104.  * <i>CDSCashFlowMeasures</i> contains a demo of the CDS Measures and Cash flow Generation Sample. It
  105.  * illustrates the following:
  106.  * 
  107.  * <br><br>
  108.  * <ul>
  109.  *  <li>
  110.  *      Credit Curve Creation: From flat Hazard Rate, and from an array of dates and their corresponding
  111.  *          survival probabilities.
  112.  *  </li>
  113.  *  <li>
  114.  *      Create Credit Curve from CDS instruments, and recover the input measure quotes.
  115.  *  </li>
  116.  *  <li>
  117.  *      Create an SNAC CDS, price it, and display the coupon/loss cash flow.
  118.  *  </li>
  119.  * </ul>
  120.  *  
  121.  * <br><br>
  122.  *  <ul>
  123.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
  124.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics</a></li>
  125.  *      <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>
  126.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/cashflow/README.md">Single Name Portfolio CDS Analytics</a></li>
  127.  *  </ul>
  128.  * <br><br>
  129.  * 
  130.  * @author Lakshmi Krishnamurthy
  131.  */

  133. public class CDSCashFlowMeasures {
  134.     private static final java.lang.String FIELD_SEPARATOR = "   ";

  136.     /*
  137.      * Sample API demonstrating the creation/usage of the credit curve from survival and hazard rates
  138.      * 
  139.      *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
  140.      */

  142.     private static final void CreditCurveAPISample()
  143.         throws Exception
  144.     {
  145.         JulianDate dtStart = DateUtil.Today();

  147.         JulianDate dt10Y = dtStart.addYears (10);

  149.         /*
  150.          * Create Credit Curve from flat Hazard Rate
  151.          */

  153.         CreditCurve ccFlatHazard = ScenarioCreditCurveBuilder.FlatHazard (
  154.             dtStart.julian(),
  155.             "CC",
  156.             "USD",
  157.             0.02,
  158.             0.4
  159.         );

  161.         System.out.println ("CCFromFlatHazard[" + dt10Y.toString() + "]; Survival=" +
  162.             ccFlatHazard.survival ("10Y") + "; Hazard=" + ccFlatHazard.hazard ("10Y"));

  164.         int[] aiDate = new int[5];
  165.         double[] adblSurvival = new double[5];

  167.         for (int i = 0; i < 5; ++i) {
  168.             aiDate[i] = dtStart.addYears (2 * i + 2).julian();

  170.             adblSurvival[i] = 1. - 0.1 * (i + 1);
  171.         }

  173.         /*
  174.          * Create Credit Curve from an array of dates and their corresponding survival probabilities
  175.          */

  177.         CreditCurve ccFromSurvival = ScenarioCreditCurveBuilder.Survival (
  178.             dtStart.julian(),
  179.             "CC",
  180.             "USD",
  181.             aiDate,
  182.             adblSurvival,
  183.             0.4
  184.         );

  186.         System.out.println ("CCFromSurvival[" + dt10Y.toString() + "]; Survival=" +
  187.             ccFromSurvival.survival ("10Y") + "; Hazard=" + ccFromSurvival.hazard ("10Y"));
  188.     }

  190.     /*
  191.      * Sample API demonstrating the creation of the Credit Curve from the CDS instruments
  192.      * 
  193.      *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
  194.      */

  196.     private static void CreateCreditCurveFromCDSInstruments()
  197.         throws Exception
  198.     {
  199.         JulianDate dtStart = DateUtil.Today();

  201.         /*
  202.          * Populate the instruments, the calibration measures, and the calibration quotes
  203.          */

  205.         double[] adblQuotes = new double[5];
  206.         String[] astrCalibMeasure = new String[5];
  207.         CreditDefaultSwap[] aCDS = new CreditDefaultSwap[5];

  209.         for (int i = 0; i < 5; ++i) {
  210.             /*
  211.              * The Calibration CDS
  212.              */

  214.             aCDS[i] = CDSBuilder.CreateSNAC (
  215.                 dtStart,
  216.                 (i + 1) + "Y",
  217.                 0.01,
  218.                 "CORP"
  219.             );

  221.             /*
  222.              * Calibration Quote
  223.              */

  225.             adblQuotes[i] = 100.;

  227.             /*
  228.              * Calibration Measure
  229.              */

  231.             astrCalibMeasure[i] = "FairPremium";
  232.         }

  234.         /*
  235.          * Flat Discount Curve
  236.          */

  238.         MergedDiscountForwardCurve dc = ScenarioDiscountCurveBuilder.ExponentiallyCompoundedFlatRate (
  239.             dtStart,
  240.             "USD",
  241.             0.05
  242.         );

  244.         /*
  245.          * Create the Credit Curve from the give CDS instruments
  246.          */

  248.         CreditCurve cc = ScenarioCreditCurveBuilder.Custom (
  249.             "CORP",
  250.             dtStart,
  251.             aCDS,
  252.             dc,
  253.             adblQuotes,
  254.             astrCalibMeasure,
  255.             0.4,
  256.             false
  257.         );

  259.         /*
  260.          * Valuation Parameters
  261.          */

  263.         ValuationParams valParams = ValuationParams.Spot (
  264.             dtStart,
  265.             0,
  266.             "",
  267.             Convention.DATE_ROLL_ACTUAL
  268.         );

  270.         /*
  271.          * Standard Credit Pricer Parameters (check javadoc for details)
  272.          */

  274.         CreditPricerParams pricerParams = CreditPricerParams.Standard();

  276.         /*
  277.          * Re-calculate the input calibration measures for the input CDSes
  278.          */

  280.         for (int i = 0; i < aCDS.length; ++i)
  281.             System.out.println (
  282.                 "\t" + astrCalibMeasure[i] + "[" + i + "] = " +
  283.                 aCDS[i].measureValue (
  284.                     valParams, pricerParams, MarketParamsBuilder.Create (
  285.                         dc,
  286.                         null,
  287.                         null,
  288.                         cc,
  289.                         null,
  290.                         null,
  291.                         null,
  292.                         null
  293.                     ),
  294.                     null,
  295.                     astrCalibMeasure[i]
  296.                 )
  297.             );
  298.     }

  300.     /*
  301.      * Sample API demonstrating the display of the CDS coupon and loss cash flow
  302.      * 
  303.      *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
  304.      */

  306.     private static final void CDSAPISample()
  307.         throws Exception
  308.     {
  309.         JulianDate dtStart = DateUtil.Today();

  311.         /*
  312.          * Flat Discount Curve
  313.          */

  315.         MergedDiscountForwardCurve dc = ScenarioDiscountCurveBuilder.ExponentiallyCompoundedFlatRate (
  316.             dtStart,
  317.             "USD",
  318.             0.05
  319.         );

  321.         /*
  322.          * Flat Credit Curve
  323.          */

  325.         CreditCurve cc = ScenarioCreditCurveBuilder.FlatHazard (
  326.             dtStart.julian(),
  327.             "CC",
  328.             "USD",
  329.             0.02,
  330.             0.4
  331.         );

  333.         /*
  334.          * Component Market Parameters built from the Discount and the Credit Curves
  335.          */

  337.         CurveSurfaceQuoteContainer mktParams = MarketParamsBuilder.Credit (
  338.             dc,
  339.             cc
  340.         );

  342.         /*
  343.          * Create an SNAC CDS
  344.          */

  346.         CreditDefaultSwap cds = CDSBuilder.CreateSNAC (
  347.             dtStart,
  348.             "5Y",
  349.             0.1,
  350.             "CC"
  351.         );

  353.         /*
  354.          * Valuation Parameters
  355.          */

  357.         ValuationParams valParams = ValuationParams.Spot (
  358.             dtStart,
  359.             0,
  360.             "",
  361.             Convention.DATE_ROLL_ACTUAL
  362.         );

  364.         /*
  365.          * Standard Credit Pricer Parameters (check javadoc for details)
  366.          */

  368.         CreditPricerParams pricerParams = CreditPricerParams.Standard();

  370.         System.out.println ("Loss Start     Loss End  Notl    Rec    EffDF    StartSurv  EndSurv");

  372.         System.out.println ("----------     --------  ----    ---    -----    ---------  -------");

  374.         /*
  375.          * CDS Loss Cash Flow
  376.          */

  378.         for (LossQuadratureMetrics dp : cds.lossFlow (valParams, pricerParams, mktParams))
  379.             System.out.println (
  380.                 DateUtil.YYYYMMDD (dp.startDate()) + FIELD_SEPARATOR +
  381.                 DateUtil.YYYYMMDD (dp.endDate()) + FIELD_SEPARATOR +
  382.                 FormatUtil.FormatDouble (dp.effectiveNotional(), 1, 0, 1.) + FIELD_SEPARATOR +
  383.                 FormatUtil.FormatDouble (dp.effectiveRecovery(), 1, 2, 1.) + FIELD_SEPARATOR +
  384.                 FormatUtil.FormatDouble (dp.effectiveDF(), 1, 4, 1.)  + FIELD_SEPARATOR +
  385.                 FormatUtil.FormatDouble (dp.startSurvival(), 1, 4, 1.) + FIELD_SEPARATOR +
  386.                 FormatUtil.FormatDouble (dp.endSurvival(), 1, 4, 1.)
  387.             );
  388.     }

  390.     public static final void main (
  391.         final String astrArgs[])
  392.         throws Exception
  393.     {
  394.         // String strConfig = "c:\\Lakshmi\\BondAnal\\Config.xml";

  396.         EnvManager.InitEnv ("");

  398.         CreditCurveAPISample();

  400.         CreateCreditCurveFromCDSInstruments();

  402.         CDSAPISample();

  404.         EnvManager.TerminateEnv();
  405.     }
  406. }
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