CrossFixedPlainFloatAnalysis.java

package org.drip.sample.cross;

import java.util.List;

import org.drip.analytics.date.JulianDate;
import org.drip.analytics.support.*;
import org.drip.function.r1tor1.FlatUnivariate;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.market.CurveSurfaceQuoteContainer;
import org.drip.param.period.*;
import org.drip.param.valuation.*;
import org.drip.product.params.*;
import org.drip.product.rates.*;
import org.drip.service.env.EnvManager;
import org.drip.state.creator.*;
import org.drip.state.discount.*;
import org.drip.state.forward.ForwardCurve;
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
 * Copyright (C) 2015 Lakshmi Krishnamurthy
 * Copyright (C) 2014 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>CrossFixedPlainFloatAnalysis</i> demonstrates the impact of Funding Volatility, Forward Volatility, and
 * Funding/Forward Correlation on the Valuation of a fix-float swap with a EUR Fixed leg that pays in USD,
 * and a USD Floating Leg. Comparison is done across MTM and non-MTM fixed Leg Counterparts.
 *  
 * <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/cross/README.md">Single/Dual Stream XCCY Component</a></li>
 *  </ul>
 * <br><br>
 * 
 * @author Lakshmi Krishnamurthy
 */

public class CrossFixedPlainFloatAnalysis {

    private static final FixFloatComponent MakeFixFloatSwap (
        final JulianDate dtEffective,
        final boolean bFXMTM,
        final String strPayCurrency,
        final String strFixedCouponCurrency,
        final String strMaturityTenor,
        final int iTenorInMonths)
        throws Exception
    {
        UnitCouponAccrualSetting ucasFixed = new UnitCouponAccrualSetting (
            2,
            "Act/360",
            false,
            "Act/360",
            false,
            strFixedCouponCurrency,
            false,
            CompositePeriodBuilder.ACCRUAL_COMPOUNDING_RULE_GEOMETRIC
        );

        ComposableFloatingUnitSetting cfusFloating = new ComposableFloatingUnitSetting (
            iTenorInMonths + "M",
            CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
            null,
            ForwardLabel.Create (
                strPayCurrency,
                iTenorInMonths + "M"
            ),
            CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
            0.
        );

        ComposableFixedUnitSetting cfusFixed = new ComposableFixedUnitSetting (
            "6M",
            CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
            null,
            0.02,
            0.,
            strFixedCouponCurrency
        );

        CompositePeriodSetting cpsFloating = new CompositePeriodSetting (
            12 / iTenorInMonths,
            iTenorInMonths + "M",
            strPayCurrency,
            null,
            -1.,
            null,
            null,
            null,
            null
        );

        CompositePeriodSetting cpsFixed = new CompositePeriodSetting (
            2,
            "6M",
            strPayCurrency,
            null,
            1.,
            null,
            null,
            bFXMTM ? null : new FixingSetting (
                FixingSetting.FIXING_PRESET_STATIC,
                null,
                dtEffective.julian()
            ),
            null
        );

        List<Integer> lsFloatingStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
            dtEffective,
            iTenorInMonths + "M",
            strMaturityTenor,
            null
        );

        List<Integer> lsFixedStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
            dtEffective,
            "6M",
            strMaturityTenor,
            null
        );

        Stream floatingStream = new Stream (
            CompositePeriodBuilder.FloatingCompositeUnit (
                lsFloatingStreamEdgeDate,
                cpsFloating,
                cfusFloating
            )
        );

        Stream fixedStream = new Stream (
            CompositePeriodBuilder.FixedCompositeUnit (
                lsFixedStreamEdgeDate,
                cpsFixed,
                ucasFixed,
                cfusFixed
            )
        );

        /*
         * The fix-float swap instance
         */

        FixFloatComponent fixFloat = new FixFloatComponent (
            fixedStream,
            floatingStream,
            new CashSettleParams (
                0,
                strPayCurrency,
                0
            )
        );

        return fixFloat;
    }

    private static final void SetMarketParams (
        final int iValueDate,
        final CurveSurfaceQuoteContainer mktParams,
        final ForwardLabel forwardLabel,
        final FundingLabel fundingLabel,
        final FXLabel fxLabel,
        final double dblForwardVol,
        final double dblFundingVol,
        final double dblFXVol,
        final double dblForwardFundingCorr,
        final double dblForwardFXCorr,
        final double dblFundingFXCorr)
        throws Exception
    {
        mktParams.setForwardVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                iValueDate,
                VolatilityLabel.Standard (forwardLabel),
                forwardLabel.currency(),
                dblForwardVol
            )
        );

        mktParams.setFundingVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                iValueDate,
                VolatilityLabel.Standard (fundingLabel),
                forwardLabel.currency(),
                dblFundingVol
            )
        );

        mktParams.setFXVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                iValueDate,
                VolatilityLabel.Standard (fxLabel),
                forwardLabel.currency(),
                dblFXVol
            )
        );

        mktParams.setForwardFundingCorrelation (
            forwardLabel,
            fundingLabel,
            new FlatUnivariate (dblForwardFundingCorr)
        );

        mktParams.setForwardFXCorrelation (
            forwardLabel,
            fxLabel,
            new FlatUnivariate (dblForwardFXCorr)
        );

        mktParams.setFundingFXCorrelation (
            fundingLabel,
            fxLabel,
            new FlatUnivariate (dblFundingFXCorr)
        );
    }

    private static final void VolCorrScenario (
        final FixFloatComponent[] aFixFloat,
        final ValuationParams valParams,
        final CurveSurfaceQuoteContainer mktParams,
        final ForwardLabel forwardLabel,
        final FundingLabel fundingLabel,
        final FXLabel fxLabel,
        final double dblForwardVol,
        final double dblFundingVol,
        final double dblFXVol,
        final double dblForwardFundingCorr,
        final double dblForwardFXCorr,
        final double dblFundingFXCorr)
        throws Exception
    {
        SetMarketParams (
            valParams.valueDate(),
            mktParams,
            forwardLabel,
            fundingLabel,
            fxLabel,
            dblForwardVol,
            dblFundingVol,
            dblFXVol,
            dblForwardFundingCorr,
            dblForwardFXCorr,
            dblFundingFXCorr
        );

        String strDump = "\t[" +
            FormatUtil.FormatDouble (dblForwardVol, 2, 0, 100.) + "%," +
            FormatUtil.FormatDouble (dblFundingVol, 2, 0, 100.) + "%," +
            FormatUtil.FormatDouble (dblFXVol, 2, 0, 100.) + "%," +
            FormatUtil.FormatDouble (dblForwardFundingCorr, 2, 0, 100.) + "%," +
            FormatUtil.FormatDouble (dblForwardFXCorr, 2, 0, 100.) + "%," +
            FormatUtil.FormatDouble (dblFundingFXCorr, 2, 0, 100.) + "%] = ";

        for (int i = 0; i < aFixFloat.length; ++i) {
            CaseInsensitiveTreeMap<Double> mapOutput = aFixFloat[i].value (valParams, null, mktParams, null);

            if (0 != i) strDump += " || ";

            strDump +=
                FormatUtil.FormatDouble (mapOutput.get ("ReferenceCumulativeConvexityAdjustmentPremium"), 2, 0, 10000.) + " | " +
                FormatUtil.FormatDouble (mapOutput.get ("DerivedCumulativeConvexityAdjustmentPremium"), 2, 0, 10000.) + " | " +
                FormatUtil.FormatDouble (mapOutput.get ("CumulativeConvexityAdjustmentPremium"), 2, 0, 10000.);
        }

        System.out.println (strDump);
    }

    public static final void main (
        final String[] astrArgs)
        throws Exception
    {
        double dblUSDCollateralRate = 0.02;
        double dblEURCollateralRate = 0.02;
        double dblUSD3MForwardRate = 0.02;
        double dblUSDEURFXRate = 1. / 1.35;

        /*
         * Initialize the Credit Analytics Library
         */

        EnvManager.InitEnv ("");

        JulianDate dtToday = org.drip.analytics.date.DateUtil.Today();

        ValuationParams valParams = new ValuationParams (
            dtToday,
            dtToday,
            "USD"
        );

        ForwardLabel fri3M = ForwardLabel.Create (
            "USD",
            "3M"
        );

        MergedDiscountForwardCurve dcUSDCollatDomestic = ScenarioDiscountCurveBuilder.ExponentiallyCompoundedFlatRate (
            dtToday,
            "USD",
            dblUSDCollateralRate
        );

        MergedDiscountForwardCurve dcEURCollatDomestic = ScenarioDiscountCurveBuilder.ExponentiallyCompoundedFlatRate (
            dtToday,
            "EUR",
            dblEURCollateralRate
        );

        ForwardCurve fc3MUSD = ScenarioForwardCurveBuilder.FlatForwardForwardCurve (
            dtToday,
            fri3M,
            dblUSD3MForwardRate
        );

        CurrencyPair cp = CurrencyPair.FromCode ("USD/EUR");

        FixFloatComponent fixMTMFloat = MakeFixFloatSwap (
            dtToday,
            true,
            "USD",
            "EUR",
            "2Y",
            3
        );

        FixFloatComponent fixNonMTMFloat = MakeFixFloatSwap (
            dtToday,
            false,
            "USD",
            "EUR",
            "2Y",
            3
        );

        FXLabel fxLabel = FXLabel.Standard (cp);

        CurveSurfaceQuoteContainer mktParams = new CurveSurfaceQuoteContainer();

        mktParams.setFundingState (dcUSDCollatDomestic);

        mktParams.setForwardState (fc3MUSD);

        mktParams.setFundingState (dcEURCollatDomestic);

        mktParams.setFXState (
            ScenarioFXCurveBuilder.CubicPolynomialCurve (
                fxLabel.fullyQualifiedName(),
                dtToday,
                cp,
                new String[] {"10Y"},
                new double[] {dblUSDEURFXRate},
                dblUSDEURFXRate
            )
        );

        mktParams.setFixing (
            dtToday,
            fxLabel,
            dblUSDEURFXRate
        );

        double[] adblForwardVol = new double[] {
            0.1, 0.35, 0.60
        };

        double[] adblFundingVol = new double[] {
            0.1, 0.35, 0.60
        };

        double[] adblFXVol = new double[] {
            0.1, 0.35, 0.60
        };

        double[] adblForwardFundingCorr = new double[] {
            -0.1, 0.35
        };

        double[] adblForwardFXCorr = new double[] {
            -0.1, 0.35
        };

        double[] adblFundingFXCorr = new double[] {
            -0.1, 0.35
        };

        for (double dblForwardVol : adblForwardVol) {
            for (double dblFundingVol : adblFundingVol) {
                for (double dblFXVol : adblFXVol) {
                    for (double dblForwardFundingCorr : adblForwardFundingCorr) {
                        for (double dblForwardFXCorr : adblForwardFXCorr) {
                            for (double dblFundingFXCorr : adblFundingFXCorr)
                                VolCorrScenario (
                                    new FixFloatComponent[] {
                                        fixMTMFloat,
                                        fixNonMTMFloat
                                    },
                                    valParams,
                                    mktParams,
                                    fri3M,
                                    FundingLabel.Standard ("USD"),
                                    fxLabel,
                                    dblForwardVol,
                                    dblFundingVol,
                                    dblFXVol,
                                    dblForwardFundingCorr,
                                    dblForwardFXCorr,
                                    dblFundingFXCorr
                                );
                        }
                    }
                }
            }
        }

        EnvManager.TerminateEnv();
    }
}