CrossFloatCrossFloat.java

package org.drip.sample.cross;

import java.util.*;

import org.drip.analytics.date.JulianDate;
import org.drip.analytics.support.*;
import org.drip.function.r1tor1.FlatUnivariate;
import org.drip.numerical.common.*;
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>CrossFloatCrossFloat</i> demonstrates the construction, usage, and eventual valuation of the
 * Mark-to-market float-float swap with a 3M EUR Floater leg that pays in USD, and a 6M EUR Floater leg that
 * pays in USD. 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 CrossFloatCrossFloat {

    private static final FloatFloatComponent MakeFloatFloatSwap (
        final JulianDate dtEffective,
        final boolean bFXMTM,
        final String strPayCurrency,
        final String strCouponCurrency,
        final String strMaturityTenor,
        final int iTenorInMonthsReference,
        final int iTenorInMonthsDerived)
        throws Exception
    {
        ComposableFloatingUnitSetting cfusReference = new ComposableFloatingUnitSetting (
            iTenorInMonthsReference + "M",
            CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
            null,
            ForwardLabel.Create (
                strCouponCurrency,
                iTenorInMonthsReference + "M"
            ),
            CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
            0.
        );

        ComposableFloatingUnitSetting cfusDerived = new ComposableFloatingUnitSetting (
            iTenorInMonthsDerived + "M",
            CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
            null,
            ForwardLabel.Create (
                strCouponCurrency,
                iTenorInMonthsDerived + "M"
            ),
            CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
            0.
        );

        CompositePeriodSetting cpsReference = new CompositePeriodSetting (
            12 / iTenorInMonthsReference,
            iTenorInMonthsReference + "M",
            strPayCurrency,
            null,
            -1.,
            null,
            null,
            bFXMTM ? null : new FixingSetting (
                FixingSetting.FIXING_PRESET_STATIC,
                null,
                dtEffective.julian()
            ),
            null
        );

        CompositePeriodSetting cpsDerived = new CompositePeriodSetting (
            12 / iTenorInMonthsDerived,
            iTenorInMonthsDerived + "M",
            strPayCurrency,
            null,
            1.,
            null,
            null,
            bFXMTM ? null : new FixingSetting (
                FixingSetting.FIXING_PRESET_STATIC,
                null,
                dtEffective.julian()
            ),
            null
        );

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

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

        Stream referenceStream = new Stream (
            CompositePeriodBuilder.FloatingCompositeUnit (
                lsReferenceStreamEdgeDate,
                cpsReference,
                cfusReference
            )
        );

        Stream derivedStream = new Stream (
            CompositePeriodBuilder.FloatingCompositeUnit (
                lsDerivedStreamEdgeDate,
                cpsDerived,
                cfusDerived
            )
        );

        CashSettleParams csp = new CashSettleParams (
            0,
            strPayCurrency,
            0
        );

        return new FloatFloatComponent (
            referenceStream,
            derivedStream,
            csp
        );
    }

    public static final void main (
        final String[] astrArgs)
        throws Exception
    {
        double dblUSDFundingRate = 0.02;
        double dblEUR3MForwardRate = 0.02;
        double dblEUR6MForwardRate = 0.025;
        double dblUSDEURFXRate = 1. / 1.35;

        double dblUSDFundingVol = 0.3;
        double dblEURForward3MVol = 0.3;
        double dblEURForward6MVol = 0.3;
        double dblUSDEURFXVol = 0.3;

        double dblEUR3MUSDEURFXCorr = 0.1;
        double dblEUR6MUSDEURFXCorr = 0.1;
        double dblUSDFundingEUR3MCorr = 0.1;
        double dblUSDFundingEUR6MCorr = 0.1;
        double dblUSDFundingUSDEURFXCorr = 0.1;

        /*
         * Initialize the Credit Analytics Library
         */

        EnvManager.InitEnv ("");

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

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

        MergedDiscountForwardCurve dcUSDFunding = ScenarioDiscountCurveBuilder.ExponentiallyCompoundedFlatRate (
            dtToday,
            "USD",
            dblUSDFundingRate
        );

        ForwardLabel friEUR3M = ForwardLabel.Create (
            "EUR",
            "3M"
        );

        ForwardCurve fcEUR3M = ScenarioForwardCurveBuilder.FlatForwardForwardCurve (
            dtToday,
            friEUR3M,
            dblEUR3MForwardRate
        );

        ForwardLabel friEUR6M = ForwardLabel.Create (
            "EUR",
            "6M"
        );

        ForwardCurve fcEUR6M = ScenarioForwardCurveBuilder.FlatForwardForwardCurve (
            dtToday,
            friEUR6M,
            dblEUR6MForwardRate
        );

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

        FloatFloatComponent floatFloatMTM = MakeFloatFloatSwap (
            dtToday,
            true,
            "USD",
            "EUR",
            "2Y",
            6,
            3
        );

        floatFloatMTM.setPrimaryCode ("EUR__USD__MTM::FLOAT::3M::6M::2Y");

        FloatFloatComponent floatFloatNonMTM = MakeFloatFloatSwap (
            dtToday,
            false,
            "USD",
            "EUR",
            "2Y",
            6,
            3
        );

        floatFloatNonMTM.setPrimaryCode ("EUR__USD__NONMTM::FLOAT::3M::6M::2Y");

        FXLabel fxLabel = FXLabel.Standard (cp);

        FundingLabel fundingLabelUSD = org.drip.state.identifier.FundingLabel.Standard ("USD");

        CurveSurfaceQuoteContainer mktParams = new CurveSurfaceQuoteContainer();

        mktParams.setFixing (
            dtToday,
            fxLabel,
            dblUSDEURFXRate
        );

        mktParams.setForwardState (fcEUR3M);

        mktParams.setForwardState (fcEUR6M);

        mktParams.setFundingState (dcUSDFunding);

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

        mktParams.setForwardVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                valParams.valueDate(),
                VolatilityLabel.Standard (friEUR3M),
                "EUR",
                dblEURForward3MVol
            )
        );

        mktParams.setForwardVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                valParams.valueDate(),
                VolatilityLabel.Standard (friEUR6M),
                "EUR",
                dblEURForward6MVol
            )
        );

        mktParams.setForwardVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                valParams.valueDate(),
                VolatilityLabel.Standard (fundingLabelUSD),
                "USD",
                dblUSDFundingVol
            )
        );

        mktParams.setFXVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                valParams.valueDate(),
                VolatilityLabel.Standard (fxLabel),
                "USD",
                dblUSDEURFXVol
            )
        );

        mktParams.setForwardFundingCorrelation (
            friEUR3M,
            fundingLabelUSD,
            new FlatUnivariate (dblUSDFundingEUR3MCorr)
        );

        mktParams.setForwardFundingCorrelation (
            friEUR6M,
            fundingLabelUSD,
            new FlatUnivariate (dblUSDFundingEUR6MCorr)
        );

        mktParams.setForwardFXCorrelation (
            friEUR3M,
            fxLabel,
            new FlatUnivariate (dblEUR3MUSDEURFXCorr)
        );

        mktParams.setForwardFXCorrelation (
            friEUR6M,
            fxLabel,
            new FlatUnivariate (dblEUR6MUSDEURFXCorr)
        );

        mktParams.setFundingFXCorrelation (
            fundingLabelUSD,
            fxLabel,
            new FlatUnivariate (dblUSDFundingUSDEURFXCorr)
        );

        CaseInsensitiveTreeMap<Double> mapMTMOutput = floatFloatMTM.value (
            valParams,
            null,
            mktParams,
            null
        );

        CaseInsensitiveTreeMap<Double> mapNonMTMOutput = floatFloatNonMTM.value (
            valParams,
            null,
            mktParams,
            null
        );

        for (Map.Entry<String, Double> me : mapMTMOutput.entrySet()) {
            String strKey = me.getKey();

            if (null != me.getValue() && null != mapNonMTMOutput.get (strKey)) {
                double dblMTMMeasure = me.getValue();

                double dblNonMTMMeasure = mapNonMTMOutput.get (strKey);

                String strReconcile = NumberUtil.WithinTolerance (
                    dblMTMMeasure,
                    dblNonMTMMeasure,
                    1.e-08,
                    1.e-04
                ) ? "RECONCILES" : "DOES NOT RECONCILE";

                System.out.println ("\t" +
                    FormatUtil.FormatDouble (dblMTMMeasure, 1, 8, 1.) + " | " +
                    FormatUtil.FormatDouble (dblNonMTMMeasure, 1, 8, 1.) + " | " +
                    strReconcile + " <= " + strKey);
            }
        }

        EnvManager.TerminateEnv();
    }
}