CCBSForwardCurve.java

package org.drip.sample.dual;

import java.util.List;

import org.drip.analytics.date.JulianDate;
import org.drip.analytics.support.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.creator.*;
import org.drip.param.market.CurveSurfaceQuoteContainer;
import org.drip.param.period.*;
import org.drip.param.valuation.*;
import org.drip.product.definition.CalibratableComponent;
import org.drip.product.fx.*;
import org.drip.product.params.*;
import org.drip.product.rates.*;
import org.drip.sample.forward.IBORCurve;
import org.drip.spline.params.SegmentCustomBuilderControl;
import org.drip.spline.stretch.*;
import org.drip.state.creator.*;
import org.drip.state.discount.*;
import org.drip.state.estimator.*;
import org.drip.state.forward.ForwardCurve;
import org.drip.state.identifier.*;
import org.drip.state.inference.*;

/*
 * -*- 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>CCBSForwardCurve</i> demonstrates the setup and construction of the Forward Curve from the CCBS Quotes.
 * 
 * <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">G7 Standard Cross Currency Swap</a></li>
 *  </ul>
 * <br><br>
 * 
 * @author Lakshmi Krishnamurthy
 */

public class CCBSForwardCurve {

    /*
     * Construct an array of float-float swaps from the corresponding reference (6M) and the derived legs.
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

    private static final FloatFloatComponent[] MakexM6MBasisSwap (
        final JulianDate dtEffective,
        final String strPayCurrency,
        final String strCouponCurrency,
        final double dblNotional,
        final String[] astrMaturityTenor,
        final int iTenorInMonths)
        throws Exception
    {
        FloatFloatComponent[] aFFC = new FloatFloatComponent[astrMaturityTenor.length];

        ComposableFloatingUnitSetting cfusReference = new ComposableFloatingUnitSetting (
            "6M",
            CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
            null,
            ForwardLabel.Create (
                strCouponCurrency,
                "6M"
            ),
            CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
            0.
        );

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

        CompositePeriodSetting cpsReference = new CompositePeriodSetting (
            2,
            "6M",
            strPayCurrency,
            null,
            -1. * dblNotional,
            null,
            null,
            strPayCurrency.equalsIgnoreCase (strCouponCurrency) ? null :
                new FixingSetting (
                    FixingSetting.FIXING_PRESET_STATIC,
                    null,
                    dtEffective.julian()
                ),
            null
        );

        CompositePeriodSetting cpsDerived = new CompositePeriodSetting (
            12 / iTenorInMonths,
            iTenorInMonths + "M",
            strPayCurrency,
            null,
            1. * dblNotional,
            null,
            null,
            strPayCurrency.equalsIgnoreCase (strCouponCurrency) ? null :
                new FixingSetting (
                    FixingSetting.FIXING_PRESET_STATIC,
                    null,
                    dtEffective.julian()
                ),
            null
        );

        for (int i = 0; i < astrMaturityTenor.length; ++i) {
            List<Integer> lsReferenceStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
                dtEffective,
                "6M",
                astrMaturityTenor[i],
                null
            );

            List<Integer> lsDerivedStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
                dtEffective,
                iTenorInMonths + "M",
                astrMaturityTenor[i],
                null
            );

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

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

            /*
             * The float-float swap instance
             */

            aFFC[i] = new FloatFloatComponent (
                referenceStream,
                derivedStream,
                new CashSettleParams (
                    0,
                    strPayCurrency,
                    0
                )
            );

            aFFC[i].setPrimaryCode (referenceStream.name() + "||" + derivedStream.name());
        }

        return aFFC;
    }

    private static final ComponentPair[] MakeCCSP (
        final JulianDate dtValue,
        final String strReferenceCurrency,
        final String strDerivedCurrency,
        final String[] astrTenor,
        final int iTenorInMonths,
        final double dblRefDerFX)
        throws Exception
    {
        FloatFloatComponent[] aFFCReference = MakexM6MBasisSwap (
            dtValue,
            strDerivedCurrency,
            strReferenceCurrency,
            -1.,
            astrTenor,
            3
        );

        FloatFloatComponent[] aFFCDerived = MakexM6MBasisSwap (
            dtValue,
            strDerivedCurrency,
            strDerivedCurrency,
            1. / dblRefDerFX,
            astrTenor,
            3
        );

        ComponentPair[] aCCSP = new ComponentPair[astrTenor.length];

        for (int i = 0; i < aCCSP.length; ++i)
            aCCSP[i] = new ComponentPair (
                strDerivedCurrency + strReferenceCurrency + "_" + astrTenor[i],
                aFFCReference[i],
                aFFCDerived[i],
                null
            );

        return aCCSP;
    }

    public static final void ForwardCurveReferenceComponentBasis (
        final String strReferenceCurrency,
        final String strDerivedCurrency,
        final JulianDate dtValue,
        final MergedDiscountForwardCurve dcReference,
        final ForwardCurve fc6MReference,
        final ForwardCurve fc3MReference,
        final MergedDiscountForwardCurve dcDerived,
        final ForwardCurve fc6MDerived,
        final double dblRefDerFX,
        final SegmentCustomBuilderControl scbc,
        final String[] astrTenor,
        final double[] adblCrossCurrencyBasis,
        final boolean bBasisOnDerivedLeg)
        throws Exception
    {
        ComponentPair[] aCCSP = MakeCCSP (
            dtValue,
            strReferenceCurrency,
            strDerivedCurrency,
            astrTenor,
            3,
            dblRefDerFX
        );

        CurveSurfaceQuoteContainer mktParams = new CurveSurfaceQuoteContainer();

        mktParams.setFundingState (dcReference);

        mktParams.setFundingState (dcDerived);

        mktParams.setForwardState (fc3MReference);

        mktParams.setForwardState (fc6MReference);

        mktParams.setForwardState (fc6MDerived);

        CurrencyPair cp = CurrencyPair.FromCode (strDerivedCurrency + "/" + strReferenceCurrency);

        FXLabel fxLabelBase = FXLabel.Standard (cp);

        mktParams.setFXState (
            ScenarioFXCurveBuilder.CubicPolynomialCurve (
                fxLabelBase.fullyQualifiedName(),
                dtValue,
                cp,
                new String[] {"10Y"},
                new double[] {dblRefDerFX},
                dblRefDerFX
            )
        );

        mktParams.setFixing (
            aCCSP[0].effective(),
            fxLabelBase,
            dblRefDerFX
        );

        ValuationParams valParams = new ValuationParams (
            dtValue,
            dtValue,
            strReferenceCurrency
        );

        LinearLatentStateCalibrator llsc = new LinearLatentStateCalibrator (
            scbc,
            BoundarySettings.NaturalStandard(),
            MultiSegmentSequence.CALIBRATE,
            null,
            null
        );

        LatentStateStretchSpec stretchSpec = LatentStateStretchBuilder.ComponentPairForwardStretch (
            "FLOATFLOAT",
            aCCSP,
            valParams,
            mktParams,
            adblCrossCurrencyBasis,
            false,
            bBasisOnDerivedLeg
        );

        ForwardCurve fc3MDerived = ScenarioForwardCurveBuilder.ShapePreservingForwardCurve (
            llsc,
            new LatentStateStretchSpec[] {stretchSpec},
            ForwardLabel.Create (
                strDerivedCurrency,
                "3M"
            ),
            valParams,
            null,
            MarketParamsBuilder.Create (
                dcDerived,
                fc6MDerived,
                null,
                null,
                null,
                null,
                null,
                null
            ),
            null,
            dcDerived.forward (
                dtValue.julian(),
                dtValue.addTenor ("3M").julian()
            )
        );

        mktParams.setForwardState (fc3MDerived);

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

        if (bBasisOnDerivedLeg)
            System.out.println ("\t     RECOVERY OF THE CCBS REFERENCE COMPONENT DERIVED BASIS");
        else
            System.out.println ("\t     RECOVERY OF THE CCBS REFERENCE COMPONENT REFERENCE BASIS");

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

        for (int i = 0; i < aCCSP.length; ++i) {
            CalibratableComponent rc = aCCSP[i].derivedComponent();

            CaseInsensitiveTreeMap<Double> mapOP = aCCSP[i].value (
                valParams,
                null,
                mktParams,
                null
            );

            System.out.println ("\t[" + rc.effectiveDate() + " - " + rc.maturityDate() + "] = " +
                FormatUtil.FormatDouble (mapOP.get (bBasisOnDerivedLeg ? "ReferenceCompDerivedBasis" : "ReferenceCompReferenceBasis"), 1, 3, 1.) +
                    " | " + FormatUtil.FormatDouble (adblCrossCurrencyBasis[i], 1, 3, 10000.) + " | " +
                        FormatUtil.FormatDouble (fc3MDerived.forward (rc.maturityDate()), 1, 4, 100.) + "%");
        }

        IBORCurve.ForwardJack (
            dtValue,
            "---- CCBS DERIVED QUOTE FORWARD CURVE SENSITIVITY ---",
            fc3MDerived,
            "PV"
        );
    }
}