CustomFixFloatSwap.java

package org.drip.sample.fixfloat;

import java.util.*;

import org.drip.analytics.date.*;
import org.drip.analytics.daycount.*;
import org.drip.analytics.support.*;
import org.drip.function.r1tor1.QuadraticRationalShapeControl;
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.creator.*;
import org.drip.product.rates.*;
import org.drip.service.env.EnvManager;
import org.drip.spline.basis.PolynomialFunctionSetParams;
import org.drip.spline.params.*;
import org.drip.spline.stretch.*;
import org.drip.state.creator.ScenarioDiscountCurveBuilder;
import org.drip.state.discount.*;
import org.drip.state.estimator.LatentStateStretchBuilder;
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) 2019 Lakshmi Krishnamurthy
 * Copyright (C) 2018 Lakshmi Krishnamurthy
 * Copyright (C) 2017 Lakshmi Krishnamurthy
 * Copyright (C) 2016 Lakshmi Krishnamurthy
 * Copyright (C) 2015 Lakshmi Krishnamurthy
 * 
 *  This file is part of DROP, an open-source library targeting risk, transaction costs, exposure, margin
 *      calculations, valuation adjustment, and portfolio construction within and across fixed income,
 *      credit, commodity, equity, FX, and structured products.
 *  
 *      https://lakshmidrip.github.io/DROP/
 *  
 *  DROP is composed of three modules:
 *  
 *  - DROP Analytics Core - https://lakshmidrip.github.io/DROP-Analytics-Core/
 *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
 *  - DROP Numerical Core - https://lakshmidrip.github.io/DROP-Numerical-Core/
 * 
 *  DROP Analytics Core implements libraries for the following:
 *  - Fixed Income Analytics
 *  - Asset Backed Analytics
 *  - XVA Analytics
 *  - Exposure and Margin Analytics
 * 
 *  DROP Portfolio Core implements libraries for the following:
 *  - Asset Allocation Analytics
 *  - Transaction Cost Analytics
 * 
 *  DROP Numerical Core implements libraries for the following:
 *  - Statistical Learning
 *  - Numerical Optimizer
 *  - Spline Builder
 *  - Algorithm Support
 * 
 *  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>CustomFixFloatSwap</i> demonstrates the Construction and Valuation of a Custom Fix-Float Swap.
 *  
 * <br><br>
 *  <ul>
 *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/AnalyticsCore.md">Analytics Core Module</a></li>
 *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics Library</a></li>
 *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/README.md">Sample</a></li>
 *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/fixfloat/README.md">Fix Float Swap Analytics</a></li>
 *  </ul>
 * <br><br>
 * 
 * @author Lakshmi Krishnamurthy
 */

public class CustomFixFloatSwap {

    /*
     * Construct the Array of Deposit Instruments from the given set of parameters
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

    private static final SingleStreamComponent[] DepositInstrumentsFromMaturityDays (
        final JulianDate dtEffective,
        final String strCurrency,
        final String strFloaterTenor,
        final int[] aiDay)
        throws Exception
    {
        SingleStreamComponent[] aDeposit = new SingleStreamComponent[aiDay.length];

        ComposableFloatingUnitSetting cfus = new ComposableFloatingUnitSetting (
            strFloaterTenor,
            CompositePeriodBuilder.EDGE_DATE_SEQUENCE_SINGLE,
            null,
            ForwardLabel.Create (
                strCurrency,
                strFloaterTenor
            ),
            CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
            0.
        );

        CompositePeriodSetting cps = new CompositePeriodSetting (
            Helper.TenorToFreq (strFloaterTenor),
            strFloaterTenor,
            strCurrency,
            null,
            1.,
            null,
            null,
            null,
            null
        );

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

        for (int i = 0; i < aiDay.length; ++i) {
            aDeposit[i] = new SingleStreamComponent (
                "DEPOSIT_" + aiDay[i],
                new Stream (
                    CompositePeriodBuilder.FloatingCompositeUnit (
                        CompositePeriodBuilder.EdgePair (
                            dtEffective,
                            dtEffective.addBusDays (
                                aiDay[i],
                                strCurrency
                            )
                        ),
                        cps,
                        cfus
                    )
                ),
                csp
            );

            aDeposit[i].setPrimaryCode (aiDay[i] + "D");
        }

        return aDeposit;
    }
    
    private static final FixFloatComponent CustomIRS (
        final JulianDate dtEffective,
        final String strCurrency,
        final JulianDate dtMaturity,
        final String strFixedDayCount,
        final double dblFixedCoupon,
        final String strFixedTenor,
        final String strFloaterComposableTenor,
        final String strFloaterCompositeTenor,
        final double dblNotional)
        throws Exception
    {
        List<Integer> lsFixedStreamEdgeDate = CompositePeriodBuilder.BackwardEdgeDates (
            dtEffective,
            dtMaturity,
            strFixedTenor,
            new DateAdjustParams (
                Convention.DATE_ROLL_FOLLOWING,
                0,
                strCurrency
            ),
            CompositePeriodBuilder.SHORT_STUB
        );

        List<Integer> lsFloatingStreamEdgeDate = CompositePeriodBuilder.BackwardEdgeDates (
            dtEffective,
            dtMaturity,
            strFloaterCompositeTenor,
            new DateAdjustParams (
                Convention.DATE_ROLL_FOLLOWING,
                0,
                strCurrency
            ),
            CompositePeriodBuilder.SHORT_STUB
        );

        return CustomIRS (
            dtEffective, 
            strCurrency, 
            lsFixedStreamEdgeDate,
            lsFloatingStreamEdgeDate,
            strFixedDayCount,
            dblFixedCoupon,
            strFixedTenor,
            strFloaterComposableTenor,
            strFloaterCompositeTenor,
            dblNotional
        );      
    }
    
    private static final FixFloatComponent CustomIRS (
        final JulianDate dtEffective,
        final String strCurrency,
        final String strMaturityTenor,
        final String strFixedDayCount,
        final double dblFixedCoupon,
        final String strFixedTenor,
        final String strFloaterComposableTenor,
        final String strFloaterCompositeTenor,
        final double dblNotional)
        throws Exception
    {
        List<Integer> lsFixedStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
            dtEffective,
            strFixedTenor,
            strMaturityTenor,
            null
        );

        List<Integer> lsFloatingStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
            dtEffective,
            strFloaterComposableTenor,
            strMaturityTenor,
            null
        );

        return CustomIRS (
            dtEffective, 
            strCurrency, 
            lsFixedStreamEdgeDate,
            lsFloatingStreamEdgeDate,
            strFixedDayCount,
            dblFixedCoupon,
            strFixedTenor,
            strFloaterComposableTenor,
            strFloaterCompositeTenor,
            dblNotional
        );      
    }

    /*
     * Construct the Custom Fix-Float Instrument from the given set of parameters
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

    private static final FixFloatComponent CustomIRS (
        final JulianDate dtEffective,
        final String strCurrency,
        List<Integer> lsFixedStreamEdgeDate,
        List<Integer> lsFloatingStreamEdgeDate,
        final String strFixedDayCount,
        final double dblFixedCoupon,
        final String strFixedTenor,
        final String strFloaterComposableTenor,
        final String strFloaterCompositeTenor,
        final double dblNotional)
        throws Exception
    {
        int iFixedFreq = Helper.TenorToFreq (strFixedTenor);

        UnitCouponAccrualSetting ucasFixed = new UnitCouponAccrualSetting (
            iFixedFreq,
            strFixedDayCount,
            false,
            strFixedDayCount,
            false,
            strCurrency,
            false,
            CompositePeriodBuilder.ACCRUAL_COMPOUNDING_RULE_GEOMETRIC
        );

        ComposableFloatingUnitSetting cfusFloating = new ComposableFloatingUnitSetting (
            strFloaterComposableTenor,
            CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
            new DateAdjustParams (
                Convention.DATE_ROLL_FOLLOWING,
                0,
                strCurrency
            ),
            ForwardLabel.Create (
                strCurrency,
                strFloaterComposableTenor
            ),
            CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
            0.
        );

        ComposableFixedUnitSetting cfusFixed = new ComposableFixedUnitSetting (
            strFixedTenor,
            CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
            new DateAdjustParams (
                Convention.DATE_ROLL_FOLLOWING,
                0,
                strCurrency
            ),
            dblFixedCoupon,
            0.,
            strCurrency
        );

        int iFloaterFreq = Helper.TenorToFreq (strFloaterCompositeTenor);

        CompositePeriodSetting cpsFloating = new CompositePeriodSetting (
            iFloaterFreq,
            strFloaterCompositeTenor,
            strCurrency,
            null,
            -1. * dblNotional,
            null,
            null,
            null,
            null
        );

        CompositePeriodSetting cpsFixed = new CompositePeriodSetting (
            iFixedFreq,
            strFixedTenor,
            strCurrency,
            null,
            1. * dblNotional,
            null,
            null,
            null,
            null
        );

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

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

        FixFloatComponent irs = new FixFloatComponent (
            fixedStream,
            floatingStream,
            null
        );

        return irs;
    }

    /*
     * Construct the Array of Swap Instruments from the given set of parameters
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

    private static final FixFloatComponent[] SwapInstrumentsFromMaturityTenor (
        final JulianDate dtEffective,
        final String strCurrency,
        final String strFixedDayCount,
        final double dblFixedCoupon,
        final String strFixedTenor,
        final String strFloaterComposableTenor,
        final String strFloaterCompositeTenor,
        final String[] astrMaturityTenor)
        throws Exception
    {
        FixFloatComponent[] aIRS = new FixFloatComponent[astrMaturityTenor.length];

        for (int i = 0; i < astrMaturityTenor.length; ++i) {
            FixFloatComponent irs = CustomIRS(
                    dtEffective, 
                    strCurrency, 
                    astrMaturityTenor[i],
                    strFixedDayCount,
                    dblFixedCoupon,
                    strFixedTenor,
                    strFloaterComposableTenor,
                    strFloaterCompositeTenor,
                    1.
                    );      
            irs.setPrimaryCode ("IRS." + astrMaturityTenor[i] + "." + strCurrency);

            aIRS[i] = irs;
        }
        
        return aIRS;
    }

    /*
     * This sample demonstrates discount curve calibration and input instrument calibration quote recovery.
     *  It shows the following:
     *  - Construct the Array of Cash/Swap Instruments and their Quotes from the given set of parameters.
     *  - Construct the Cash/Swap Instrument Set Stretch Builder.
     *  - Set up the Linear Curve Calibrator using the following parameters:
     *      - Cubic Exponential Mixture Basis Spline Set
     *      - Ck = 2, Segment Curvature Penalty = 2
     *      - Quadratic Rational Shape Controller
     *      - Natural Boundary Setting
     *  - Construct the Shape Preserving Discount Curve by applying the linear curve calibrator to the array
     *      of Cash and Swap Stretches.
     *  - Cross-Comparison of the Cash/Swap Calibration Instrument "Rate" metric across the different curve
     *      construction methodologies.
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

    private static final void CustomDiscountCurveBuilderSample (
        final JulianDate dtSpot,
        final String strCurrency)
        throws Exception
    {
        /*
         * Construct the Array of Deposit Instruments and their Quotes from the given set of parameters
         */

        String strFloaterTenor = "3M";

        SingleStreamComponent[] aDepositComp = DepositInstrumentsFromMaturityDays (
            dtSpot,
            strCurrency,
            strFloaterTenor,
            new int[] {
                1, 2, 7, 14, 30, 60
            }
        );

        double[] adblDepositQuote = new double[] {
            0.0013, 0.0017, 0.0017, 0.0018, 0.0020, 0.0023
        };

        /*
         * Construct the Deposit Instrument Set Stretch Builder
         */

        LatentStateStretchSpec depositStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
            "DEPOSIT",
            aDepositComp,
            "ForwardRate",
            adblDepositQuote
        );

        /*
         * Construct the Array of EDF Instruments and their Quotes from the given set of parameters
         */

        SingleStreamComponent[] aEDFComp = SingleStreamComponentBuilder.ForwardRateFuturesPack (
            dtSpot,
            8,
            strCurrency
        );

        double[] adblEDFQuote = new double[] {
            0.0027, 0.0032, 0.0041, 0.0054, 0.0077, 0.0104, 0.0134, 0.0160
        };

        /*
         * Construct the EDF Instrument Set Stretch Builder
         */

        LatentStateStretchSpec edfStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
            "EDF",
            aEDFComp,
            "ForwardRate",
            adblEDFQuote
        );

        /*
         * Construct the Array of Swap Instruments and their Quotes from the given set of parameters
         */

        String strFixedDayCount = "Act/360";
        double dblFixedCoupon = 0.01;
        String strFixedTenor = "6M";
        String strFloaterComposableTenor = "6M";
        String strFloaterCompositeTenor = "6M";

        FixFloatComponent[] aSwapInAdvance = SwapInstrumentsFromMaturityTenor (
            dtSpot,
            strCurrency,
            strFixedDayCount,
            dblFixedCoupon,
            strFixedTenor,
            strFloaterComposableTenor,
            strFloaterCompositeTenor,
            new java.lang.String[] {
                "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y", "40Y", "50Y"
            }
        );

        double[] adblSwapQuote = new double[] {
            0.0166, 0.0206, 0.0241, 0.0269, 0.0292, 0.0311, 0.0326, 0.0340, 0.0351, 0.0375, 0.0393, 0.0402, 0.0407, 0.0409, 0.0409
        };

        /*
         * Construct the Swap Instrument Set Stretch Builder
         */

        LatentStateStretchSpec swapStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
            "SWAP",
            aSwapInAdvance,
            "SwapRate",
            adblSwapQuote
        );

        LatentStateStretchSpec[] aStretchSpec = new LatentStateStretchSpec[] {
            depositStretch,
            edfStretch,
            swapStretch
        };

        /*
         * Set up the Linear Curve Calibrator using the following parameters:
         *  - Cubic Exponential Mixture Basis Spline Set
         *  - Ck = 2, Segment Curvature Penalty = 2
         *  - Quadratic Rational Shape Controller
         *  - Natural Boundary Setting
         */

        LinearLatentStateCalibrator lcc = new LinearLatentStateCalibrator (
            new SegmentCustomBuilderControl (
                MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
                new PolynomialFunctionSetParams (4),
                SegmentInelasticDesignControl.Create (
                    2,
                    2
                ),
                new ResponseScalingShapeControl (
                    true,
                    new QuadraticRationalShapeControl (0.)
                ),
                null
            ),
            BoundarySettings.NaturalStandard(),
            MultiSegmentSequence.CALIBRATE,
            null,
            null
        );

        ValuationParams valParams = new ValuationParams (
            dtSpot,
            dtSpot,
            strCurrency
        );

        /*
         * Construct the Shape Preserving Discount Curve by applying the linear curve calibrator to the array
         *  of Deposit, Futures, and Swap Stretches.
         */

        MergedDiscountForwardCurve dc = ScenarioDiscountCurveBuilder.ShapePreservingDFBuild (
            strCurrency,
            lcc,
            aStretchSpec,
            valParams,
            null,
            null,
            null,
            1.
        );

        CurveSurfaceQuoteContainer csqs = MarketParamsBuilder.Create (
            dc,
            null,
            null,
            null,
            null,
            null,
            null
        );

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

        JulianDate dtCustomEffective = dtSpot.addTenor ("1Y");

        JulianDate dtCustomMaturity = dtSpot.addTenor ("11Y");

        String strCustomFixedDayCount = "Act/360";
        double dblCustomFixedCoupon = 0.01;
        String strCustomFixedTenor = "6M";
        String strCustomFloaterComposableTenor = "6M";
        String strCustomFloaterCompositeTenor = "6M";
        double dblCustomNotional = 1.0e6;

        FixFloatComponent ffcSwap = CustomIRS (
            dtCustomEffective,
            strCurrency,
            dtCustomMaturity,
            strCustomFixedDayCount,
            dblCustomFixedCoupon,
            strCustomFixedTenor,
            strCustomFloaterComposableTenor,
            strCustomFloaterCompositeTenor,
            dblCustomNotional
        );

        Map<String, Double> mapSwap = ffcSwap.value (
            new ValuationParams (
                dtSpot,
                dtSpot,
                strCurrency
            ),
            null,
            csqs,
            null
        );

        for (Map.Entry<String, Double> me : mapSwap.entrySet())
            System.out.println ("\t" + me.getKey() + " => " + FormatUtil.FormatDouble (me.getValue(), 1, 8, 1.) + " |");

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

    public static final void main (
        final String[] astrArgs)
        throws Exception
    {
        /*
         * Initialize the Credit Analytics Library
         */

        EnvManager.InitEnv ("");

        JulianDate dtToday = DateUtil.Today().addTenor ("0D");

        String strCurrency = "USD";

        CustomDiscountCurveBuilderSample (
            dtToday,
            strCurrency
        );

        EnvManager.TerminateEnv();
    }
}