InAdvanceIMMSwap.java
package org.drip.sample.fixfloat;
import java.util.List;
import org.drip.analytics.date.*;
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>InAdvanceIMMSwap</i> demonstrates the Construction and Valuation of a In-Advance IMM 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 InAdvanceIMMSwap {
/*
* 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 int[] aiDay)
throws Exception
{
SingleStreamComponent[] aDeposit = new SingleStreamComponent[aiDay.length];
ComposableFloatingUnitSetting cfus = new ComposableFloatingUnitSetting (
"3M",
CompositePeriodBuilder.EDGE_DATE_SEQUENCE_SINGLE,
null,
ForwardLabel.Create (
strCurrency,
"3M"
),
CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
0.
);
CompositePeriodSetting cps = new CompositePeriodSetting (
4,
"3M",
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;
}
/*
* 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[] astrMaturityTenor,
final boolean bIsIMM)
throws Exception
{
FixFloatComponent[] aIRS = new FixFloatComponent[astrMaturityTenor.length];
UnitCouponAccrualSetting ucasFixed = new UnitCouponAccrualSetting (
2,
"Act/360",
false,
"Act/360",
false,
strCurrency,
true,
CompositePeriodBuilder.ACCRUAL_COMPOUNDING_RULE_GEOMETRIC
);
ComposableFloatingUnitSetting cfusFloating = new ComposableFloatingUnitSetting (
"6M",
CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
null,
ForwardLabel.Create (
strCurrency,
"6M"
),
CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
0.
);
ComposableFixedUnitSetting cfusFixed = new ComposableFixedUnitSetting (
"6M",
CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
null,
0.,
0.,
strCurrency
);
CompositePeriodSetting cpsFloating = new CompositePeriodSetting (
2,
"6M",
strCurrency,
null,
-1.,
null,
null,
null,
null
);
CompositePeriodSetting cpsFixed = new CompositePeriodSetting (
2,
"6M",
strCurrency,
null,
1.,
null,
null,
null,
null
);
CashSettleParams csp = new CashSettleParams (
0,
strCurrency,
0
);
for (int i = 0; i < astrMaturityTenor.length; ++i) {
List<Integer> lsFixedStreamEdgeDate = !bIsIMM ? CompositePeriodBuilder.RegularEdgeDates (
dtEffective,
"6M",
astrMaturityTenor[i],
null
) : CompositePeriodBuilder.IMMEdgeDates (
dtEffective,
3,
"6M",
astrMaturityTenor[i],
null
);
List<Integer> lsFloatingStreamEdgeDate = !bIsIMM ? CompositePeriodBuilder.RegularEdgeDates (
dtEffective,
"6M",
astrMaturityTenor[i],
null
) : CompositePeriodBuilder.IMMEdgeDates (
dtEffective,
3,
"6M",
astrMaturityTenor[i],
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,
csp
);
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
*/
SingleStreamComponent[] aDepositComp = DepositInstrumentsFromMaturityDays (
dtSpot,
strCurrency,
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
*/
FixFloatComponent[] aSwapInAdvance = SwapInstrumentsFromMaturityTenor (
dtSpot,
strCurrency,
new java.lang.String[] {
"4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y", "40Y", "50Y"
},
false
);
FixFloatComponent[] aSwapInAdvanceIMM = SwapInstrumentsFromMaturityTenor (
dtSpot,
strCurrency,
new java.lang.String[] {
"4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y", "40Y", "50Y"
},
true
);
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
);
/*
* Cross-Comparison of the In-Advance/Arrears Swap "Rate" metric across the different curve
* construction methodologies.
*/
System.out.println ("\n\t-------------------------------------------------------------------------------");
System.out.println ("\t IN-ADVANCE W+W/O IMM SWAP INSTRUMENTS METRIC COMPARISON");
System.out.println ("\t-------------------------------------------------------------------------------");
System.out.println ("\t\tL -> R:");
System.out.println ("\t\t\t - Swap Maturity");
System.out.println ("\t\t\t - In Advance Calibration Quote");
System.out.println ("\t\t\t - In Advance Fair Premium");
System.out.println ("\t\t\t - In Advance Swap Rate");
System.out.println ("\t\t\t - In Advance IMM Swap Rate");
System.out.println ("\t\t\t - In Advance IMM Swap Rate Shift");
System.out.println ("\t-------------------------------------------------------------------------------");
for (int i = 0; i < aSwapInAdvance.length; ++i) {
double dblInAdvanceIMMFairPremium = aSwapInAdvanceIMM[i].measureValue (
valParams,
null,
csqs,
null,
"FairPremium"
);
System.out.println ("\t[" + aSwapInAdvance[i].maturityDate() + "] = " +
FormatUtil.FormatDouble (aSwapInAdvance[i].measureValue (valParams, null, csqs, null, "CalibSwapRate"), 1, 4, 100.) + "% | " +
FormatUtil.FormatDouble (adblSwapQuote[i], 1, 4, 100.) + "% | " +
FormatUtil.FormatDouble (aSwapInAdvance[i].measureValue (valParams, null, csqs, null, "FairPremium"), 1, 4, 100.) + "% | " +
FormatUtil.FormatDouble (dblInAdvanceIMMFairPremium, 1, 4, 100.) + "% | " +
FormatUtil.FormatDouble (dblInAdvanceIMMFairPremium - adblSwapQuote[i], 1, 0, 10000.)
);
}
System.out.println ("\n\t-------------------------------------------------------------------------------");
System.out.println ("\t IN-ADVANCE W+W/O IMM SWAP INSTRUMENTS DV01 COMPARISON");
System.out.println ("\t-------------------------------------------------------------------------------");
System.out.println ("\t\tL -> R:");
System.out.println ("\t\t\t - Swap Maturity");
System.out.println ("\t\t\t - In Advance Swap DV01");
System.out.println ("\t\t\t - In Advance IMM Swap DV01");
System.out.println ("\t\t\t - In Advance IMM Swap DV01 Shift");
System.out.println ("\t-------------------------------------------------------------------------------");
for (int i = 0; i < aSwapInAdvance.length; ++i) {
double dblInAdvanceDV01 = aSwapInAdvance[i].measureValue (
valParams,
null,
csqs,
null,
"FixedDV01"
);
double dblInAdvanceIMMDV01 = aSwapInAdvanceIMM[i].measureValue (
valParams,
null,
csqs,
null,
"FixedDV01"
);
System.out.println ("\t[" + aSwapInAdvance[i].maturityDate() + "] = " +
FormatUtil.FormatDouble (dblInAdvanceDV01, 2, 1, 10000.) + " | " +
FormatUtil.FormatDouble (dblInAdvanceIMMDV01, 2, 1, 10000.) + " | " +
FormatUtil.FormatDouble (dblInAdvanceIMMDV01 - dblInAdvanceDV01, 1, 2, 10000.)
);
}
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();
}
}