InAdvanceSwap.java

  1. package org.drip.sample.fixfloat;

  3. import org.drip.analytics.date.*;
  4. import org.drip.analytics.support.*;
  5. import org.drip.function.r1tor1.QuadraticRationalShapeControl;
  6. import org.drip.market.otc.*;
  7. import org.drip.numerical.common.FormatUtil;
  8. import org.drip.param.creator.*;
  9. import org.drip.param.period.*;
  10. import org.drip.param.valuation.*;
  11. import org.drip.product.creator.*;
  12. import org.drip.product.rates.*;
  13. import org.drip.service.env.EnvManager;
  14. import org.drip.spline.basis.PolynomialFunctionSetParams;
  15. import org.drip.spline.params.*;
  16. import org.drip.spline.stretch.*;
  17. import org.drip.state.creator.ScenarioDiscountCurveBuilder;
  18. import org.drip.state.discount.*;
  19. import org.drip.state.estimator.LatentStateStretchBuilder;
  20. import org.drip.state.identifier.*;
  21. import org.drip.state.inference.*;

  23. /*
  24.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  25.  */

  27. /*!
  28.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  29.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  30.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  31.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  32.  * Copyright (C) 2015 Lakshmi Krishnamurthy
  33.  * 
  34.  *  This file is part of DROP, an open-source library targeting risk, transaction costs, exposure, margin
  35.  *      calculations, valuation adjustment, and portfolio construction within and across fixed income,
  36.  *      credit, commodity, equity, FX, and structured products.
  37.  *  
  38.  *      https://lakshmidrip.github.io/DROP/
  39.  *  
  40.  *  DROP is composed of three modules:
  41.  *  
  42.  *  - DROP Analytics Core - https://lakshmidrip.github.io/DROP-Analytics-Core/
  43.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  44.  *  - DROP Numerical Core - https://lakshmidrip.github.io/DROP-Numerical-Core/
  45.  * 
  46.  *  DROP Analytics Core implements libraries for the following:
  47.  *  - Fixed Income Analytics
  48.  *  - Asset Backed Analytics
  49.  *  - XVA Analytics
  50.  *  - Exposure and Margin Analytics
  51.  * 
  52.  *  DROP Portfolio Core implements libraries for the following:
  53.  *  - Asset Allocation Analytics
  54.  *  - Transaction Cost Analytics
  55.  * 
  56.  *  DROP Numerical Core implements libraries for the following:
  57.  *  - Statistical Learning
  58.  *  - Numerical Optimizer
  59.  *  - Spline Builder
  60.  *  - Algorithm Support
  61.  * 
  62.  *  Documentation for DROP is Spread Over:
  63.  * 
  64.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  65.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  66.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  67.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  68.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  69.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  70.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  71.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  72.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  73.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  74.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  75.  * 
  76.  *  Licensed under the Apache License, Version 2.0 (the "License");
  77.  *      you may not use this file except in compliance with the License.
  78.  *   
  79.  *  You may obtain a copy of the License at
  80.  *      http://www.apache.org/licenses/LICENSE-2.0
  81.  *  
  82.  *  Unless required by applicable law or agreed to in writing, software
  83.  *      distributed under the License is distributed on an "AS IS" BASIS,
  84.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  85.  *  
  86.  *  See the License for the specific language governing permissions and
  87.  *      limitations under the License.
  88.  */

  90. /**
  91.  * <i>InAdvanceSwap</i> discount curve calibration and input instrument calibration quote recovery. It shows
  92.  * the following:
  93.  *  
  94.  * <br><br>
  95.  *  <ul>
  96.  *      <li>
  97.  *          Construct the Array of Deposit/Swap Instruments and their Quotes from the given set of
  98.  *              parameters.
  99.  *      </li>
  100.  *      <li>
  101.  *          Construct the Deposit/Swap Instrument Set Stretch Builder.
  102.  *      </li>
  103.  *      <li>
  104.  *          Set up the Linear Curve Calibrator using the following parameters:
  105.  *          <ul>
  106.  *              <li>
  107.  *                  Cubic Exponential Mixture Basis Spline Set
  108.  *              </li>
  109.  *              <li>
  110.  *                  C<sub>k</sub> = 2
  111.  *                  Segment Curvature Penalty = 2
  112.  *              </li>
  113.  *              <li>
  114.  *                  Quadratic Rational Shape Controller
  115.  *              </li>
  116.  *              <li>
  117.  *                  Natural Boundary Setting
  118.  *              </li>
  119.  *          </ul>
  120.  *      </li>
  121.  *      <li>
  122.  *          Construct the Shape Preserving Discount Curve by applying the linear curve calibrator to the
  123.  *              array of Cash and Swap Stretches.
  124.  *      </li>
  125.  *      <li>
  126.  *          Cross-Comparison of the Cash/Swap Calibration Instrument "Rate" metric across the different curve
  127.  *              construction methodologies.
  128.  *      </li>
  129.  *  </ul>
  130.  *  
  131.  * <br><br>
  132.  *  <ul>
  133.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/AnalyticsCore.md">Analytics Core Module</a></li>
  134.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics Library</a></li>
  135.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/README.md">Sample</a></li>
  136.  *      <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>
  137.  *  </ul>
  138.  * <br><br>
  139.  * 
  140.  * @author Lakshmi Krishnamurthy
  141.  */

  143. public class InAdvanceSwap {

  145.     private static final FixFloatComponent OTCIRS (
  146.         final JulianDate dtSpot,
  147.         final String strCurrency,
  148.         final String strMaturityTenor,
  149.         final double dblCoupon)
  150.     {
  151.         FixedFloatSwapConvention ffConv = IBORFixedFloatContainer.ConventionFromJurisdiction (
  152.             strCurrency,
  153.             "ALL",
  154.             strMaturityTenor,
  155.             "MAIN"
  156.         );

  158.         return ffConv.createFixFloatComponent (
  159.             dtSpot,
  160.             strMaturityTenor,
  161.             dblCoupon,
  162.             0.,
  163.             1.
  164.         );
  165.     }

  167.     /*
  168.      * Construct the Array of Deposit Instruments from the given set of parameters
  169.      * 
  170.      *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
  171.      */

  173.     private static final SingleStreamComponent[] DepositInstrumentsFromMaturityDays (
  174.         final JulianDate dtEffective,
  175.         final String strCurrency,
  176.         final int[] aiDay)
  177.         throws Exception
  178.     {
  179.         SingleStreamComponent[] aDeposit = new SingleStreamComponent[aiDay.length];

  181.         ComposableFloatingUnitSetting cfus = new ComposableFloatingUnitSetting (
  182.             "3M",
  183.             CompositePeriodBuilder.EDGE_DATE_SEQUENCE_SINGLE,
  184.             null,
  185.             ForwardLabel.Create (
  186.                 strCurrency,
  187.                 "3M"
  188.             ),
  189.             CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
  190.             0.
  191.         );

  193.         CompositePeriodSetting cps = new CompositePeriodSetting (
  194.             4,
  195.             "3M",
  196.             strCurrency,
  197.             null,
  198.             1.,
  199.             null,
  200.             null,
  201.             null,
  202.             null
  203.         );

  205.         CashSettleParams csp = new CashSettleParams (
  206.             0,
  207.             strCurrency,
  208.             0
  209.         );

  211.         for (int i = 0; i < aiDay.length; ++i) {
  212.             aDeposit[i] = new SingleStreamComponent (
  213.                 "DEPOSIT_" + aiDay[i],
  214.                 new Stream (
  215.                     CompositePeriodBuilder.FloatingCompositeUnit (
  216.                         CompositePeriodBuilder.EdgePair (
  217.                             dtEffective,
  218.                             dtEffective.addBusDays (
  219.                                 aiDay[i],
  220.                                 strCurrency
  221.                             )
  222.                         ),
  223.                         cps,
  224.                         cfus
  225.                     )
  226.                 ),
  227.                 csp
  228.             );

  230.             aDeposit[i].setPrimaryCode (aiDay[i] + "D");
  231.         }

  233.         return aDeposit;
  234.     }

  236.     /*
  237.      * Construct the Array of Swap Instruments from the given set of parameters
  238.      * 
  239.      *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
  240.      */

  242.     private static final FixFloatComponent[] SwapInstrumentsFromMaturityTenor (
  243.         final JulianDate dtSpot,
  244.         final String strCurrency,
  245.         final String[] astrMaturityTenor)
  246.         throws Exception
  247.     {
  248.         FixFloatComponent[] aIRS = new FixFloatComponent[astrMaturityTenor.length];

  250.         for (int i = 0; i < astrMaturityTenor.length; ++i)
  251.             aIRS[i] = OTCIRS (
  252.                 dtSpot,
  253.                 strCurrency,
  254.                 astrMaturityTenor[i],
  255.                 0.
  256.             );

  258.         return aIRS;
  259.     }

  261.     /*
  262.      * This sample demonstrates discount curve calibration and input instrument calibration quote recovery.
  263.      *  It shows the following:
  264.      *  - Construct the Array of Cash/Swap Instruments and their Quotes from the given set of parameters.
  265.      *  - Construct the Cash/Swap Instrument Set Stretch Builder.
  266.      *  - Set up the Linear Curve Calibrator using the following parameters:
  267.      *      - Cubic Exponential Mixture Basis Spline Set
  268.      *      - Ck = 2, Segment Curvature Penalty = 2
  269.      *      - Quadratic Rational Shape Controller
  270.      *      - Natural Boundary Setting
  271.      *  - Construct the Shape Preserving Discount Curve by applying the linear curve calibrator to the array
  272.      *      of Cash and Swap Stretches.
  273.      *  - Cross-Comparison of the Cash/Swap Calibration Instrument "Rate" metric across the different curve
  274.      *      construction methodologies.
  275.      * 
  276.      *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
  277.      */

  279.     private static final void CustomDiscountCurveBuilderSample (
  280.         final JulianDate dtSpot,
  281.         final String strCurrency)
  282.         throws Exception
  283.     {
  284.         /*
  285.          * Construct the Array of Deposit Instruments and their Quotes from the given set of parameters
  286.          */

  288.         SingleStreamComponent[] aDepositComp = DepositInstrumentsFromMaturityDays (
  289.             dtSpot,
  290.             strCurrency,
  291.             new int[] {
  292.                 1, 2, 7, 14, 30, 60
  293.             }
  294.         );

  296.         double[] adblDepositQuote = new double[] {
  297.             0.0013, 0.0017, 0.0017, 0.0018, 0.0020, 0.0023
  298.         };

  300.         /*
  301.          * Construct the Deposit Instrument Set Stretch Builder
  302.          */

  304.         LatentStateStretchSpec depositStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
  305.             "DEPOSIT",
  306.             aDepositComp,
  307.             "ForwardRate",
  308.             adblDepositQuote
  309.         );

  311.         /*
  312.          * Construct the Array of EDF Instruments and their Quotes from the given set of parameters
  313.          */

  315.         SingleStreamComponent[] aEDFComp = SingleStreamComponentBuilder.ForwardRateFuturesPack (
  316.             dtSpot,
  317.             8,
  318.             strCurrency
  319.         );

  321.         double[] adblEDFQuote = new double[] {
  322.             0.0027, 0.0032, 0.0041, 0.0054, 0.0077, 0.0104, 0.0134, 0.0160
  323.         };

  325.         /*
  326.          * Construct the EDF Instrument Set Stretch Builder
  327.          */

  329.         LatentStateStretchSpec edfStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
  330.             "EDF",
  331.             aEDFComp,
  332.             "ForwardRate",
  333.             adblEDFQuote
  334.         );

  336.         /*
  337.          * Construct the Array of Swap Instruments and their Quotes from the given set of parameters
  338.          */

  340.         FixFloatComponent[] aSwapComp = SwapInstrumentsFromMaturityTenor (
  341.             dtSpot,
  342.             strCurrency,
  343.             new java.lang.String[] {
  344.                 "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y", "40Y", "50Y"
  345.             }
  346.         );

  348.         double[] adblSwapQuote = new double[] {
  349.             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
  350.         };

  352.         /*
  353.          * Construct the Swap Instrument Set Stretch Builder
  354.          */

  356.         LatentStateStretchSpec swapStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
  357.             "SWAP",
  358.             aSwapComp,
  359.             "SwapRate",
  360.             adblSwapQuote
  361.         );

  363.         LatentStateStretchSpec[] aStretchSpec = new LatentStateStretchSpec[] {
  364.             depositStretch,
  365.             edfStretch,
  366.             swapStretch
  367.         };

  369.         /*
  370.          * Set up the Linear Curve Calibrator using the following parameters:
  371.          *  - Cubic Exponential Mixture Basis Spline Set
  372.          *  - Ck = 2, Segment Curvature Penalty = 2
  373.          *  - Quadratic Rational Shape Controller
  374.          *  - Natural Boundary Setting
  375.          */

  377.         LinearLatentStateCalibrator lcc = new LinearLatentStateCalibrator (
  378.             new SegmentCustomBuilderControl (
  379.                 MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
  380.                 new PolynomialFunctionSetParams (4),
  381.                 SegmentInelasticDesignControl.Create (
  382.                     2,
  383.                     2
  384.                 ),
  385.                 new ResponseScalingShapeControl (
  386.                     true,
  387.                     new QuadraticRationalShapeControl (0.)
  388.                 ),
  389.                 null
  390.             ),
  391.             BoundarySettings.NaturalStandard(),
  392.             MultiSegmentSequence.CALIBRATE,
  393.             null,
  394.             null
  395.         );

  397.         ValuationParams valParams = new ValuationParams (
  398.             dtSpot,
  399.             dtSpot,
  400.             strCurrency
  401.         );

  403.         /*
  404.          * Construct the Shape Preserving Discount Curve by applying the linear curve calibrator to the array
  405.          *  of Deposit, Futures, and Swap Stretches.
  406.          */

  408.         MergedDiscountForwardCurve dc = ScenarioDiscountCurveBuilder.ShapePreservingDFBuild (
  409.             strCurrency,
  410.             lcc,
  411.             aStretchSpec,
  412.             valParams,
  413.             null,
  414.             null,
  415.             null,
  416.             1.
  417.         );

  419.         /*
  420.          * Cross-Comparison of the Deposit Calibration Instrument "Rate" metric across the different curve
  421.          *  construction methodologies.
  422.          */

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

  426.         System.out.println ("\t     DEPOSIT INSTRUMENTS CALIBRATION RECOVERY");

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

  430.         for (int i = 0; i < aDepositComp.length; ++i)
  431.             System.out.println ("\t[" + aDepositComp[i].maturityDate() + "] = " +
  432.                 FormatUtil.FormatDouble (aDepositComp[i].measureValue (valParams, null,
  433.                     MarketParamsBuilder.Create (dc, null, null, null, null, null, null),
  434.                         null, "Rate"), 1, 6, 1.) + " | " + FormatUtil.FormatDouble (adblDepositQuote[i], 1, 6, 1.));

  436.         /*
  437.          * Cross-Comparison of the EDF Calibration Instrument "Rate" metric across the different curve
  438.          *  construction methodologies.
  439.          */

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

  443.         System.out.println ("\t     EDF INSTRUMENTS CALIBRATION RECOVERY");

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

  447.         for (int i = 0; i < aEDFComp.length; ++i)
  448.             System.out.println ("\t[" + aEDFComp[i].maturityDate() + "] = " +
  449.                 FormatUtil.FormatDouble (aEDFComp[i].measureValue (valParams, null,
  450.                     MarketParamsBuilder.Create (dc, null, null, null, null, null, null),
  451.                         null, "Rate"), 1, 6, 1.) + " | " + FormatUtil.FormatDouble (adblEDFQuote[i], 1, 6, 1.));

  453.         /*
  454.          * Cross-Comparison of the Swap Calibration Instrument "Rate" metric across the different curve
  455.          *  construction methodologies.
  456.          */

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

  460.         System.out.println ("\t     SWAP INSTRUMENTS CALIBRATION RECOVERY");

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

  464.         for (int i = 0; i < aSwapComp.length; ++i)
  465.             System.out.println ("\t[" + aSwapComp[i].maturityDate() + "] = " +
  466.                 FormatUtil.FormatDouble (aSwapComp[i].measureValue (valParams, null,
  467.                     MarketParamsBuilder.Create (dc, null, null, null, null, null, null),
  468.                         null, "CalibSwapRate"), 1, 6, 1.) + " | " + FormatUtil.FormatDouble (adblSwapQuote[i], 1, 6, 1.) + " | " +
  469.                             FormatUtil.FormatDouble (aSwapComp[i].measureValue (valParams, null,
  470.                                 MarketParamsBuilder.Create (dc, null, null, null, null, null, null),
  471.                                     null, "FairPremium"), 1, 6, 1.));

  473.         System.out.println ("\t----------------------------------------------------------------");
  474.     }

  476.     public static final void main (
  477.         final String[] astrArgs)
  478.         throws Exception
  479.     {
  480.         /*
  481.          * Initialize the Credit Analytics Library
  482.          */

  484.         EnvManager.InitEnv ("");

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

  488.         String strCurrency = "USD";

  490.         CustomDiscountCurveBuilderSample (
  491.             dtToday,
  492.             strCurrency
  493.         );

  495.         EnvManager.TerminateEnv();
  496.     }
  497. }
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