OvernightIndexCurve.java

package org.drip.sample.forward;

import java.util.List;

import org.drip.analytics.date.JulianDate;
import org.drip.analytics.support.*;
import org.drip.function.r1tor1.QuadraticRationalShapeControl;
import org.drip.market.definition.FloaterIndex;
import org.drip.market.otc.*;
import org.drip.param.period.*;
import org.drip.param.valuation.*;
import org.drip.product.creator.SingleStreamComponentBuilder;
import org.drip.product.definition.CalibratableComponent;
import org.drip.product.rates.*;
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
 * Copyright (C) 2014 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>OvernightIndexCurve</i> illustrates the Construction and Usage of the Overnight Index Discount Curve.
 *  
 * <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/forward/README.md">Forward Rate Curve Construction</a></li>
 *  </ul>
 * <br><br>
 * 
 * @author Lakshmi Krishnamurthy
 */

public class OvernightIndexCurve {

    /*
     * 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,
        final FloaterIndex fi)
        throws Exception
    {
        SingleStreamComponent[] aDeposit = new SingleStreamComponent[aiDay.length];

        for (int i = 0; i < aiDay.length; ++i)
            aDeposit[i] = SingleStreamComponentBuilder.Deposit (
                dtEffective,
                dtEffective.addBusDays (
                    aiDay[i],
                    strCurrency
                ),
                null == fi ? OvernightLabel.Create (
                    strCurrency
                ) : ForwardLabel.Create (
                    fi,
                    "ON"
                )
            );

        return aDeposit;
    }

    private static final FixFloatComponent OTCOISFixFloat (
        final JulianDate dtSpot,
        final String strCurrency,
        final String strMaturityTenor,
        final double dblCoupon)
    {
        FixedFloatSwapConvention ffConv = OvernightFixedFloatContainer.FundConventionFromJurisdiction (
            strCurrency
        );

        return null == ffConv ? null : ffConv.createFixFloatComponent (
            dtSpot,
            strMaturityTenor,
            dblCoupon,
            0.,
            1.
        );
    }

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

    private static final FixFloatComponent[] OISFromMaturityTenor (
        final JulianDate dtSpot,
        final String strCurrency,
        final String[] astrMaturityTenor,
        final double[] adblCoupon)
        throws Exception
    {
        FixFloatComponent[] aOIS = new FixFloatComponent[astrMaturityTenor.length];

        for (int i = 0; i < astrMaturityTenor.length; ++i) {
            if (null == (aOIS[i] = OTCOISFixFloat (
                dtSpot,
                strCurrency,
                astrMaturityTenor[i],
                adblCoupon[i]
            )))
            return null;
        }

        return aOIS;
    }

    private static final FixFloatComponent[] OvernightIndexFromMaturityTenor (
        final JulianDate dtEffective,
        final String strCurrency,
        final String[] astrMaturityTenor,
        final double[] adblCoupon,
        final FloaterIndex fi)
        throws Exception
    {
        FixFloatComponent[] aOIS = new FixFloatComponent[astrMaturityTenor.length];

        UnitCouponAccrualSetting ucasFixed = new UnitCouponAccrualSetting (
            2,
            "Act/360",
            false,
            "Act/360",
            false,
            strCurrency,
            false,
            CompositePeriodBuilder.ACCRUAL_COMPOUNDING_RULE_GEOMETRIC
        );

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

        for (int i = 0; i < astrMaturityTenor.length; ++i) {
            java.lang.String strFixedTenor = Helper.LEFT_TENOR_LESSER == Helper.TenorCompare (
                astrMaturityTenor[i],
                "6M"
            ) ? astrMaturityTenor[i] : "6M";

            java.lang.String strFloatingTenor = Helper.LEFT_TENOR_LESSER == Helper.TenorCompare (
                astrMaturityTenor[i],
                "3M"
            ) ? astrMaturityTenor[i] : "3M";

            ComposableFloatingUnitSetting cfusFloating = new ComposableFloatingUnitSetting (
                "ON",
                CompositePeriodBuilder.EDGE_DATE_SEQUENCE_OVERNIGHT,
                null,
                null == fi ? OvernightLabel.Create (
                    strCurrency
                ) : ForwardLabel.Create (
                    fi,
                    "ON"
                ),
                CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
                0.
            );

            ComposableFixedUnitSetting cfusFixed = new ComposableFixedUnitSetting (
                strFixedTenor,
                CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
                null,
                adblCoupon[i],
                0.,
                strCurrency
            );

            CompositePeriodSetting cpsFloating = new CompositePeriodSetting (
                4,
                strFloatingTenor,
                strCurrency,
                null,
                -1.,
                null,
                null,
                null,
                null
            );

            CompositePeriodSetting cpsFixed = new CompositePeriodSetting (
                2,
                strFixedTenor,
                strCurrency,
                null,
                1.,
                null,
                null,
                null,
                null
            );

            List<Integer> lsFixedStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
                dtEffective,
                strFixedTenor,
                astrMaturityTenor[i],
                null
            );

            List<Integer> lsFloatingStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
                dtEffective,
                strFloatingTenor,
                astrMaturityTenor[i],
                null
            );

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

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

            FixFloatComponent ois = new FixFloatComponent (
                fixedStream,
                floatingStream,
                csp
            );

            ois.setPrimaryCode ("OIS." + astrMaturityTenor[i] + "." + strCurrency);

            aOIS[i] = ois;
        }

        return aOIS;
    }

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

    private static final FixFloatComponent[] OISFuturesFromMaturityTenor (
        final JulianDate dtSpot,
        final String strCurrency,
        final String[] astrStartTenor,
        final String[] astrMaturityTenor,
        final double[] adblCoupon)
        throws Exception
    {
        FixFloatComponent[] aOISFutures = new FixFloatComponent[astrMaturityTenor.length];

        for (int i = 0; i < astrMaturityTenor.length; ++i) {
            if (null == (aOISFutures[i] = OTCOISFixFloat (
                dtSpot.addTenor (astrStartTenor[i]),
                strCurrency,
                astrMaturityTenor[i],
                adblCoupon[i]
            )))
            return null;
        }

        return aOISFutures;
    }

    private static final FixFloatComponent[] OvernightIndexFutureFromMaturityTenor (
        final JulianDate dtSpot,
        final String strCurrency,
        final String[] astrStartTenor,
        final String[] astrMaturityTenor,
        final double[] adblCoupon,
        final FloaterIndex fi)
        throws Exception
    {
        FixFloatComponent[] aOIS = new FixFloatComponent[astrStartTenor.length];

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

        for (int i = 0; i < astrStartTenor.length; ++i) {
            JulianDate dtEffective = dtSpot.addTenor (astrStartTenor[i]);

            java.lang.String strFixedTenor = Helper.LEFT_TENOR_LESSER == Helper.TenorCompare (
                astrMaturityTenor[i],
                "6M"
            ) ? astrMaturityTenor[i] : "6M";

            java.lang.String strFloatingTenor = Helper.LEFT_TENOR_LESSER == Helper.TenorCompare (
                astrMaturityTenor[i],
                "3M"
            ) ? astrMaturityTenor[i] : "3M";

            ComposableFixedUnitSetting cfusFixed = new ComposableFixedUnitSetting (
                strFixedTenor,
                CompositePeriodBuilder.EDGE_DATE_SEQUENCE_REGULAR,
                null,
                adblCoupon[i],
                0.,
                strCurrency
            );

            UnitCouponAccrualSetting ucasFixed = new UnitCouponAccrualSetting (
                2,
                "Act/360",
                false,
                "Act/360",
                false,
                strCurrency,
                false,
                CompositePeriodBuilder.ACCRUAL_COMPOUNDING_RULE_GEOMETRIC
            );

            ComposableFloatingUnitSetting cfusFloating = new ComposableFloatingUnitSetting (
                "ON",
                CompositePeriodBuilder.EDGE_DATE_SEQUENCE_OVERNIGHT,
                null,
                null == fi ? OvernightLabel.Create (
                    strCurrency
                ) : ForwardLabel.Create (
                    fi,
                    "ON"
                ),
                CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
                0.
            );

            CompositePeriodSetting cpsFloating = new CompositePeriodSetting (
                4,
                strFloatingTenor,
                strCurrency,
                null,
                -1.,
                null,
                null,
                null,
                null
            );

            CompositePeriodSetting cpsFixed = new CompositePeriodSetting (
                2,
                strFixedTenor,
                strCurrency,
                null,
                1.,
                null,
                null,
                null,
                null
            );

            List<Integer> lsFixedStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
                dtEffective,
                "6M",
                astrMaturityTenor[i],
                null
            );

            List<Integer> lsFloatingStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
                dtEffective,
                "3M",
                astrMaturityTenor[i],
                null
            );

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

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

            FixFloatComponent ois = new FixFloatComponent (
                fixedStream,
                floatingStream,
                csp
            );

            ois.setPrimaryCode ("OIS." + astrMaturityTenor[i] + "." + strCurrency);

            aOIS[i] = ois;
        }

        return aOIS;
    }

    public static final MergedDiscountForwardCurve MakeDC (
        final String strCurrency,
        final JulianDate dtSpot,
        final int[] aiDepositMaturityDays,
        final double[] adblDepositQuote,
        final String[] astrShortEndOISMaturityTenor,
        final double[] adblShortEndOISQuote,
        final String[] astrOISFutureTenor,
        final String[] astrOISFutureMaturityTenor,
        final double[] adblOISFutureQuote,
        final String[] astrLongEndOISMaturityTenor,
        final double[] adblLongEndOISQuote,
        final SegmentCustomBuilderControl scbc,
        final FloaterIndex fi)
        throws Exception
    {
        /*
         * Construct the Array of Deposit Instruments and their Quotes from the given set of parameters
         */

        SingleStreamComponent[] aDepositComp = DepositInstrumentsFromMaturityDays (
            dtSpot,
            strCurrency,
            aiDepositMaturityDays,
            fi
        );

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

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

        /*
         * Construct the Array of Short End OIS Instruments and their Quotes from the given set of parameters
         */

        CalibratableComponent[] aShortEndOISComp = OISFromMaturityTenor (
            dtSpot,
            strCurrency,
            new java.lang.String[] {
                "1W", "2W", "3W", "1M"
            },
            adblShortEndOISQuote
        );

        if (null == aShortEndOISComp)
            aShortEndOISComp = OvernightIndexFromMaturityTenor (dtSpot,
                strCurrency,
                new java.lang.String[] {
                    "1W", "2W", "3W", "1M"
                },
                adblShortEndOISQuote,
                fi
            );

        /*
         * Construct the Short End OIS Instrument Set Stretch Builder
         */

        LatentStateStretchSpec oisShortEndStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
            "OIS_SHORT_END",
            aShortEndOISComp,
            "SwapRate",
            adblShortEndOISQuote
        );

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

        CalibratableComponent[] aOISFutureComp = OISFuturesFromMaturityTenor (
            dtSpot,
            strCurrency,
            new java.lang.String[] {
                "1M", "2M", "3M", "4M", "5M"
            },
            new java.lang.String[] {
                "1M", "1M", "1M", "1M", "1M"
            },
            adblOISFutureQuote
        );

        if (null == aOISFutureComp)
            aOISFutureComp = OvernightIndexFutureFromMaturityTenor (
                dtSpot,
                strCurrency,
                new java.lang.String[] {
                    "1M", "2M", "3M", "4M", "5M"
                },
                new java.lang.String[] {
                    "1M", "1M", "1M", "1M", "1M"
                },
                adblOISFutureQuote,
                fi
            );

        /*
         * Construct the OIS Future Instrument Set Stretch Builder
         */

        LatentStateStretchSpec oisFutureStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
            "OIS_FUTURE",
            aOISFutureComp,
            "SwapRate",
            adblOISFutureQuote
        );

        /*
         * Construct the Array of Long End OIS Instruments and their Quotes from the given set of parameters
         */

        CalibratableComponent[] aLongEndOISComp = OISFromMaturityTenor (
            dtSpot,
            strCurrency,
            new java.lang.String[] {
                "15M", "18M", "21M", "2Y", "3Y", "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y"
            },
            adblLongEndOISQuote
        );

        /*
         * Construct the Long End OIS Instrument Set Stretch Builder
         */

        LatentStateStretchSpec oisLongEndStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
            "OIS_LONG_END",
            aLongEndOISComp,
            "SwapRate",
            adblLongEndOISQuote
        );

        LatentStateStretchSpec[] aStretchSpec = new LatentStateStretchSpec[] {
            depositStretch,
            oisShortEndStretch,
            oisFutureStretch,
            oisLongEndStretch
        };

        /*
         * 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 (
            scbc,
            BoundarySettings.NaturalStandard(),
            MultiSegmentSequence.CALIBRATE,
            null,
            null
        );

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

        return ScenarioDiscountCurveBuilder.ShapePreservingDFBuild (
            strCurrency,
            lcc,
            aStretchSpec,
            new ValuationParams (
                dtSpot,
                dtSpot,
                strCurrency
            ),
            null,
            null,
            null,
            1.
        );
    }

    /**
     * Construct an elaborate EONIA Discount Curve
     * 
     * @param dtSpot The Spot Date
     * @param strCurrency The Currency
     * 
     * @return Instance of the EONIA Discount Curve
     * 
     * @throws Exception Thrown if the OIS Discount Curve Could not be created
     */

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

        int[] aiDepositMaturityDays = new int[] {
            1,
            2,
            3
        };

        double[] adblDepositQuote = new double[] {
            0.0004, // 1D
            0.0004, // 2D
            0.0004  // 3D
        };

        /*
         * Construct the Array of Short End OIS Instruments and their Quotes from the given set of parameters
         */

        String[] astrShortEndOISMaturityTenor = new java.lang.String[] {
            "1W",
            "2W",
            "3W",
            "1M"
        };

        double[] adblShortEndOISQuote = new double[] {
            0.00070,    //   1W
            0.00069,    //   2W
            0.00078,    //   3W
            0.00074     //   1M
        };

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

        final String[] astrOISFutureTenor = new java.lang.String[] {
            "1M",
            "1M",
            "1M",
            "1M",
            "1M"
        };

        final String[] astrOISFutureMaturityTenor = new java.lang.String[] {
            "1M",
            "2M",
            "3M",
            "4M",
            "5M"
        };

        double[] adblOISFutureQuote = new double[] {
             0.00046,    //   1M x 1M
             0.00016,    //   2M x 1M
            -0.00007,    //   3M x 1M
            -0.00013,    //   4M x 1M
            -0.00014     //   5M x 1M
        };

        /*
         * Construct the Array of Long End OIS Instruments and their Quotes from the given set of parameters
         */

        String[] astrLongEndOISMaturityTenor = new java.lang.String[] {
            "15M",
            "18M",
            "21M",
            "2Y",
            "3Y",
            "4Y",
            "5Y",
            "6Y",
            "7Y",
            "8Y",
            "9Y",
            "10Y",
            "11Y",
            "12Y",
            "15Y",
            "20Y",
            "25Y",
            "30Y"
        };

        double[] adblLongEndOISQuote = new double[] {
            0.00002,    //  15M
            0.00008,    //  18M
            0.00021,    //  21M
            0.00036,    //   2Y
            0.00127,    //   3Y
            0.00274,    //   4Y
            0.00456,    //   5Y
            0.00647,    //   6Y
            0.00827,    //   7Y
            0.00996,    //   8Y
            0.01147,    //   9Y
            0.01280,    //  10Y
            0.01404,    //  11Y
            0.01516,    //  12Y
            0.01764,    //  15Y
            0.01939,    //  20Y
            0.02003,    //  25Y
            0.02038     //  30Y
        };

        SegmentCustomBuilderControl scbcCubic = new SegmentCustomBuilderControl (
            MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
            new PolynomialFunctionSetParams (4),
            SegmentInelasticDesignControl.Create (
                2,
                2
            ),
            new ResponseScalingShapeControl (
                true,
                new QuadraticRationalShapeControl (0.)
            ),
            null
        );

        return MakeDC (
            strCurrency,
            dtSpot,
            aiDepositMaturityDays,
            adblDepositQuote,
            astrShortEndOISMaturityTenor,
            adblShortEndOISQuote,
            astrOISFutureTenor,
            astrOISFutureMaturityTenor,
            adblOISFutureQuote,
            astrLongEndOISMaturityTenor,
            adblLongEndOISQuote,
            scbcCubic,
            null
        );
    }
}