JurisdictionVenueOptionValuation.java
package org.drip.sample.forwardratefutures;
import java.util.*;
import org.drip.analytics.date.*;
import org.drip.function.r1tor1.FlatUnivariate;
import org.drip.market.otc.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.creator.*;
import org.drip.param.market.CurveSurfaceQuoteContainer;
import org.drip.param.valuation.*;
import org.drip.product.creator.SingleStreamOptionBuilder;
import org.drip.product.fra.FRAStandardCapFloorlet;
import org.drip.product.rates.*;
import org.drip.sample.forward.OvernightIndexCurve;
import org.drip.service.env.EnvManager;
import org.drip.spline.basis.PolynomialFunctionSetParams;
import org.drip.spline.stretch.MultiSegmentSequenceBuilder;
import org.drip.state.creator.*;
import org.drip.state.discount.*;
import org.drip.state.forward.ForwardCurve;
import org.drip.state.identifier.*;
/*
* -*- 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>JurisdictionVenueOptionValuation</i> contains the Demonstration of the Construction and the Valuation
* of the Options on Standardized LIBOR Futures Contract across Jurisdictions and Venues.
*
* <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/forwardratefutures/README.md">Forward Rate Futures Analytics</a></li>
* </ul>
* <br><br>
*
* @author Lakshmi Krishnamurthy
*/
public class JurisdictionVenueOptionValuation {
private static final FloatFloatComponent OTCFloatFloat (
final JulianDate dtSpot,
final String strCurrency,
final String strDerivedTenor,
final String strMaturityTenor,
final double dblBasis)
{
FloatFloatSwapConvention ffConv = IBORFloatFloatContainer.ConventionFromJurisdiction (strCurrency);
return ffConv.createFloatFloatComponent (
dtSpot,
strDerivedTenor,
strMaturityTenor,
dblBasis,
1.
);
}
/*
* 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 dtSpot,
final String strCurrency,
final String[] astrMaturityTenor,
final int iTenorInMonths)
throws Exception
{
FloatFloatComponent[] aFFC = new FloatFloatComponent[astrMaturityTenor.length];
for (int i = 0; i < astrMaturityTenor.length; ++i)
aFFC[i] = OTCFloatFloat (
dtSpot,
strCurrency,
iTenorInMonths + "M",
astrMaturityTenor[i],
0.
);
return aFFC;
}
private static final ForwardCurve MakeFC (
final JulianDate dtSpot,
final String strCurrency,
final MergedDiscountForwardCurve dc,
final int iTenorInMonths,
final String[] astrxM6MFwdTenor,
final double[] adblxM6MBasisSwapQuote)
throws Exception
{
/*
* Construct the 6M-xM float-float basis swap.
*/
FloatFloatComponent[] aFFC = MakexM6MBasisSwap (
dtSpot,
strCurrency,
astrxM6MFwdTenor,
iTenorInMonths
);
String strBasisTenor = iTenorInMonths + "M";
ValuationParams valParams = new ValuationParams (
dtSpot,
dtSpot,
strCurrency
);
/*
* Calculate the starting forward rate off of the discount curve.
*/
double dblStartingFwd = dc.forward (
dtSpot.julian(),
dtSpot.addTenor (strBasisTenor).julian()
);
/*
* Set the discount curve based component market parameters.
*/
CurveSurfaceQuoteContainer mktParams = MarketParamsBuilder.Create (
dc,
null,
null,
null,
null,
null,
null
);
/*
* Construct the shape preserving forward curve off of Quartic Polynomial Basis Spline.
*/
return ScenarioForwardCurveBuilder.ShapePreservingForwardCurve (
"QUARTIC_FWD" + strBasisTenor,
ForwardLabel.Create (
strCurrency,
strBasisTenor
),
valParams,
null,
mktParams,
null,
MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
new PolynomialFunctionSetParams (5),
aFFC,
"DerivedParBasisSpread",
adblxM6MBasisSwapQuote,
dblStartingFwd
);
}
private static final Map<String, ForwardCurve> MakeFC (
final JulianDate dt,
final String strCurrency,
final MergedDiscountForwardCurve dc)
throws Exception
{
Map<String, ForwardCurve> mapFC = new HashMap<String, ForwardCurve>();
/*
* Build and run the sampling for the 1M-6M Tenor Basis Swap from its instruments and quotes.
*/
ForwardCurve fc1M = MakeFC (
dt,
strCurrency,
dc,
1,
new String[] {
"1Y", "2Y", "3Y", "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y"
},
new double[] {
0.00551, // 1Y
0.00387, // 2Y
0.00298, // 3Y
0.00247, // 4Y
0.00211, // 5Y
0.00185, // 6Y
0.00165, // 7Y
0.00150, // 8Y
0.00137, // 9Y
0.00127, // 10Y
0.00119, // 11Y
0.00112, // 12Y
0.00096, // 15Y
0.00079, // 20Y
0.00069, // 25Y
0.00062 // 30Y
}
);
mapFC.put (
"1M",
fc1M
);
/*
* Build and run the sampling for the 3M-6M Tenor Basis Swap from its instruments and quotes.
*/
ForwardCurve fc3M = MakeFC (
dt,
strCurrency,
dc,
3,
new String[] {
"1Y", "2Y", "3Y", "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y"
},
new double[] {
0.00186, // 1Y
0.00127, // 2Y
0.00097, // 3Y
0.00080, // 4Y
0.00067, // 5Y
0.00058, // 6Y
0.00051, // 7Y
0.00046, // 8Y
0.00042, // 9Y
0.00038, // 10Y
0.00035, // 11Y
0.00033, // 12Y
0.00028, // 15Y
0.00022, // 20Y
0.00020, // 25Y
0.00018 // 30Y
}
);
mapFC.put (
"3M",
fc3M
);
/*
* Build and run the sampling for the 12M-6M Tenor Basis Swap from its instruments and quotes.
*/
ForwardCurve fc12M = MakeFC (
dt,
strCurrency,
dc,
12,
new String[] {
"1Y", "2Y", "3Y", "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y",
"35Y", "40Y" // Extrapolated
},
new double[] {
-0.00212, // 1Y
-0.00152, // 2Y
-0.00117, // 3Y
-0.00097, // 4Y
-0.00082, // 5Y
-0.00072, // 6Y
-0.00063, // 7Y
-0.00057, // 8Y
-0.00051, // 9Y
-0.00047, // 10Y
-0.00044, // 11Y
-0.00041, // 12Y
-0.00035, // 15Y
-0.00028, // 20Y
-0.00025, // 25Y
-0.00022, // 30Y
-0.00022, // 35Y Extrapolated
-0.00022, // 40Y Extrapolated
}
);
mapFC.put (
"12M",
fc12M
);
return mapFC;
}
private static final void SetVolCorrelation (
final int iValueDate,
final CurveSurfaceQuoteContainer mktParams,
final ForwardLabel fri,
final double dblForwardVol,
final double dblFundingVol,
final double dblForwardFundingCorr)
throws Exception
{
FundingLabel fundingLabel = FundingLabel.Standard (fri.currency());
mktParams.setForwardVolatility (
ScenarioDeterministicVolatilityBuilder.FlatForward (
iValueDate,
VolatilityLabel.Standard (fri),
fri.currency(),
dblForwardVol
)
);
mktParams.setFundingVolatility (
ScenarioDeterministicVolatilityBuilder.FlatForward (
iValueDate,
VolatilityLabel.Standard (fundingLabel),
fri.currency(),
dblFundingVol
)
);
mktParams.setForwardFundingCorrelation (
fri,
fundingLabel,
new FlatUnivariate (dblForwardFundingCorr)
);
}
private static final void FuturesOptionMetrics (
final String strCurrency,
final String strTenor,
final JulianDate dtSpot,
final String strOptionType,
final String strExchange)
throws Exception
{
MergedDiscountForwardCurve dcOIS = OvernightIndexCurve.MakeDC (
dtSpot,
strCurrency
);
ForwardLabel forwardLabel = ForwardLabel.Create (
strCurrency,
strTenor
);
Map<String, ForwardCurve> mapFC = MakeFC (
dtSpot,
strCurrency,
dcOIS
);
ForwardCurve fc = mapFC.get (strTenor);
JulianDate dtEffective = dtSpot.addTenor ("3M");
FRAStandardCapFloorlet liborFuturesOption = SingleStreamOptionBuilder.ExchangeTradedFuturesOption (
dtEffective,
forwardLabel,
fc.forward (dtEffective.addTenor (fc.tenor())),
"ParForward",
false,
strOptionType,
strExchange
);
CurveSurfaceQuoteContainer mktParams = MarketParamsBuilder.Create (
dcOIS,
fc,
null,
null,
null,
null,
null,
null
);
double dblForwardVol = 0.50;
double dblFundingVol = 0.50;
double dblForwardFundingCorr = 0.50;
SetVolCorrelation (
dtSpot.julian(),
mktParams,
forwardLabel,
dblForwardVol,
dblFundingVol,
dblForwardFundingCorr
);
ValuationParams valParams = new ValuationParams (
dtSpot,
dtSpot,
strCurrency
);
Map<String, Double> mapOutput = liborFuturesOption.value (
valParams,
null,
mktParams,
null
);
System.out.println ("\t\t" + strExchange + " | " +
FormatUtil.FormatDouble (mapOutput.get ("ATMFRA"), 1, 4, 100.) + " % | " +
FormatUtil.FormatDouble (mapOutput.get ("Upfront"), 1, 1, 10000.) + " bp | " +
forwardLabel.fullyQualifiedName()
);
}
public static final void main (
final String[] astrArgs)
throws Exception
{
/*
* Initialize the Credit Analytics Library
*/
EnvManager.InitEnv ("");
JulianDate dtToday = DateUtil.Today();
System.out.println ("\tOutput Order - L -> R:");
System.out.println ("\t\tExchange\n\t\tATM Par FRA Level (%)\n\t\tOption Upfront (bp)\n\t\tFRA Label");
System.out.println ("\n\t-----------------------------------------------------");
System.out.println ("\t--------------- MARGIN TYPE OPTION ------------------");
System.out.println ("\t-----------------------------------------------------");
FuturesOptionMetrics (
"CHF",
"3M",
dtToday,
"MARGIN",
"LIFFE"
);
FuturesOptionMetrics (
"GBP",
"3M",
dtToday,
"MARGIN",
"LIFFE"
);
/* FuturesOptionMetrics (
"EUR",
"3M",
dtToday,
"MARGIN",
"LIFFE"
); */
FuturesOptionMetrics (
"USD",
"3M",
dtToday,
"MARGIN",
"LIFFE"
);
System.out.println ("\t-----------------------------------------------------");
System.out.println ("\t-------------- PREMIUM TYPE OPTION ------------------");
System.out.println ("\t-----------------------------------------------------");
FuturesOptionMetrics (
"JPY",
"3M",
dtToday,
"PREMIUM",
"SGX"
);
FuturesOptionMetrics (
"USD",
"1M",
dtToday,
"PREMIUM",
"CME"
);
FuturesOptionMetrics (
"USD",
"3M",
dtToday,
"PREMIUM",
"CME"
);
FuturesOptionMetrics (
"USD",
"3M",
dtToday,
"PREMIUM",
"SGX"
);
System.out.println ("\t-----------------------------------------------------");
System.out.println ("\t-----------------------------------------------------");
EnvManager.TerminateEnv();
}
}