CustomFundingCurveReconciler.java
package org.drip.sample.funding;
import java.util.List;
import org.drip.analytics.date.*;
import org.drip.analytics.definition.Turn;
import org.drip.analytics.support.*;
import org.drip.function.r1tor1.QuadraticRationalShapeControl;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.creator.MarketParamsBuilder;
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.curve.DiscountFactorDiscountCurve;
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>CustomFundingCurveReconciler</i> demonstrates the multi-stretch transition custom Funding curve
* construction, turns application, discount factor extraction, and calibration quote recovery. It shows the
* following steps:
*
* <br><br>
* <ul>
* <li>
* Setup the linear curve calibrator.
* </li>
* <li>
* Setup the cash instruments and their quotes for calibration.
* </li>
* <li>
* Setup the cash instruments stretch latent state representation - this uses the discount factor
* quantification metric and the "rate" manifest measure.
* </li>
* <li>
* Setup the swap instruments and their quotes for calibration.
* </li>
* <li>
* Setup the swap instruments stretch latent state representation - this uses the discount factor
* quantification metric and the "rate" manifest measure.
* </li>
* <li>
* Calibrate over the instrument set to generate a new overlapping latent state span instance.
* </li>
* <li>
* Retrieve the "cash" stretch from the span.
* </li>
* <li>
* Retrieve the "swap" stretch from the span.
* </li>
* <li>
* Create a discount curve instance by converting the overlapping stretch to an exclusive
* non-overlapping stretch.
* </li>
* <li>
* Compare the discount factors and their monotonicity emitted from the discount curve, the
* non-overlapping span, and the "swap" stretch across the range of tenor predictor ordinates.
* </li>
* <li>
* Cross-Recovery of the Cash Calibration Instrument "Rate" metric across the different curve
* construction methodologies.
* </li>
* <li>
* Cross-Recovery of the Swap Calibration Instrument "Rate" metric across the different curve
* construction methodologies.
* </li>
* <li>
* Create a turn list instance and add new turn instances.
* </li>
* <li>
* Update the discount curve with the turn list.
* </li>
* <li>
* Compare the discount factor implied the discount curve with and without applying the turns
* adjustment.
* </li>
* </ul>
*
* <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/funding/README.md">Funding Curve Builder</a></li>
* </ul>
* <br><br>
*
* @author Lakshmi Krishnamurthy
*/
public class CustomFundingCurveReconciler {
/*
* 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)
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 = CompositePeriodBuilder.RegularEdgeDates (
dtEffective,
"6M",
astrMaturityTenor[i],
null
);
List<Integer> lsFloatingStreamEdgeDate = CompositePeriodBuilder.RegularEdgeDates (
dtEffective,
"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 the multi-stretch transition custom discount curve construction, turns
* application, discount factor extraction, and calibration quote recovery. It shows the following
* steps:
* - Setup the linear curve calibrator.
* - Setup the cash instruments and their quotes for calibration.
* - Setup the cash instruments stretch latent state representation - this uses the discount factor
* quantification metric and the "rate" manifest measure.
* - Setup the swap instruments and their quotes for calibration.
* - Setup the swap instruments stretch latent state representation - this uses the discount factor
* quantification metric and the "rate" manifest measure.
* - Calibrate over the instrument set to generate a new overlapping latent state span instance.
* - Retrieve the "cash" stretch from the span.
* - Retrieve the "swap" stretch from the span.
* - Create a discount curve instance by converting the overlapping stretch to an exclusive
* non-overlapping stretch.
* - Compare the discount factors and their monotonicity emitted from the discount curve, the
* non-overlapping span, and the "swap" stretch across the range of tenor predictor ordinates.
* - Cross-Recovery of the Cash Calibration Instrument "Rate" metric across the different curve
* construction methodologies.
* - Cross-Recovery of the Swap Calibration Instrument "Rate" metric across the different curve
* construction methodologies.
* - Create a turn list instance and add new turn instances.
* - Update the discount curve with the turn list.
* - Compare the discount factor implied the discount curve with and without applying the turns
* adjustment.
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final void SplineLinearDiscountCurve (
final JulianDate dtSpot,
final String strCurrency,
final SegmentCustomBuilderControl scbc)
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[] aSwapComp = SwapInstrumentsFromMaturityTenor (
dtSpot,
strCurrency,
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",
aSwapComp,
"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 (
scbc,
BoundarySettings.NaturalStandard(),
MultiSegmentSequence.CALIBRATE,
null,
null
);
ValuationParams valParams = new ValuationParams (
dtSpot,
dtSpot,
strCurrency
);
/*
* Calibrate over the instrument set to generate a new overlapping latent state span instance
*/
org.drip.spline.grid.OverlappingStretchSpan ors = lcc.calibrateSpan (
aStretchSpec,
1.,
valParams,
null,
null,
null
);
/*
* Retrieve the "Deposit" stretch from the span
*/
MultiSegmentSequence mssDeposit = ors.getStretch ("DEPOSIT");
/*
* Retrieve the "swap" stretch from the span
*/
MultiSegmentSequence mssSwap = ors.getStretch ("SWAP");
/*
* Create a discount curve instance by converting the overlapping stretch to an exclusive
* non-overlapping stretch.
*/
MergedDiscountForwardCurve dfdc = new DiscountFactorDiscountCurve (
strCurrency,
ors
);
/*
* Compare the discount factors and their monotonicity emitted from the discount curve, the
* non-overlapping span, and the Deposit stretch across the range of tenor predictor ordinates.
*/
System.out.println ("\n\t----------------------------------------------------------------");
System.out.println ("\t DEPOSIT DF DFDC STRETCH LOCAL");
System.out.println ("\t----------------------------------------------------------------");
for (int iX = (int) mssDeposit.getLeftPredictorOrdinateEdge(); iX <= (int) mssDeposit.getRightPredictorOrdinateEdge();
iX += 0.1 * (mssDeposit.getRightPredictorOrdinateEdge() - mssDeposit.getLeftPredictorOrdinateEdge())) {
try {
System.out.println ("\tDeposit [" + new JulianDate (iX) + "] = " +
FormatUtil.FormatDouble (dfdc.df (iX), 1, 8, 1.) + " || " +
ors.getContainingStretch (iX).name() + " || " +
FormatUtil.FormatDouble (mssDeposit.responseValue (iX), 1, 8, 1.) + " | " +
mssDeposit.monotoneType (iX));
} catch (java.lang.Exception e) {
e.printStackTrace();
}
}
/*
* Compare the discount factors and their monotonicity emitted from the discount curve, the
* non-overlapping span, and the "swap" stretch across the range of tenor predictor ordinates.
*/
System.out.println ("\n\t----------------------------------------------------------------");
System.out.println ("\t SWAP DF DFDC STRETCH LOCAL");
System.out.println ("\t----------------------------------------------------------------");
for (int iX = (int) mssSwap.getLeftPredictorOrdinateEdge(); iX <= (int) mssSwap.getRightPredictorOrdinateEdge();
iX += 0.05 * (mssSwap.getRightPredictorOrdinateEdge() - mssSwap.getLeftPredictorOrdinateEdge())) {
System.out.println ("\tSwap [" + new JulianDate (iX) + "] = " +
FormatUtil.FormatDouble (dfdc.df (iX), 1, 8, 1.) + " || " +
ors.getContainingStretch (iX).name() + " || " +
FormatUtil.FormatDouble (mssSwap.responseValue (iX), 1, 8, 1.) + " | " +
mssSwap.monotoneType (iX));
}
System.out.println ("\tSwap [" + dtSpot.addTenor ("60Y") + "] = " +
FormatUtil.FormatDouble (dfdc.df (dtSpot.addTenor ("60Y")), 1, 8, 1.));
/*
* Cross-Recovery of the Deposit Calibration Instrument "Rate" metric across the different curve
* construction methodologies.
*/
System.out.println ("\n\t----------------------------------------------------------------");
System.out.println ("\t DEPOSIT INSTRUMENTS CALIBRATION RECOVERY");
System.out.println ("\t----------------------------------------------------------------");
for (int i = 0; i < aDepositComp.length; ++i)
System.out.println ("\t[" + aDepositComp[i].maturityDate() + "] = " +
FormatUtil.FormatDouble (aDepositComp[i].measureValue (valParams, null,
MarketParamsBuilder.Create (dfdc, null, null, null, null, null, null),
null, "Rate"), 1, 6, 1.) + " | " + FormatUtil.FormatDouble (adblDepositQuote[i], 1, 6, 1.));
/*
* Cross-Recovery of the Swap Calibration Instrument "Rate" metric across the different curve
* construction methodologies.
*/
System.out.println ("\n\t----------------------------------------------------------------");
System.out.println ("\t SWAP INSTRUMENTS CALIBRATION RECOVERY");
System.out.println ("\t----------------------------------------------------------------");
for (int i = 0; i < aSwapComp.length; ++i)
System.out.println ("\t[" + aSwapComp[i].maturityDate() + "] = " +
FormatUtil.FormatDouble (aSwapComp[i].measureValue (valParams, null,
MarketParamsBuilder.Create (dfdc, null, null, null, null, null, null),
null, "CalibSwapRate"), 1, 6, 1.) + " | " + FormatUtil.FormatDouble (adblSwapQuote[i], 1, 6, 1.));
/*
* Create a turn list instance and add new turn instances
*/
TurnListDiscountFactor tldc = new TurnListDiscountFactor();
tldc.addTurn (
new Turn (
dtSpot.addTenor ("5Y").julian(),
dtSpot.addTenor ("40Y").julian(),
0.001
)
);
/*
* Update the discount curve with the turn list.
*/
dfdc.setTurns (tldc);
/*
* Compare the discount factor implied the discount curve with and without applying the turns
* adjustment.
*/
System.out.println ("\n\t-------------------------------");
System.out.println ("\t SWAP DF DFDC");
System.out.println ("\t-------------------------------");
for (int iX = (int) mssSwap.getLeftPredictorOrdinateEdge(); iX <= (int) mssSwap.getRightPredictorOrdinateEdge();
iX += 0.05 * (mssSwap.getRightPredictorOrdinateEdge() - mssSwap.getLeftPredictorOrdinateEdge())) {
System.out.println ("\tSwap [" + new JulianDate (iX) + "] = " +
FormatUtil.FormatDouble (dfdc.df (iX), 1, 8, 1.));
}
System.out.println ("\t-------------------------------");
}
public static final void main (
final String[] astrArgs)
throws Exception
{
/*
* Initialize the Credit Analytics Library
*/
EnvManager.InitEnv ("");
/*
* Construct the segment Custom builder using the following parameters:
* - Cubic Exponential Mixture Basis Spline Set
* - Ck = 2, Segment Curvature Penalty = 2
* - Quadratic Rational Shape Controller
*/
SegmentCustomBuilderControl prbpPolynomial = new SegmentCustomBuilderControl (
MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
new PolynomialFunctionSetParams (4),
SegmentInelasticDesignControl.Create (
2,
2
),
new ResponseScalingShapeControl (
true,
new QuadraticRationalShapeControl (0.)
),
null
);
/*
* Run the full spline linear discount curve builder sample.
*/
SplineLinearDiscountCurve (
DateUtil.Today(),
"USD",
prbpPolynomial
);
EnvManager.TerminateEnv();
}
}