CustomFXCurveBuilder.java

package org.drip.sample.fx;

import java.util.Map;

import org.drip.analytics.date.*;
import org.drip.function.r1tor1.QuadraticRationalShapeControl;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.market.CurveSurfaceQuoteContainer;
import org.drip.param.valuation.ValuationParams;
import org.drip.product.fx.FXForwardComponent;
import org.drip.product.params.CurrencyPair;
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.*;
import org.drip.state.discount.MergedDiscountForwardCurve;
import org.drip.state.estimator.LatentStateStretchBuilder;
import org.drip.state.fx.FXCurve;
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>CustomFXCurveBuilder</i> illustrates the Construction and Usage of the FX Forward 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/fx/README.md">FX Curve Builder</a></li>
 *  </ul>
 * <br><br>
 * 
 * @author Lakshmi Krishnamurthy
 */

public class CustomFXCurveBuilder {

    private static FXForwardComponent[] FXForwardCalibComponent (
        final CurrencyPair cp,
        final JulianDate dtSpot,
        final String[] astrMaturityTenor)
        throws Exception
    {
        FXForwardComponent[] aFXForward = new FXForwardComponent[astrMaturityTenor.length];

        for (int i = 0; i < astrMaturityTenor.length; ++i)
            aFXForward[i] = new FXForwardComponent (
                cp.code() + "::FXFWD::" + astrMaturityTenor[i],
                cp,
                dtSpot.julian(),
                dtSpot.addTenor (astrMaturityTenor[i]).julian(),
                1.,
                null
            );

        return aFXForward;
    }

    public static final void main (
        final String[] astrArgs)
        throws Exception
    {
        EnvManager.InitEnv ("");

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

        CurrencyPair cp = CurrencyPair.FromCode ("USD/EUR");

        double dblSpot = 1.0993;

        String[] astrMaturityTenor = new String[] {
            "1W",
            "1M",
            "3M",
            "6M",
            "1Y",
            "2Y",
            "3Y"
        };

        FXForwardComponent[] aFXForward = FXForwardCalibComponent (
            cp,
            dtToday,
            astrMaturityTenor
        );

        double[] adblFXForward = new double[] {
            1.1000, //  "1W",
            1.1012, //  "1M",
            1.1039, //  "3M",
            1.1148, //  "6M",
            1.1232, //  "1Y",
            1.1497, //  "2Y",
            1.1865, //  "3Y"
        };

        LatentStateStretchSpec fxForwardStretch = LatentStateStretchBuilder.FXStretchSpec (
            "FXFORWARD",
            aFXForward,
            "Outright",
            adblFXForward
        );

        LatentStateStretchSpec[] aStretchSpec = new LatentStateStretchSpec[] {
            fxForwardStretch
        };

        LinearLatentStateCalibrator llsc = 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 (
            dtToday,
            dtToday,
            cp.denomCcy()
        );

        FXCurve fxCurve = ScenarioFXCurveBuilder.ShapePreservingFXCurve (
            llsc,
            aStretchSpec,
            cp,
            valParams,
            null,
            null,
            null,
            dblSpot
        );

        MergedDiscountForwardCurve dcUSD = ScenarioDiscountCurveBuilder.ExponentiallyCompoundedFlatRate (
            dtToday,
            "USD",
            0.02
        );

        MergedDiscountForwardCurve dcEUR = ScenarioDiscountCurveBuilder.ExponentiallyCompoundedFlatRate (
            dtToday,
            "EUR",
            0.01
        );

        CurveSurfaceQuoteContainer csqs = new CurveSurfaceQuoteContainer();

        csqs.setFXState (fxCurve);

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

        System.out.println ("\t|                                                                   ||");

        System.out.println ("\t|    Custom FX Curve Builder Metrics #1                             ||");

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

        System.out.println ("\t|    L -> R:                                                        ||");

        System.out.println ("\t|        FX Forward Tenor                                           ||");

        System.out.println ("\t|        Input FX Forward Outright                                  ||");

        System.out.println ("\t|        Curve FX Forward Outright                                  ||");

        System.out.println ("\t|        Product FX Forward Outright                                ||");

        System.out.println ("\t|        Product FX Forward PIP                                     ||");

        System.out.println ("\t|        FX Forward Discount Curve Basis EUR Curve                  ||");

        System.out.println ("\t|        FX Forward Discount Curve Basis USD Curve                  ||");

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

        for (int i = 0; i < astrMaturityTenor.length; ++i) {
            Map<String, Double> mapMeasures = aFXForward[i].value (
                valParams,
                null,
                csqs,
                null
            );

            System.out.println (
                "\t| [" + astrMaturityTenor[i] + "] => " +
                FormatUtil.FormatDouble (adblFXForward[i], 1, 4, 1.) + " | " +
                FormatUtil.FormatDouble (fxCurve.fx (astrMaturityTenor[i]), 1, 4, 1.) + " | " +
                FormatUtil.FormatDouble (mapMeasures.get ("Outright"), 1, 4, 1.) + " | " +
                FormatUtil.FormatDouble (mapMeasures.get ("PIP"), 1, 4, 1.) + " | " +
                FormatUtil.FormatDouble (
                    aFXForward[i].discountCurveBasis (
                        valParams,
                        dcEUR,
                        dcUSD,
                        dblSpot,
                        adblFXForward[i],
                        false
                    ), 1, 4, 1.) + " | " +
                FormatUtil.FormatDouble (
                    aFXForward[i].discountCurveBasis (
                        valParams,
                        dcEUR,
                        dcUSD,
                        dblSpot,
                        adblFXForward[i],
                        true
                    ), 1, 4, 1.) + " || "
            );
        }

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

        int[] aiDateNode = new int[astrMaturityTenor.length];

        for (int i = 0; i < astrMaturityTenor.length; ++i)
            aiDateNode[i] = dtToday.addTenor (astrMaturityTenor[i]).julian();

        double[] adblZeroUSDBasis = fxCurve.zeroBasis (
            aiDateNode,
            valParams,
            dcEUR,
            dcUSD,
            true
        );

        double[] adblZeroEURBasis = fxCurve.zeroBasis (
            aiDateNode,
            valParams,
            dcEUR,
            dcUSD,
            false
        );

        double[] adblBootstrappedUSDBasis = fxCurve.bootstrapBasis (
            aiDateNode,
            valParams,
            dcEUR,
            dcUSD,
            true
        );

        double[] adblBootstrappedEURBasis = fxCurve.bootstrapBasis (
            aiDateNode,
            valParams,
            dcEUR,
            dcUSD,
            false
        );

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

        System.out.println ("\t|                                                                   ||");

        System.out.println ("\t|    Custom FX Curve Builder Metrics #2                             ||");

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

        System.out.println ("\t|    L -> R:                                                        ||");

        System.out.println ("\t|        FX Forward Tenor                                           ||");

        System.out.println ("\t|        FX Forward Discount Curve Zero Basis USD Curve             ||");

        System.out.println ("\t|        FX Forward Discount Curve Zero Basis EUR Curve             ||");

        System.out.println ("\t|        FX Forward Discount Curve Bootstrapped USD Curve Basis     ||");

        System.out.println ("\t|        FX Forward Discount Curve Bootstrapped EUR Curve Basis     ||");

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

        for (int i = 0; i < astrMaturityTenor.length; ++i)
            System.out.println (
                "\t| [" + astrMaturityTenor[i] + "] => " +
                FormatUtil.FormatDouble (adblZeroUSDBasis[i], 1, 4, 100.) + " | " +
                FormatUtil.FormatDouble (adblZeroEURBasis[i], 1, 4, 100.) + " | " +
                FormatUtil.FormatDouble (adblBootstrappedUSDBasis[i], 1, 4, 100.) + " | " +
                FormatUtil.FormatDouble (adblBootstrappedEURBasis[i], 1, 4, 100.) + " ||"
            );

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

        EnvManager.TerminateEnv();
    }
}