NonlinearGovvieCurve.java
package org.drip.sample.govvie;
/*
* Credit Product imports
*/
import org.drip.analytics.date.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.valuation.*;
import org.drip.product.definition.*;
import org.drip.param.creator.*;
import org.drip.product.creator.*;
import org.drip.service.env.EnvManager;
import org.drip.state.creator.ScenarioDiscountCurveBuilder;
import org.drip.state.discount.MergedDiscountForwardCurve;
/*
* -*- 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
* Copyright (C) 2013 Lakshmi Krishnamurthy
* Copyright (C) 2012 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>NonlinearGovvieCurve</i> contains a demo of construction and usage of the non-linear treasury discount
* curve from government bond inputs. It shows the following:
*
* <br><br>
* <ul>
* <li>
* Create on-the-run TSY bond set.
* </li>
* <li>
* Calibrate a discount curve off of the on-the-run yields and calculate the implied zeroes and
* DF's.
* </li>
* <li>
* Price an off-the-run TSY.
* </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/govvie/README.md">Govvie Curve Builder</a></li>
* </ul>
* <br><br>
*
* @author Lakshmi Krishnamurthy
*/
public class NonlinearGovvieCurve {
/*
* Sample demonstrating creation of simple fixed coupon treasury bond
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final Bond CreateTSYBond (
final String strName,
final double dblCoupon,
final JulianDate dt,
int iNumYears)
throws Exception
{
return BondBuilder.CreateSimpleFixed ( // Simple Fixed Rate Bond
strName, // Name
"USD", // Fictitious Treasury Curve Name
"", // Empty Credit Curve
dblCoupon, // Bond Coupon
2, // Frequency
"Act/Act", // Day Count
dt, // Effective
dt.addYears (iNumYears), // Maturity
null, // Principal Schedule
null
);
}
/*
* Sample demonstrating creation of a set of the on-the-run treasury bonds
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final Bond[] CreateOnTheRunTSYBondSet (
final JulianDate dt,
final String[] astrTSYBondName,
final int[] aiMaturityYear,
final double[] adblCoupon)
throws Exception
{
Bond aTSYBond[] = new Bond[astrTSYBondName.length];
for (int i = 0; i < astrTSYBondName.length; ++i)
aTSYBond[i] = CreateTSYBond (
astrTSYBondName[i],
adblCoupon[i],
dt,
aiMaturityYear[i]
);
return aTSYBond;
}
/*
* Sample demonstrating building of the treasury discount curve based off the on-the run instruments and their yields
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final MergedDiscountForwardCurve BuildOnTheRunTSYDiscountCurve (
final JulianDate dt,
final Bond[] aTSYBond,
final double[] adblCalibYield)
throws Exception
{
String astrCalibMeasure[] = new String[aTSYBond.length];
for (int i = 0; i < aTSYBond.length; ++i)
astrCalibMeasure[i] = "Yield";
return ScenarioDiscountCurveBuilder.NonlinearBuild (
dt,
"USD",
aTSYBond,
adblCalibYield,
astrCalibMeasure,
null
);
}
/*
* Sample demonstrating calculation of the yields of the input on the run treasury instruments
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final double[] GetOnTheRunYield (
final JulianDate dt,
final MergedDiscountForwardCurve dcTSY,
final Bond[] aTSYBond)
throws Exception
{
double adblYield[] = new double[aTSYBond.length];
for (int i = 0; i < aTSYBond.length; ++i) {
double dblPrice = aTSYBond[i].priceFromFundingCurve (
new ValuationParams (
DateUtil.Today(),
DateUtil.Today(),
"USD"
),
MarketParamsBuilder.Discount (dcTSY),
aTSYBond[i].maturityDate().julian(),
1.,
0.
);
System.out.println ("\tPrice[" + aTSYBond[i].name() + "]: " +
FormatUtil.FormatDouble (dblPrice, 2, 3, 100.));
double dblYield = aTSYBond[i].yieldFromPrice (
new ValuationParams (
DateUtil.Today(),
DateUtil.Today(),
"USD"
),
MarketParamsBuilder.Discount (dcTSY),
null,
dblPrice
);
System.out.println ("\tYield[" + aTSYBond[i].name() + "]: " +
FormatUtil.FormatDouble (dblYield, 1, 3, 100.));
}
return adblYield;
}
/*
* This sample illustrates the construction and validation of the Treasury Curve API. It demonstrates the
* following:
* - Create the on-the-run treasury bonds.
* - Create the on-the-run treasury discount curve from the treasury bonds.
* - Compare the implied and the input yields for the on-the-run's.
* - Calculate the yield of an off-the-run instrument off of the on-the-run yield discount curve and
* cross verify it with the price.
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final void TreasuryCurveSample()
throws Exception
{
/*
* Initialize the Credit Analytics Library
*/
String strConfig = "";
EnvManager.InitEnv (strConfig);
/*
* Define name, maturity, coupon, and the market yield of the input on-the-run treasuries
*/
final String[] astrTSYName = new String[] {"TSY2YON", "TSY3YON", "TSY5YON", "TSY7YON", "TSY10YON", "TSY30YON"};
final int[] aiMaturityYear = new int[] {2, 3, 5, 7, 10, 30};
final double[] adblCoupon = new double[] {0.0200, 0.0250, 0.0300, 0.0325, 0.0375, 0.0400};
final double[] adblCalibYield = new double[] {0.0200, 0.0250, 0.0300, 0.0325, 0.0375, 0.0400};
/*
* Create the on-the-run treasury bonds
*/
long lTime = System.nanoTime();
Bond[] aTSYBond = CreateOnTheRunTSYBondSet (
DateUtil.Today(),
astrTSYName,
aiMaturityYear,
adblCoupon
);
/*
* Create the on-the-run treasury discount curve
*/
MergedDiscountForwardCurve dcTSY = BuildOnTheRunTSYDiscountCurve (
DateUtil.Today(),
aTSYBond,
adblCalibYield
);
/*
* Compare the implied discount rate and input yields - in general they DO NOT match
*/
for (int i = 0; i < astrTSYName.length; ++i) {
String strTenor = aiMaturityYear[i] + "Y";
System.out.println ("Zero[" + strTenor + "]: " + dcTSY.zero (strTenor) +
"; Yield[" + strTenor + "]: " + adblCalibYield[i]);
}
System.out.println ("\n----\n");
double[] adblYield = GetOnTheRunYield (
DateUtil.Today(),
dcTSY,
aTSYBond
);
/*
* Compare the implied and the input yields for the on-the-run's - they DO match
*/
for (int i = 0; i < astrTSYName.length; ++i) {
String strTenor = aiMaturityYear[i] + "Y";
System.out.println ("CalcYield[" + strTenor + "]: " + adblYield[i] + "; Input[" + strTenor + "]: " + adblCalibYield[i]);
}
/*
* Finally calculate the yield of an off-the-run instrument off of the on-the-run yield discount curve
*/
/*
* Construct off-the-run
*/
int iOffTheRunMaturityYears = 10;
Bond bondOffTheRun = BondBuilder.CreateSimpleFixed ( // Simple Fixed Rate Bond
"USD" + iOffTheRunMaturityYears + "YOFF",
"USD",
"",
0.0375,
2,
"Act/Act",
DateUtil.Today(),
DateUtil.Today().addYears (iOffTheRunMaturityYears), // off-the-run
null,
null
);
/*
* Calculate price for off-the-run
*/
double dblPrice = bondOffTheRun.priceFromFundingCurve (
new ValuationParams (
DateUtil.Today(),
DateUtil.Today(),
"USD"
),
MarketParamsBuilder.Discount (dcTSY),
bondOffTheRun.maturityDate().julian(),
1.,
0.
);
System.out.println ("\nOff-The-Run Price[" + iOffTheRunMaturityYears + "Y]: " + dblPrice);
/*
* Calculate yield for off-the-run
*/
double dblYieldOffTheRun = bondOffTheRun.yieldFromPrice (
new ValuationParams (
DateUtil.Today(),
DateUtil.Today(),
"USD"
),
MarketParamsBuilder.Discount (dcTSY),
null,
dblPrice
);
System.out.println ("\nOff-The-Run Yield[" + iOffTheRunMaturityYears + "Y]: " + dblYieldOffTheRun);
System.out.println ("\tTime => " + (System.nanoTime() - lTime) * 1.e-06 + " ms");
}
public static final void main (
final String[] astrArgs)
throws Exception
{
TreasuryCurveSample();
EnvManager.TerminateEnv();
}
}