PathExerciseIndicator.java

  1. package org.drip.sample.govviemc;

  3. import org.drip.analytics.date.*;
  4. import org.drip.param.creator.MarketParamsBuilder;
  5. import org.drip.param.market.CurveSurfaceQuoteContainer;
  6. import org.drip.param.valuation.ValuationParams;
  7. import org.drip.product.creator.BondBuilder;
  8. import org.drip.product.credit.BondComponent;
  9. import org.drip.product.params.EmbeddedOptionSchedule;
  10. import org.drip.service.env.EnvManager;
  11. import org.drip.service.template.LatentMarketStateBuilder;
  12. import org.drip.state.discount.MergedDiscountForwardCurve;
  13. import org.drip.state.govvie.GovvieCurve;
  14. import org.drip.state.sequence.*;

  16. /*
  17.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  18.  */

  20. /*!
  21.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  22.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  23.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  24.  * 
  25.  *  This file is part of DROP, an open-source library targeting risk, transaction costs, exposure, margin
  26.  *      calculations, valuation adjustment, and portfolio construction within and across fixed income,
  27.  *      credit, commodity, equity, FX, and structured products.
  28.  *  
  29.  *      https://lakshmidrip.github.io/DROP/
  30.  *  
  31.  *  DROP is composed of three modules:
  32.  *  
  33.  *  - DROP Analytics Core - https://lakshmidrip.github.io/DROP-Analytics-Core/
  34.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  35.  *  - DROP Numerical Core - https://lakshmidrip.github.io/DROP-Numerical-Core/
  36.  * 
  37.  *  DROP Analytics Core implements libraries for the following:
  38.  *  - Fixed Income Analytics
  39.  *  - Asset Backed Analytics
  40.  *  - XVA Analytics
  41.  *  - Exposure and Margin Analytics
  42.  * 
  43.  *  DROP Portfolio Core implements libraries for the following:
  44.  *  - Asset Allocation Analytics
  45.  *  - Transaction Cost Analytics
  46.  * 
  47.  *  DROP Numerical Core implements libraries for the following:
  48.  *  - Statistical Learning
  49.  *  - Numerical Optimizer
  50.  *  - Spline Builder
  51.  *  - Algorithm Support
  52.  * 
  53.  *  Documentation for DROP is Spread Over:
  54.  * 
  55.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  56.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  57.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  58.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  59.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  60.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  61.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  62.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  63.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  64.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  65.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  66.  * 
  67.  *  Licensed under the Apache License, Version 2.0 (the "License");
  68.  *      you may not use this file except in compliance with the License.
  69.  *   
  70.  *  You may obtain a copy of the License at
  71.  *      http://www.apache.org/licenses/LICENSE-2.0
  72.  *  
  73.  *  Unless required by applicable law or agreed to in writing, software
  74.  *      distributed under the License is distributed on an "AS IS" BASIS,
  75.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  76.  *  
  77.  *  See the License for the specific language governing permissions and
  78.  *      limitations under the License.
  79.  */

  81. /**
  82.  * <i>PathExerciseIndicator</i> demonstrates the Simulations of the Per-Path Callable Bond OAS Based Exercise
  83.  * Indicator.
  84.  *  
  85.  * <br><br>
  86.  *  <ul>
  87.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/AnalyticsCore.md">Analytics Core Module</a></li>
  88.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics Library</a></li>
  89.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/README.md">Sample</a></li>
  90.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/govviemc/README.md">Govvie Curve Monte Carlo Runs</a></li>
  91.  *  </ul>
  92.  * <br><br>
  93.  * 
  94.  * @author Lakshmi Krishnamurthy
  95.  */

  97. public class PathExerciseIndicator {

  99.     private static final MergedDiscountForwardCurve FundingCurve (
  100.         final JulianDate dtSpot,
  101.         final String strCurrency,
  102.         final double dblBump)
  103.         throws Exception
  104.     {
  105.         String[] astrDepositMaturityTenor = new String[] {
  106.             "2D"
  107.         };

  109.         double[] adblDepositQuote = new double[] {
  110.             0.0111956 + dblBump // 2D
  111.         };

  113.         double[] adblFuturesQuote = new double[] {
  114.             0.011375 + dblBump, // 98.8625
  115.             0.013350 + dblBump, // 98.6650
  116.             0.014800 + dblBump, // 98.5200
  117.             0.016450 + dblBump, // 98.3550
  118.             0.017850 + dblBump, // 98.2150
  119.             0.019300 + dblBump  // 98.0700
  120.         };

  122.         String[] astrFixFloatMaturityTenor = new String[] {
  123.             "02Y",
  124.             "03Y",
  125.             "04Y",
  126.             "05Y",
  127.             "06Y",
  128.             "07Y",
  129.             "08Y",
  130.             "09Y",
  131.             "10Y",
  132.             "11Y",
  133.             "12Y",
  134.             "15Y",
  135.             "20Y",
  136.             "25Y",
  137.             "30Y",
  138.             "40Y",
  139.             "50Y"
  140.         };

  142.         double[] adblFixFloatQuote = new double[] {
  143.             0.017029 + dblBump, //  2Y
  144.             0.019354 + dblBump, //  3Y
  145.             0.021044 + dblBump, //  4Y
  146.             0.022291 + dblBump, //  5Y
  147.             0.023240 + dblBump, //  6Y
  148.             0.024025 + dblBump, //  7Y
  149.             0.024683 + dblBump, //  8Y
  150.             0.025243 + dblBump, //  9Y
  151.             0.025720 + dblBump, // 10Y
  152.             0.026130 + dblBump, // 11Y
  153.             0.026495 + dblBump, // 12Y
  154.             0.027230 + dblBump, // 15Y
  155.             0.027855 + dblBump, // 20Y
  156.             0.028025 + dblBump, // 25Y
  157.             0.028028 + dblBump, // 30Y
  158.             0.027902 + dblBump, // 40Y
  159.             0.027655 + dblBump  // 50Y
  160.         };

  162.         return LatentMarketStateBuilder.SmoothFundingCurve (
  163.             dtSpot,
  164.             strCurrency,
  165.             astrDepositMaturityTenor,
  166.             adblDepositQuote,
  167.             "ForwardRate",
  168.             adblFuturesQuote,
  169.             "ForwardRate",
  170.             astrFixFloatMaturityTenor,
  171.             adblFixFloatQuote,
  172.             "SwapRate"
  173.         );
  174.     }

  176.     private static final PathGovvie PathGovvieCurves (
  177.         final JulianDate dtSpot,
  178.         final int iNumPath)
  179.         throws Exception
  180.     {
  181.         double dblVolatility = 0.10;
  182.         String strTreasuryCode = "UST";

  184.         String[] astrTenor = new String[] {
  185.             "01Y",
  186.             "02Y",
  187.             "03Y",
  188.             "05Y",
  189.             "07Y",
  190.             "10Y",
  191.             "20Y",
  192.             "30Y"
  193.         };

  195.         double[] adblTreasuryCoupon = new double[] {
  196.             0.0100,
  197.             0.0100,
  198.             0.0125,
  199.             0.0150,
  200.             0.0200,
  201.             0.0225,
  202.             0.0250,
  203.             0.0300
  204.         };

  206.         double[] adblTreasuryYield = new double[] {
  207.             0.0083, //  1Y
  208.             0.0122, //  2Y
  209.             0.0149, //  3Y
  210.             0.0193, //  5Y
  211.             0.0227, //  7Y
  212.             0.0248, // 10Y
  213.             0.0280, // 20Y
  214.             0.0308  // 30Y
  215.         };

  217.         return new PathGovvie (
  218.             new GovvieBuilderSettings (
  219.                 dtSpot,
  220.                 strTreasuryCode,
  221.                 astrTenor,
  222.                 adblTreasuryCoupon,
  223.                 adblTreasuryYield
  224.             ),
  225.             dblVolatility,
  226.             true
  227.         );
  228.     }

  230.     private static final BondComponent Callable (
  231.         final EmbeddedOptionSchedule eos)
  232.         throws Exception
  233.     {
  234.         JulianDate dtEffective = DateUtil.CreateFromYMD (
  235.             2009,
  236.             12,
  237.             3
  238.         );

  240.         JulianDate dtMaturity  = DateUtil.CreateFromYMD (
  241.             2039,
  242.             12,
  243.             1
  244.         );

  246.         double dblCoupon = 0.06558;
  247.         int iFreq = 2;
  248.         String strCUSIP = "033177XV3";
  249.         String strDayCount = "30/360";

  251.         BondComponent bond = BondBuilder.CreateSimpleFixed (
  252.             strCUSIP,
  253.             "USD",
  254.             "",
  255.             dblCoupon,
  256.             iFreq,
  257.             strDayCount,
  258.             dtEffective,
  259.             dtMaturity,
  260.             null,
  261.             null
  262.         );

  264.         bond.setEmbeddedCallSchedule (eos);

  266.         return bond;
  267.     }

  269.     public static final void main (
  270.         final String[] astrArgs)
  271.         throws Exception
  272.     {
  273.         EnvManager.InitEnv ("");

  275.         JulianDate dtSpot = DateUtil.CreateFromYMD (
  276.             2017,
  277.             DateUtil.MARCH,
  278.             24
  279.         );

  281.         int iNumPath = 50;
  282.         double dblCleanPrice = 1.08641;
  283.         int[] aiExerciseDate = new int[] {
  284.             DateUtil.CreateFromYMD (2019, 12,  1).julian(),
  285.             DateUtil.CreateFromYMD (2020, 12,  1).julian(),
  286.             DateUtil.CreateFromYMD (2021, 12,  1).julian(),
  287.             DateUtil.CreateFromYMD (2022, 12,  1).julian(),
  288.             DateUtil.CreateFromYMD (2023, 12,  1).julian(),
  289.             DateUtil.CreateFromYMD (2024, 12,  1).julian(),
  290.             DateUtil.CreateFromYMD (2025, 12,  1).julian(),
  291.             DateUtil.CreateFromYMD (2026, 12,  1).julian(),
  292.             DateUtil.CreateFromYMD (2027, 12,  1).julian(),
  293.             DateUtil.CreateFromYMD (2028, 12,  1).julian(),
  294.             DateUtil.CreateFromYMD (2029, 12,  1).julian(),
  295.             DateUtil.CreateFromYMD (2030, 12,  1).julian(),
  296.             DateUtil.CreateFromYMD (2031, 12,  1).julian(),
  297.             DateUtil.CreateFromYMD (2032, 12,  1).julian(),
  298.             DateUtil.CreateFromYMD (2033, 12,  1).julian(),
  299.             DateUtil.CreateFromYMD (2034, 12,  1).julian(),
  300.             DateUtil.CreateFromYMD (2035, 12,  1).julian(),
  301.             DateUtil.CreateFromYMD (2036, 12,  1).julian(),
  302.             DateUtil.CreateFromYMD (2037, 12,  1).julian(),
  303.             DateUtil.CreateFromYMD (2038, 12,  1).julian(),
  304.         };
  305.         double[] adblExercisePrice = new double[] {
  306.             1.,
  307.             1.,
  308.             1.,
  309.             1.,
  310.             1.,
  311.             1.,
  312.             1.,
  313.             1.,
  314.             1.,
  315.             1.,
  316.             1.,
  317.             1.,
  318.             1.,
  319.             1.,
  320.             1.,
  321.             1.,
  322.             1.,
  323.             1.,
  324.             1.,
  325.             1.,
  326.         };

  328.         int iNumVertex = aiExerciseDate.length;
  329.         double[][] aadblForwardPrice = new double[iNumPath][iNumVertex];
  330.         ValuationParams[] aValParamsEvent = new ValuationParams[iNumVertex];

  332.         BondComponent bond = Callable (
  333.             new EmbeddedOptionSchedule (
  334.                 aiExerciseDate,
  335.                 adblExercisePrice,
  336.                 false,
  337.                 30,
  338.                 false,
  339.                 Double.NaN,
  340.                 "",
  341.                 Double.NaN
  342.             )
  343.         );

  345.         PathGovvie pg = PathGovvieCurves (
  346.             dtSpot,
  347.             iNumPath
  348.         );

  350.         GovvieCurve[] aGCPath = pg.curveSequence (iNumPath);

  352.         MergedDiscountForwardCurve mdfc = FundingCurve (
  353.             dtSpot,
  354.             "USD",
  355.             0.
  356.         );

  358.         CurveSurfaceQuoteContainer csqcBase = MarketParamsBuilder.Create (
  359.             mdfc,
  360.             pg.govvieBuilderSettings().groundState(),
  361.             null,
  362.             null,
  363.             null,
  364.             null,
  365.             null
  366.         );

  368.         ValuationParams valParamsSpot = ValuationParams.Spot (dtSpot.julian());

  370.         double dblOASSpot = bond.oasFromPrice (
  371.             valParamsSpot,
  372.             csqcBase,
  373.             null,
  374.             dblCleanPrice
  375.         );

  377.         for (int iVertex = 0; iVertex < iNumVertex; ++iVertex)
  378.             aValParamsEvent[iVertex] = ValuationParams.Spot (aiExerciseDate[iVertex]);

  380.         for (int iPath = 0; iPath < iNumPath; ++iPath) {
  381.             CurveSurfaceQuoteContainer csqcPath = MarketParamsBuilder.Create (
  382.                 mdfc,
  383.                 aGCPath[iPath],
  384.                 null,
  385.                 null,
  386.                 null,
  387.                 null,
  388.                 null
  389.             );

  391.             for (int iVertex = 0; iVertex < iNumVertex; ++iVertex)
  392.                 aadblForwardPrice[iPath][iVertex] = bond.priceFromOAS (
  393.                     aValParamsEvent[iVertex],
  394.                     csqcPath,
  395.                     null,
  396.                     dblOASSpot
  397.                 );
  398.         }

  400.         System.out.println();

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

  404.         System.out.println ("\t||                          FORWARD EXERCISE INDICATOR                           ||");

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

  408.         for (int iPath = 0; iPath < iNumPath; ++iPath) {
  409.             String strDump = "\t||";

  411.             for (int iVertex = 0; iVertex < iNumVertex; ++iVertex)
  412.                 strDump = strDump + (aadblForwardPrice[iPath][iVertex] > adblExercisePrice[iVertex] ? " Y" : " N") + " |";

  414.             System.out.println (strDump + "|");
  415.         }

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

  419.         System.out.println();

  421.         EnvManager.TerminateEnv();
  422.     }
  423. }
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