PathVertexExerciseOptimal.java

  1. package org.drip.sample.govviemc;

  3. import org.drip.analytics.date.*;
  4. import org.drip.measure.crng.RandomNumberGenerator;
  5. import org.drip.measure.discrete.CorrelatedPathVertexDimension;
  6. import org.drip.measure.dynamics.DiffusionEvaluatorLogarithmic;
  7. import org.drip.measure.process.DiffusionEvolver;
  8. import org.drip.numerical.common.FormatUtil;
  9. import org.drip.param.creator.MarketParamsBuilder;
  10. import org.drip.param.market.CurveSurfaceQuoteContainer;
  11. import org.drip.param.valuation.ValuationParams;
  12. import org.drip.product.creator.BondBuilder;
  13. import org.drip.product.credit.BondComponent;
  14. import org.drip.product.params.EmbeddedOptionSchedule;
  15. import org.drip.service.env.EnvManager;
  16. import org.drip.service.template.LatentMarketStateBuilder;
  17. import org.drip.state.discount.MergedDiscountForwardCurve;
  18. import org.drip.state.govvie.GovvieCurve;
  19. import org.drip.state.sequence.*;

  21. /*
  22.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  23.  */

  25. /*!
  26.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  27.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  28.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  29.  * 
  30.  *  This file is part of DROP, an open-source library targeting risk, transaction costs, exposure, margin
  31.  *      calculations, valuation adjustment, and portfolio construction within and across fixed income,
  32.  *      credit, commodity, equity, FX, and structured products.
  33.  *  
  34.  *      https://lakshmidrip.github.io/DROP/
  35.  *  
  36.  *  DROP is composed of three modules:
  37.  *  
  38.  *  - DROP Analytics Core - https://lakshmidrip.github.io/DROP-Analytics-Core/
  39.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  40.  *  - DROP Numerical Core - https://lakshmidrip.github.io/DROP-Numerical-Core/
  41.  * 
  42.  *  DROP Analytics Core implements libraries for the following:
  43.  *  - Fixed Income Analytics
  44.  *  - Asset Backed Analytics
  45.  *  - XVA Analytics
  46.  *  - Exposure and Margin Analytics
  47.  * 
  48.  *  DROP Portfolio Core implements libraries for the following:
  49.  *  - Asset Allocation Analytics
  50.  *  - Transaction Cost Analytics
  51.  * 
  52.  *  DROP Numerical Core implements libraries for the following:
  53.  *  - Statistical Learning
  54.  *  - Numerical Optimizer
  55.  *  - Spline Builder
  56.  *  - Algorithm Support
  57.  * 
  58.  *  Documentation for DROP is Spread Over:
  59.  * 
  60.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  61.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  62.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  63.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  64.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  65.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  66.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  67.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  68.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  69.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  70.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  71.  * 
  72.  *  Licensed under the Apache License, Version 2.0 (the "License");
  73.  *      you may not use this file except in compliance with the License.
  74.  *   
  75.  *  You may obtain a copy of the License at
  76.  *      http://www.apache.org/licenses/LICENSE-2.0
  77.  *  
  78.  *  Unless required by applicable law or agreed to in writing, software
  79.  *      distributed under the License is distributed on an "AS IS" BASIS,
  80.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  81.  *  
  82.  *  See the License for the specific language governing permissions and
  83.  *      limitations under the License.
  84.  */

  86. /**
  87.  * <i>PathVertexExerciseOptimal</i> demonstrates the Simulations of the Per-Path Callable Bond Forward Price
  88.  * Based Exercise Value.
  89.  *  
  90.  * <br><br>
  91.  *  <ul>
  92.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/AnalyticsCore.md">Analytics Core Module</a></li>
  93.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics Library</a></li>
  94.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/README.md">Sample</a></li>
  95.  *      <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>
  96.  *  </ul>
  97.  * <br><br>
  98.  * 
  99.  * @author Lakshmi Krishnamurthy
  100.  */

  102. public class PathVertexExerciseOptimal {

  104.     private static final MergedDiscountForwardCurve FundingCurve (
  105.         final JulianDate dtSpot,
  106.         final String strCurrency,
  107.         final double dblBump)
  108.         throws Exception
  109.     {
  110.         String[] astrDepositMaturityTenor = new String[] {
  111.             "2D"
  112.         };

  114.         double[] adblDepositQuote = new double[] {
  115.             0.0111956 + dblBump // 2D
  116.         };

  118.         double[] adblFuturesQuote = new double[] {
  119.             0.011375 + dblBump, // 98.8625
  120.             0.013350 + dblBump, // 98.6650
  121.             0.014800 + dblBump, // 98.5200
  122.             0.016450 + dblBump, // 98.3550
  123.             0.017850 + dblBump, // 98.2150
  124.             0.019300 + dblBump  // 98.0700
  125.         };

  127.         String[] astrFixFloatMaturityTenor = new String[] {
  128.             "02Y",
  129.             "03Y",
  130.             "04Y",
  131.             "05Y",
  132.             "06Y",
  133.             "07Y",
  134.             "08Y",
  135.             "09Y",
  136.             "10Y",
  137.             "11Y",
  138.             "12Y",
  139.             "15Y",
  140.             "20Y",
  141.             "25Y",
  142.             "30Y",
  143.             "40Y",
  144.             "50Y"
  145.         };

  147.         double[] adblFixFloatQuote = new double[] {
  148.             0.017029 + dblBump, //  2Y
  149.             0.019354 + dblBump, //  3Y
  150.             0.021044 + dblBump, //  4Y
  151.             0.022291 + dblBump, //  5Y
  152.             0.023240 + dblBump, //  6Y
  153.             0.024025 + dblBump, //  7Y
  154.             0.024683 + dblBump, //  8Y
  155.             0.025243 + dblBump, //  9Y
  156.             0.025720 + dblBump, // 10Y
  157.             0.026130 + dblBump, // 11Y
  158.             0.026495 + dblBump, // 12Y
  159.             0.027230 + dblBump, // 15Y
  160.             0.027855 + dblBump, // 20Y
  161.             0.028025 + dblBump, // 25Y
  162.             0.028028 + dblBump, // 30Y
  163.             0.027902 + dblBump, // 40Y
  164.             0.027655 + dblBump  // 50Y
  165.         };

  167.         return LatentMarketStateBuilder.SmoothFundingCurve (
  168.             dtSpot,
  169.             strCurrency,
  170.             astrDepositMaturityTenor,
  171.             adblDepositQuote,
  172.             "ForwardRate",
  173.             adblFuturesQuote,
  174.             "ForwardRate",
  175.             astrFixFloatMaturityTenor,
  176.             adblFixFloatQuote,
  177.             "SwapRate"
  178.         );
  179.     }

  181.     private static final PathVertexGovvie ScenarioGovvieCurves (
  182.         final JulianDate dtSpot,
  183.         final int iNumPath,
  184.         final int iNumVertex)
  185.         throws Exception
  186.     {
  187.         double dblVolatility = 0.10;
  188.         String strTreasuryCode = "UST";

  190.         String[] astrTenor = new String[] {
  191.             "01Y",
  192.             "02Y",
  193.             "03Y",
  194.             "05Y",
  195.             "07Y",
  196.             "10Y",
  197.             "20Y",
  198.             "30Y"
  199.         };

  201.         double[] adblTreasuryCoupon = new double[] {
  202.             0.0100,
  203.             0.0100,
  204.             0.0125,
  205.             0.0150,
  206.             0.0200,
  207.             0.0225,
  208.             0.0250,
  209.             0.0300
  210.         };

  212.         double[] adblTreasuryYield = new double[] {
  213.             0.0083, //  1Y
  214.             0.0122, //  2Y
  215.             0.0149, //  3Y
  216.             0.0193, //  5Y
  217.             0.0227, //  7Y
  218.             0.0248, // 10Y
  219.             0.0280, // 20Y
  220.             0.0308  // 30Y
  221.         };

  223.         int iNumDimension = astrTenor.length;
  224.         double[][] aadblCorrelation = new double[iNumDimension][iNumDimension];

  226.         for (int i = 0; i < iNumDimension; ++i) {
  227.             for (int j = 0; j < iNumDimension; ++j)
  228.                 aadblCorrelation[i][j] = i == j ? 1. : 0.;
  229.         }

  231.         GovvieBuilderSettings gbs = new GovvieBuilderSettings (
  232.             dtSpot,
  233.             strTreasuryCode,
  234.             astrTenor,
  235.             adblTreasuryCoupon,
  236.             adblTreasuryYield
  237.         );

  239.         return PathVertexGovvie.Standard (
  240.             gbs,
  241.             new CorrelatedPathVertexDimension (
  242.                 new RandomNumberGenerator(),
  243.                 aadblCorrelation,
  244.                 iNumVertex,
  245.                 iNumPath,
  246.                 false,
  247.                 null
  248.             ),
  249.             new DiffusionEvolver (
  250.                 DiffusionEvaluatorLogarithmic.Standard (
  251.                     0.,
  252.                     dblVolatility
  253.                 )
  254.             )
  255.         );
  256.     }

  258.     private static final BondComponent Callable (
  259.         final EmbeddedOptionSchedule eos)
  260.         throws Exception
  261.     {
  262.         JulianDate dtEffective = DateUtil.CreateFromYMD (
  263.             2009,
  264.             12,
  265.             3
  266.         );

  268.         JulianDate dtMaturity  = DateUtil.CreateFromYMD (
  269.             2039,
  270.             12,
  271.             1
  272.         );

  274.         double dblCoupon = 0.06558;
  275.         int iFreq = 2;
  276.         String strCUSIP = "033177XV3";
  277.         String strDayCount = "30/360";

  279.         BondComponent bond = BondBuilder.CreateSimpleFixed (
  280.             strCUSIP,
  281.             "USD",
  282.             "",
  283.             dblCoupon,
  284.             iFreq,
  285.             strDayCount,
  286.             dtEffective,
  287.             dtMaturity,
  288.             null,
  289.             null
  290.         );

  292.         bond.setEmbeddedCallSchedule (eos);

  294.         return bond;
  295.     }

  297.     public static final void main (
  298.         final String[] astrArgs)
  299.         throws Exception
  300.     {
  301.         EnvManager.InitEnv ("");

  303.         JulianDate dtSpot = DateUtil.CreateFromYMD (
  304.             2017,
  305.             DateUtil.MARCH,
  306.             24
  307.         );

  309.         int iNumPath = 50;
  310.         double dblCleanPrice = 1.08641;
  311.         int[] aiExerciseDate = new int[] {
  312.             DateUtil.CreateFromYMD (2019, 12,  1).julian(),
  313.             DateUtil.CreateFromYMD (2020, 12,  1).julian(),
  314.             DateUtil.CreateFromYMD (2021, 12,  1).julian(),
  315.             DateUtil.CreateFromYMD (2022, 12,  1).julian(),
  316.             DateUtil.CreateFromYMD (2023, 12,  1).julian(),
  317.             DateUtil.CreateFromYMD (2024, 12,  1).julian(),
  318.             DateUtil.CreateFromYMD (2025, 12,  1).julian(),
  319.             DateUtil.CreateFromYMD (2026, 12,  1).julian(),
  320.             DateUtil.CreateFromYMD (2027, 12,  1).julian(),
  321.             DateUtil.CreateFromYMD (2028, 12,  1).julian(),
  322.             DateUtil.CreateFromYMD (2029, 12,  1).julian(),
  323.             DateUtil.CreateFromYMD (2030, 12,  1).julian(),
  324.             DateUtil.CreateFromYMD (2031, 12,  1).julian(),
  325.             DateUtil.CreateFromYMD (2032, 12,  1).julian(),
  326.             DateUtil.CreateFromYMD (2033, 12,  1).julian(),
  327.             DateUtil.CreateFromYMD (2034, 12,  1).julian(),
  328.             DateUtil.CreateFromYMD (2035, 12,  1).julian(),
  329.             DateUtil.CreateFromYMD (2036, 12,  1).julian(),
  330.             DateUtil.CreateFromYMD (2037, 12,  1).julian(),
  331.             DateUtil.CreateFromYMD (2038, 12,  1).julian(),
  332.         };
  333.         double[] adblExercisePrice = new double[] {
  334.             1.,
  335.             1.,
  336.             1.,
  337.             1.,
  338.             1.,
  339.             1.,
  340.             1.,
  341.             1.,
  342.             1.,
  343.             1.,
  344.             1.,
  345.             1.,
  346.             1.,
  347.             1.,
  348.             1.,
  349.             1.,
  350.             1.,
  351.             1.,
  352.             1.,
  353.             1.,
  354.         };

  356.         int iNumVertex = aiExerciseDate.length;
  357.         double[][] aadblExercisePV = new double[iNumPath][iNumVertex];
  358.         double[][] aadblForwardPrice = new double[iNumPath][iNumVertex];
  359.         ValuationParams[] aValParamsEvent = new ValuationParams[iNumVertex];

  361.         BondComponent bond = Callable (
  362.             new EmbeddedOptionSchedule (
  363.                 aiExerciseDate,
  364.                 adblExercisePrice,
  365.                 false,
  366.                 30,
  367.                 false,
  368.                 Double.NaN,
  369.                 "",
  370.                 Double.NaN
  371.             )
  372.         );

  374.         PathVertexGovvie mcrg = ScenarioGovvieCurves (
  375.             dtSpot,
  376.             iNumPath,
  377.             iNumVertex
  378.         );

  380.         GovvieCurve[][] aaGCPathEvent = mcrg.pathVertex (aiExerciseDate);

  382.         MergedDiscountForwardCurve mdfc = FundingCurve (
  383.             dtSpot,
  384.             "USD",
  385.             0.
  386.         );

  388.         CurveSurfaceQuoteContainer csqcBase = MarketParamsBuilder.Create (
  389.             mdfc,
  390.             mcrg.govvieBuilderSettings().groundState(),
  391.             null,
  392.             null,
  393.             null,
  394.             null,
  395.             null
  396.         );

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

  400.         double dblOASSpot = bond.oasFromPrice (
  401.             valParamsSpot,
  402.             csqcBase,
  403.             null,
  404.             dblCleanPrice
  405.         );

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

  410.         for (int iPath = 0; iPath < iNumPath; ++iPath) {
  411.             for (int iVertex = 0; iVertex < iNumVertex; ++iVertex) {
  412.                 CurveSurfaceQuoteContainer csqcEvent = MarketParamsBuilder.Create (
  413.                     mdfc,
  414.                     aaGCPathEvent[iPath][iVertex],
  415.                     null,
  416.                     null,
  417.                     null,
  418.                     null,
  419.                     null
  420.                 );

  422.                 aadblForwardPrice[iPath][iVertex] = bond.priceFromOAS (
  423.                     aValParamsEvent[iVertex],
  424.                     csqcEvent,
  425.                     null,
  426.                     dblOASSpot
  427.                 );
  428.             }
  429.         }

  431.         System.out.println();

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

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

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

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

  442.             for (int iVertex = 0; iVertex < iNumVertex; ++iVertex) {
  443.                 aadblExercisePV[iPath][iVertex] = (aadblForwardPrice[iPath][iVertex] - adblExercisePrice[iVertex])
  444.                     * mdfc.df (aiExerciseDate[iVertex]);

  446.                 strDump = strDump + " " + FormatUtil.FormatDouble (aadblExercisePV[iPath][iVertex], 2, 0, 100.) + " |";
  447.             }

  449.             System.out.println (strDump + "|");
  450.         }

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

  454.         System.out.println();

  456.         EnvManager.TerminateEnv();
  457.     }
  458. }
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