TrinomialTreeCalibration.java

package org.drip.sample.hullwhite;

import java.util.Map;

import org.drip.analytics.date.*;
import org.drip.dynamics.hullwhite.*;
import org.drip.function.r1tor1.FlatUnivariate;
import org.drip.numerical.common.FormatUtil;
import org.drip.sequence.random.BoxMullerGaussian;
import org.drip.service.env.EnvManager;
import org.drip.state.identifier.FundingLabel;

/*
 * -*- 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>TrinomialTreeCalibration</i> demonstrates the Construction and Calibration of the Hull-White Trinomial
 * Tree and the Eventual Evolution of the Short Rate on it.
 *  
 * <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/hullwhite/README.md">Hull-White 1F Dynamics</a></li>
 *  </ul>
 * <br><br>
 *
 * @author Lakshmi Krishnamurthy
 */

public class TrinomialTreeCalibration {

    private static final String SourceToTarget (
        final String strKey)
    {
        String[] astrNode = strKey.split ("#");

        String[] astrSourceNode = astrNode[0].split (",");

        String[] astrTargetNode = astrNode[1].split (",");

        return "[" +
            astrSourceNode[0] + "," +
            FormatUtil.FormatDouble (Double.parseDouble (astrSourceNode[1]), 1, 0, 1.) + "] => [" +
            astrTargetNode[0] + "," +
            FormatUtil.FormatDouble (Double.parseDouble (astrTargetNode[1]), 1, 0, 1.) + "]";
    }

    private static final SingleFactorStateEvolver HullWhiteEvolver (
        final String strCurrency,
        final double dblSigma,
        final double dblA,
        final double dblStartingForwardRate)
        throws Exception
    {
        return new SingleFactorStateEvolver (
            FundingLabel.Standard (strCurrency),
            dblSigma,
            dblA,
            new FlatUnivariate (dblStartingForwardRate),
            new BoxMullerGaussian (
                0.,
                1.
            )
        );
    }

    private static void EmitNodeDetails (
        final TrinomialTreeTransitionMetrics hwtm,
        final TrinomialTreeNodeMetrics hwnm)
        throws Exception
    {
        System.out.println ("\n\n\t|----------------------------------------------------------|");

        System.out.println ("\t|    NODE [" + hwnm.timeIndex() + ", " + hwnm.xStochasticIndex() + "]                                           |");

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

        System.out.println ("\t|        Expected Terminal X                  :  " + FormatUtil.FormatDouble (hwtm.expectedTerminalX(), 1, 6, 1.) + " |");

        System.out.println ("\t|        X Variance                           :  " + FormatUtil.FormatDouble (hwtm.xVariance(), 1, 6, 1.) + " |");

        System.out.println ("\t|        X Stochastic Volatility Shift        :  " + FormatUtil.FormatDouble (hwtm.xStochasticShift(), 1, 6, 1.) + " |");

        System.out.println ("\t|        X Tree Stochastic Displacement Index :   " + hwtm.treeStochasticDisplacementIndex() + "        |");

        System.out.println ("\t|        Probability Up                       :  " + FormatUtil.FormatDouble (hwtm.probabilityUp(), 1, 6, 1.) + " |");

        System.out.println ("\t|        Probability Stay                     :  " + FormatUtil.FormatDouble (hwtm.probabilityStay(), 1, 6, 1.) + " |");

        System.out.println ("\t|        Probability Down                     :  " + FormatUtil.FormatDouble (hwtm.probabilityDown(), 1, 6, 1.) + " |");

        System.out.println ("\t|        Node X Value                         :  " + FormatUtil.FormatDouble (hwnm.x(), 1, 6, 1.) + " |");

        System.out.println ("\t|        Node Alpha                           :  " + FormatUtil.FormatDouble (hwnm.alpha(), 1, 6, 1.) + " |");

        System.out.println ("\t|        Node Short Rate                      :  " + FormatUtil.FormatDouble (hwnm.shortRate(), 1, 6, 1.) + " |");

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

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

        JulianDate dtSpot = DateUtil.CreateFromYMD (
            2011,
            DateUtil.MAY,
            18
        );

        double dblA = 0.1;
        double dblSigma = 0.01;
        String strCurrency = "USD";
        String[] astrTenor = {
            "3M", "6M", "9M"
        };
        double[] adblQuote = {
            0.0026, 0.00412, 0.00572
        };

        SingleFactorStateEvolver hw = HullWhiteEvolver (
            strCurrency,
            dblSigma,
            dblA,
            adblQuote[0]
        );

        TrinomialTreeTransitionMetrics hwtmp0p0 = hw.evolveTrinomialTree (
            dtSpot.julian(),
            dtSpot.julian(),
            dtSpot.addTenor (astrTenor[0]).julian(),
            null
        );

        EmitNodeDetails (
            hwtmp0p0,
            hwtmp0p0.downNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp0p0,
            hwtmp0p0.stayNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp0p0,
            hwtmp0p0.upNodeMetrics()
        );

        TrinomialTreeTransitionMetrics hwtmp1n1 = hw.evolveTrinomialTree (
            dtSpot.julian(),
            dtSpot.addTenor (astrTenor[0]).julian(),
            dtSpot.addTenor (astrTenor[1]).julian(),
            hwtmp0p0.downNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp1n1,
            hwtmp1n1.downNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp1n1,
            hwtmp1n1.stayNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp1n1,
            hwtmp1n1.upNodeMetrics()
        );

        TrinomialTreeTransitionMetrics hwtmp1n0 = hw.evolveTrinomialTree (
            dtSpot.julian(),
            dtSpot.addTenor (astrTenor[0]).julian(),
            dtSpot.addTenor (astrTenor[1]).julian(),
            hwtmp0p0.stayNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp1n0,
            hwtmp1n0.downNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp1n0,
            hwtmp1n0.stayNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp1n0,
            hwtmp1n0.upNodeMetrics()
        );

        TrinomialTreeTransitionMetrics hwtmp1p1 = hw.evolveTrinomialTree (
            dtSpot.julian(),
            dtSpot.addTenor (astrTenor[0]).julian(),
            dtSpot.addTenor (astrTenor[1]).julian(),
            hwtmp0p0.upNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp1p1,
            hwtmp1p1.downNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp1p1,
            hwtmp1p1.stayNodeMetrics()
        );

        EmitNodeDetails (
            hwtmp1p1,
            hwtmp1p1.upNodeMetrics()
        );

        TrinomialTreeSequenceMetrics hwsm = hw.evolveTrinomialTreeSequence (
            dtSpot.julian(),
            30,
            2
        );

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

        System.out.println ("\t| SOURCE TARGET PROBABILITY METRICS |");

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

        Map<String, Double> mapProbSourceTarget = hwsm.sourceTargetTransitionProbability();

        for (Map.Entry<String, Double> me : mapProbSourceTarget.entrySet())
            System.out.println ("\t|    " + SourceToTarget (me.getKey()) + ": " + FormatUtil.FormatDouble (me.getValue(), 1, 6, 1.) + "    |");

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

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

        System.out.println ("\t| TARGET SOURCE PROBABILITY METRICS |");

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

        Map<String, Double> mapProbTargetSource = hwsm.targetSourceTransitionProbability();

        for (Map.Entry<String, Double> me : mapProbTargetSource.entrySet())
            System.out.println ("\t|    " + SourceToTarget (me.getKey()) + ": " + FormatUtil.FormatDouble (me.getValue(), 1, 6, 1.) + "    |");

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

        EnvManager.TerminateEnv();
    }
}