PointAncillaryMetricsDynamics.java

package org.drip.sample.lmm;

import org.drip.analytics.date.JulianDate;
import org.drip.analytics.definition.MarketSurface;
import org.drip.dynamics.lmm.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.sequence.random.*;
import org.drip.service.env.EnvManager;
import org.drip.spline.basis.PolynomialFunctionSetParams;
import org.drip.spline.params.*;
import org.drip.spline.stretch.MultiSegmentSequenceBuilder;
import org.drip.state.creator.*;
import org.drip.state.discount.*;
import org.drip.state.forward.ForwardCurve;
import org.drip.state.identifier.*;

/*
 * -*- 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>PointAncillaryMetricsDynamics</i> demonstrates the Construction and Usage of the Point LIBOR State
 * Evolver, and the eventual Evolution of the related Ancillary bDiscount/Forward Latent State Quantification
 * Metrics. The References are:
 *  
 * <br><br>
 *  <ul>
 *      <li>
 *          Goldys, B., M. Musiela, and D. Sondermann (1994): Log-normality of Rates and Term Structure
 *              Models, The University of New South Wales.
 *      </li>
 *      <li>
 *          Musiela, M. (1994): Nominal Annual Rates and Log-normal Volatility Structure, The University of
 *              New South Wales.
 *      </li>
 *      <li>
 *          Brace, A., D. Gatarek, and M. Musiela (1997): The Market Model of Interest Rate Dynamics,
 *              Mathematical Finance 7 (2), 127-155.
 *      </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/lmm/README.md">LIBOR Market (LMM-BGM Variant) Evolution</a></li>
 *  </ul>
 * <br><br>
 *
 * @author Lakshmi Krishnamurthy
 */

public class PointAncillaryMetricsDynamics {

    private static final MarketSurface FlatVolatilitySurface (
        final JulianDate dtStart,
        final String strCurrency,
        final double dblFlatVol)
        throws Exception
    {
        return ScenarioMarketSurfaceBuilder.CustomSplineWireSurface (
            "VIEW_TARGET_VOLATILITY_SURFACE",
            dtStart,
            strCurrency,
            new double[] {
                dtStart.julian(),
                dtStart.addYears (2).julian(),
                dtStart.addYears (4).julian(),
                dtStart.addYears (6).julian(),
                dtStart.addYears (8).julian(),
                dtStart.addYears (10).julian()
            },
            new double[] {
                dtStart.julian(),
                dtStart.addYears (2).julian(),
                dtStart.addYears (4).julian(),
                dtStart.addYears (6).julian(),
                dtStart.addYears (8).julian(),
                dtStart.addYears (10).julian()
            },
            new double[][] {
                {dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol},
                {dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol},
                {dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol},
                {dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol},
                {dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol},
                {dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol, dblFlatVol},
            },
            new SegmentCustomBuilderControl (
                MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
                new PolynomialFunctionSetParams (4),
                SegmentInelasticDesignControl.Create (
                    2,
                    2
                ),
                null,
                null
            ),
            new SegmentCustomBuilderControl (
                MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
                new PolynomialFunctionSetParams (4),
                SegmentInelasticDesignControl.Create (
                    2,
                    2
                ),
                null,
                null
            )
        );
    }

    private static final LognormalLIBORVolatility LLVInstance (
        final int iSpotDate,
        final ForwardLabel forwardLabel,
        final MarketSurface[] aMS,
        final double[][] aadblCorrelation,
        final int iNumFactor)
        throws Exception
    {
        UnivariateSequenceGenerator[] aUSG = new UnivariateSequenceGenerator[aMS.length];

        for (int i = 0; i < aUSG.length; ++i)
            aUSG[i] = new BoxMullerGaussian (0., 1.);

        return new LognormalLIBORVolatility (
            iSpotDate,
            forwardLabel,
            aMS,
            new PrincipalFactorSequenceGenerator (
                aUSG,
                aadblCorrelation,
                iNumFactor
            )
        );
    }

    private static final void DisplayRunSnap (
        final BGMPointUpdate bgmRunSnap)
        throws Exception
    {
        System.out.println (
            "\t| [" + new JulianDate (bgmRunSnap.evolutionStartDate()) +
            " -> " + new JulianDate (bgmRunSnap.evolutionFinishDate()) +
            "]  => " + FormatUtil.FormatDouble (bgmRunSnap.libor(), 1, 2, 100.) +
            "% | " + FormatUtil.FormatDouble (bgmRunSnap.liborIncrement(), 2, 0, 10000.) +
            " | " + FormatUtil.FormatDouble (bgmRunSnap.instantaneousEffectiveForwardRate(), 1, 2, 100.) +
            "% | " + FormatUtil.FormatDouble (bgmRunSnap.instantaneousNominalForwardRate(), 1, 2, 100.) +
            "% | "
        );
    }

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

        String strTenor = "3M";
        String strCurrency = "USD";
        double dblFlatVol1 = 0.35;
        double dblFlatVol2 = 0.42;
        double dblFlatVol3 = 0.27;
        double dblZeroRate = 0.02;
        double dblFlatForwardRate = 0.02;
        int iNumRun = 20;

        int[] aiNumFactor = {
            1, 2, 3
        };

        double[][] aadblCorrelation = new double[][] {
            {1.0, 0.1, 0.2},
            {0.1, 1.0, 0.2},
            {0.2, 0.1, 1.0}
        };

        ForwardLabel forwardLabel = ForwardLabel.Create (
            strCurrency,
            strTenor
        );

        FundingLabel fundingLabel = FundingLabel.Standard (
            strCurrency
        );

        JulianDate dtSpot = org.drip.analytics.date.DateUtil.Today();

        MarketSurface[] aMS = new MarketSurface[] {
            FlatVolatilitySurface (
                dtSpot,
                strCurrency,
                dblFlatVol1
            ),
            FlatVolatilitySurface (
                dtSpot,
                strCurrency,
                dblFlatVol2
            ),
            FlatVolatilitySurface (
                dtSpot,
                strCurrency,
                dblFlatVol3
            )
        };

        ForwardCurve fc = ScenarioForwardCurveBuilder.FlatForwardForwardCurve (
            dtSpot,
            forwardLabel,
            dblFlatForwardRate
        );

        MergedDiscountForwardCurve dc = ScenarioDiscountCurveBuilder.ExponentiallyCompoundedFlatRate (
            dtSpot,
            strCurrency,
            dblZeroRate
        );

        int iSpotDate = dtSpot.julian();

        int iViewDate = dtSpot.addTenor ("1Y").julian();

        int iViewTimeIncrement = 1;

        for (int iNumFactor : aiNumFactor) {
            System.out.println ("\n\n\t|----------------------------------------------------------------------------------------------------------|");

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

            System.out.println ("\t|                             LOG-NORMAL LIBOR EVOLVER                                                     |");

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

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

            System.out.println ("\t|       Num Factors: " + iNumFactor + "                                                                                     |");

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

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

            System.out.println ("\t|       Adjacent Step LIBOR (%)                                                                            |");

            System.out.println ("\t|       Adjacent Step LIBOR Increment (bp)                                                                 |");

            System.out.println ("\t|       Adjacent Step Effective Annual Forward Rate (%)                                                    |");

            System.out.println ("\t|       Adjacent Step Nominal Annual Forward Rate (%)                                                      |");

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

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

            LognormalLIBORPointEvolver lle = new LognormalLIBORPointEvolver (
                fundingLabel,
                forwardLabel,
                LLVInstance (
                    dtSpot.julian(),
                    forwardLabel,
                    aMS,
                    aadblCorrelation,
                    iNumFactor
                ),
                fc,
                dc
            );

            for (int iRun = 0; iRun < iNumRun; ++iRun)
                DisplayRunSnap (
                    lle.evolve (
                        iSpotDate,
                        iViewDate,
                        iViewTimeIncrement,
                        null
                    )
                );

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

        EnvManager.TerminateEnv();
    }
}