PointCoreMetricsDynamics.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>PointCoreMetricsDynamics</i> demonstrates the Construction and Usage of the Point LIBOR State Evolver,
* and the eventual Evolution of the related Core 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 PointCoreMetricsDynamics {
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.continuousForwardRate(), 1, 2, 100.) +
"% | " + FormatUtil.FormatDouble (bgmRunSnap.continuousForwardRateIncrement(), 2, 0, 10000.) +
" | " + FormatUtil.FormatDouble (bgmRunSnap.spotRate(), 1, 2, 100.) +
"% | " + FormatUtil.FormatDouble (bgmRunSnap.spotRateIncrement(), 2, 0, 10000.) +
" | " + FormatUtil.FormatDouble (bgmRunSnap.discountFactor(), 1, 2, 100.) +
" | " + FormatUtil.FormatDouble (bgmRunSnap.discountFactorIncrement(), 2, 0, 10000.) +
" | " + FormatUtil.FormatDouble (bgmRunSnap.lognormalLIBORVolatility(), 2, 0, 100.) +
"% | " + FormatUtil.FormatDouble (bgmRunSnap.continuouslyCompoundedForwardVolatility(), 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 Continuously Compounded Forward Rate (%) |");
System.out.println ("\t| Adjacent Step Continuously Compounded Forward Rate Increment (bp) |");
System.out.println ("\t| Adjacent Step Spot Rate (%) |");
System.out.println ("\t| Adjacent Step Spot Rate Increment (bp) |");
System.out.println ("\t| Adjacent Step Discount Function |");
System.out.println ("\t| Adjacent Step Discount Function Increment (c) |");
System.out.println ("\t| Log-normal LIBOR Rate Volatility (%) |");
System.out.println ("\t| Continuously Compounded Forward Rate Volatility (%) |");
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();
}
}
}