FloatFloatForwardCurve.java
package org.drip.sample.multicurve;
import java.util.*;
import org.drip.analytics.date.*;
import org.drip.analytics.support.*;
import org.drip.market.otc.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.creator.*;
import org.drip.param.market.CurveSurfaceQuoteContainer;
import org.drip.param.valuation.*;
import org.drip.product.creator.*;
import org.drip.product.definition.*;
import org.drip.product.rates.*;
import org.drip.service.env.EnvManager;
import org.drip.spline.basis.*;
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.ForwardLabel;
/*
* -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
*/
/*!
* Copyright (C) 2018 Lakshmi Krishnamurthy
* Copyright (C) 2017 Lakshmi Krishnamurthy
* Copyright (C) 2016 Lakshmi Krishnamurthy
* Copyright (C) 2015 Lakshmi Krishnamurthy
* Copyright (C) 2014 Lakshmi Krishnamurthy
* Copyright (C) 2013 Lakshmi Krishnamurthy
*
* This file is part of DRIP, a free-software/open-source library for buy/side financial/trading model
* libraries targeting analysts and developers
* https://lakshmidrip.github.io/DRIP/
*
* DRIP is composed of four main libraries:
*
* - DRIP Fixed Income - https://lakshmidrip.github.io/DRIP-Fixed-Income/
* - DRIP Asset Allocation - https://lakshmidrip.github.io/DRIP-Asset-Allocation/
* - DRIP Numerical Optimizer - https://lakshmidrip.github.io/DRIP-Numerical-Optimizer/
* - DRIP Statistical Learning - https://lakshmidrip.github.io/DRIP-Statistical-Learning/
*
* - DRIP Fixed Income: Library for Instrument/Trading Conventions, Treasury Futures/Options,
* Funding/Forward/Overnight Curves, Multi-Curve Construction/Valuation, Collateral Valuation and XVA
* Metric Generation, Calibration and Hedge Attributions, Statistical Curve Construction, Bond RV
* Metrics, Stochastic Evolution and Option Pricing, Interest Rate Dynamics and Option Pricing, LMM
* Extensions/Calibrations/Greeks, Algorithmic Differentiation, and Asset Backed Models and Analytics.
*
* - DRIP Asset Allocation: Library for model libraries for MPT framework, Black Litterman Strategy
* Incorporator, Holdings Constraint, and Transaction Costs.
*
* - DRIP Numerical Optimizer: Library for Numerical Optimization and Spline Functionality.
*
* - DRIP Statistical Learning: Library for Statistical Evaluation and Machine Learning.
*
* 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.
*/
/**
* FloatFloatForwardCurve contains the sample demonstrating the full functionality behind creating highly
* customized spline based forward curves.
*
* The first sample illustrates the creation and usage of the xM-6M Tenor Basis Swap:
* - Construct the 6M-xM float-float basis swap.
* - Calculate the corresponding starting forward rate off of the discount curve.
* - Construct the shape preserving forward curve off of Cubic Polynomial Basis Spline.
* - Construct the shape preserving forward curve off of Quartic Polynomial Basis Spline.
* - Construct the shape preserving forward curve off of Hyperbolic Tension Based Basis Spline.
* - Set the discount curve based component market parameters.
* - Set the discount curve + cubic polynomial forward curve based component market parameters.
* - Set the discount curve + quartic polynomial forward curve based component market parameters.
* - Set the discount curve + hyperbolic tension forward curve based component market parameters.
* - Compute the following forward curve metrics for each of cubic polynomial forward, quartic
* polynomial forward, and KLK Hyperbolic tension forward curves:
* - Reference Basis Par Spread
* - Derived Basis Par Spread
* - Compare these with a) the forward rate off of the discount curve, b) The LIBOR rate, and c) The
* Input Basis Swap Quote.
*
* The second sample illustrates how to build and test the forward curves across various tenor basis. It
* shows the following steps:
* - Construct the Discount Curve using its instruments and quotes.
* - Build and run the sampling for the 1M-6M Tenor Basis Swap from its instruments and quotes.
* - Build and run the sampling for the 3M-6M Tenor Basis Swap from its instruments and quotes.
* - Build and run the sampling for the 6M-6M Tenor Basis Swap from its instruments and quotes.
* - Build and run the sampling for the 12M-6M Tenor Basis Swap from its instruments and quotes.
*
* @author Lakshmi Krishnamurthy
*/
public class FloatFloatForwardCurve {
private static final FixFloatComponent OTCFixFloat (
final JulianDate dtSpot,
final String strCurrency,
final String strMaturityTenor,
final double dblCoupon)
{
FixedFloatSwapConvention ffConv = IBORFixedFloatContainer.ConventionFromJurisdiction (
strCurrency,
"ALL",
strMaturityTenor,
"MAIN"
);
return ffConv.createFixFloatComponent (
dtSpot,
strMaturityTenor,
dblCoupon,
0.,
1.
);
}
private static final FloatFloatComponent OTCFloatFloat (
final JulianDate dtSpot,
final String strCurrency,
final String strDerivedTenor,
final String strMaturityTenor,
final double dblBasis)
{
FloatFloatSwapConvention ffConv = IBORFloatFloatContainer.ConventionFromJurisdiction (strCurrency);
return ffConv.createFloatFloatComponent (
dtSpot,
strDerivedTenor,
strMaturityTenor,
dblBasis,
1.
);
}
/*
* Construct the Array of Deposit Instruments from the given set of parameters
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final CalibratableComponent[] DepositInstrumentsFromMaturityDays (
final JulianDate dtEffective,
final int[] aiDay,
final int iNumFutures,
final String strCurrency)
throws Exception
{
CalibratableComponent[] aCalibComp = new CalibratableComponent[aiDay.length + iNumFutures];
for (int i = 0; i < aiDay.length; ++i)
aCalibComp[i] = SingleStreamComponentBuilder.Deposit (
dtEffective,
dtEffective.addBusDays (
aiDay[i],
strCurrency
),
ForwardLabel.Create (
strCurrency,
"3M"
)
);
CalibratableComponent[] aEDF = SingleStreamComponentBuilder.ForwardRateFuturesPack (
dtEffective,
iNumFutures,
strCurrency
);
for (int i = aiDay.length; i < aiDay.length + iNumFutures; ++i)
aCalibComp[i] = aEDF[i - aiDay.length];
return aCalibComp;
}
/*
* Construct the Array of Swap Instruments from the given set of parameters
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final CalibratableComponent[] SwapInstrumentsFromMaturityTenor (
final JulianDate dtSpot,
final String strCurrency,
final String[] astrMaturityTenor,
final double[] adblCoupon)
throws Exception
{
FixFloatComponent[] aIRS = new FixFloatComponent[astrMaturityTenor.length];
for (int i = 0; i < astrMaturityTenor.length; ++i)
aIRS[i] = OTCFixFloat (
dtSpot,
strCurrency,
astrMaturityTenor[i],
adblCoupon[i]
);
return aIRS;
}
/*
* Construct the discount curve using the following steps:
* - Construct the array of cash instruments and their quotes.
* - Construct the array of swap instruments and their quotes.
* - Construct a shape preserving and smoothing KLK Hyperbolic Spline from the cash/swap instruments.
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final MergedDiscountForwardCurve MakeDC (
final JulianDate dtSpot,
final String strCurrency,
final double dblBump)
throws Exception
{
/*
* Construct the array of Deposit instruments and their quotes.
*/
CalibratableComponent[] aDepositComp = DepositInstrumentsFromMaturityDays (
dtSpot,
new int[] {},
0,
strCurrency
);
double[] adblDepositQuote = new double[] {}; // Futures
/*
* Construct the array of Swap instruments and their quotes.
*/
double[] adblSwapQuote = new double[] {
// 0.00092 + dblBump, // 6M
0.0009875 + dblBump, // 9M
0.00122 + dblBump, // 1Y
0.00223 + dblBump, // 18M
0.00383 + dblBump, // 2Y
0.00827 + dblBump, // 3Y
0.01245 + dblBump, // 4Y
0.01605 + dblBump, // 5Y
0.02597 + dblBump // 10Y
};
String[] astrSwapManifestMeasure = new String[] {
// "SwapRate", // 6M
"SwapRate", // 9M
"SwapRate", // 1Y
"SwapRate", // 18M
"SwapRate", // 2Y
"SwapRate", // 3Y
"SwapRate", // 4Y
"SwapRate", // 5Y
"SwapRate" // 10Y
};
CalibratableComponent[] aSwapComp = SwapInstrumentsFromMaturityTenor (
dtSpot,
strCurrency,
// new java.lang.String[] {"6M", "9M", "1Y", "18M", "2Y", "3Y", "4Y", "5Y", "10Y"},
new java.lang.String[] {
"9M", "1Y", "18M", "2Y", "3Y", "4Y", "5Y", "10Y"
},
adblSwapQuote
);
/*
* Construct a shape preserving and smoothing KLK Hyperbolic Spline from the cash/swap instruments.
*/
return ScenarioDiscountCurveBuilder.CubicKLKHyperbolicDFRateShapePreserver (
"KLK_HYPERBOLIC_SHAPE_TEMPLATE",
new ValuationParams (
dtSpot,
dtSpot,
"USD"
),
aDepositComp,
adblDepositQuote,
null,
aSwapComp,
adblSwapQuote,
astrSwapManifestMeasure,
false
);
}
/*
* Construct an array of float-float swaps from the corresponding reference (6M) and the derived legs.
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final FloatFloatComponent[] MakexM6MBasisSwap (
final JulianDate dtSpot,
final String strCurrency,
final String[] astrMaturityTenor,
final int iTenorInMonths)
throws Exception
{
FloatFloatComponent[] aFFC = new FloatFloatComponent[astrMaturityTenor.length];
for (int i = 0; i < astrMaturityTenor.length; ++i)
aFFC[i] = OTCFloatFloat (
dtSpot,
strCurrency,
iTenorInMonths + "M",
astrMaturityTenor[i],
0.
);
return aFFC;
}
/*
* This sample illustrates the creation and usage of the xM-6M Tenor Basis Swap. It shows the following:
* - Construct the 6M-xM float-float basis swap.
* - Calculate the corresponding starting forward rate off of the discount curve.
* - Construct the shape preserving forward curve off of Cubic Polynomial Basis Spline.
* - Construct the shape preserving forward curve off of Quartic Polynomial Basis Spline.
* - Construct the shape preserving forward curve off of Hyperbolic Tension Based Basis Spline.
* - Set the discount curve based component market parameters.
* - Set the discount curve + cubic polynomial forward curve based component market parameters.
* - Set the discount curve + quartic polynomial forward curve based component market parameters.
* - Set the discount curve + hyperbolic tension forward curve based component market parameters.
* - Compute the following forward curve metrics for each of cubic polynomial forward, quartic
* polynomial forward, and KLK Hyperbolic tension forward curves:
* - Reference Basis Par Spread
* - Derived Basis Par Spread
* - Compare these with a) the forward rate off of the discount curve, b) The LIBOR rate, and c) The
* Input Basis Swap Quote.
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final Map<String, ForwardCurve> xM6MBasisSample (
final JulianDate dtSpot,
final String strCurrency,
final MergedDiscountForwardCurve dc,
final int iTenorInMonths,
final String[] astrxM6MFwdTenor,
final String strManifestMeasure,
final double[] adblxM6MBasisSwapQuote)
throws Exception
{
System.out.println ("-----------------------------------------------------------------------------------------------------------------------------");
System.out.println (" SPL => n=3 | n=4 | KLK | | |");
System.out.println ("--------------------------------------------------------------------------------------------------------| LOG DF | LIBOR |");
System.out.println (" MSR => RECALC | REFEREN | DERIVED | RECALC | REFEREN | DERIVED | RECALC | REFEREN | DERIVED | | |");
System.out.println ("-----------------------------------------------------------------------------------------------------------------------------");
/*
* Construct the 6M-xM float-float basis swap.
*/
FloatFloatComponent[] aFFC = MakexM6MBasisSwap (
dtSpot,
strCurrency,
astrxM6MFwdTenor,
iTenorInMonths
);
String strBasisTenor = iTenorInMonths + "M";
ValuationParams valParams = new ValuationParams (
dtSpot,
dtSpot,
strCurrency
);
/*
* Calculate the starting forward rate off of the discount curve.
*/
double dblStartingFwd = dc.forward (
dtSpot.julian(),
dtSpot.addTenor (strBasisTenor).julian()
);
/*
* Set the discount curve based component market parameters.
*/
CurveSurfaceQuoteContainer mktParams = MarketParamsBuilder.Create (
dc,
null,
null,
null,
null,
null,
null
);
Map<String, ForwardCurve> mapForward = new HashMap<String, ForwardCurve>();
/*
* Construct the shape preserving forward curve off of Cubic Polynomial Basis Spline.
*/
ForwardCurve fcxMCubic = ScenarioForwardCurveBuilder.ShapePreservingForwardCurve (
"CUBIC_FWD" + strBasisTenor,
ForwardLabel.Create (
strCurrency,
strBasisTenor
),
valParams,
null,
mktParams,
null,
MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
new PolynomialFunctionSetParams (4),
aFFC,
strManifestMeasure,
adblxM6MBasisSwapQuote,
dblStartingFwd
);
mapForward.put (
" CUBIC_FWD" + strBasisTenor,
fcxMCubic
);
/*
* Set the discount curve + cubic polynomial forward curve based component market parameters.
*/
CurveSurfaceQuoteContainer mktParamsCubicFwd = MarketParamsBuilder.Create (
dc,
fcxMCubic,
null,
null,
null,
null,
null,
null
);
/*
* Construct the shape preserving forward curve off of Quartic Polynomial Basis Spline.
*/
ForwardCurve fcxMQuartic = ScenarioForwardCurveBuilder.ShapePreservingForwardCurve (
"QUARTIC_FWD" + strBasisTenor,
ForwardLabel.Create (
strCurrency,
strBasisTenor
),
valParams,
null,
mktParams,
null,
MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
new PolynomialFunctionSetParams (5),
aFFC,
strManifestMeasure,
adblxM6MBasisSwapQuote,
dblStartingFwd
);
mapForward.put (
" QUARTIC_FWD" + strBasisTenor,
fcxMQuartic
);
/*
* Set the discount curve + quartic polynomial forward curve based component market parameters.
*/
CurveSurfaceQuoteContainer mktParamsQuarticFwd = MarketParamsBuilder.Create (
dc,
fcxMQuartic,
null,
null,
null,
null,
null,
null
);
/*
* Construct the shape preserving forward curve off of Hyperbolic Tension Based Basis Spline.
*/
ForwardCurve fcxMKLKHyper = ScenarioForwardCurveBuilder.ShapePreservingForwardCurve (
"KLKHYPER_FWD" + strBasisTenor,
ForwardLabel.Create (
strCurrency,
strBasisTenor
),
valParams,
null,
mktParams,
null,
MultiSegmentSequenceBuilder.BASIS_SPLINE_KLK_HYPERBOLIC_TENSION,
new ExponentialTensionSetParams (1.),
aFFC,
strManifestMeasure,
adblxM6MBasisSwapQuote,
dblStartingFwd
);
mapForward.put (
"KLKHYPER_FWD" + strBasisTenor,
fcxMKLKHyper
);
/*
* Set the discount curve + hyperbolic tension forward curve based component market parameters.
*/
CurveSurfaceQuoteContainer mktParamsKLKHyperFwd = MarketParamsBuilder.Create (
dc,
fcxMKLKHyper,
null,
null,
null,
null,
null,
null
);
int i = 0;
int iFreq = 12 / iTenorInMonths;
/*
* Compute the following forward curve metrics for each of cubic polynomial forward, quartic
* polynomial forward, and KLK Hyperbolic tension forward curves:
* - Reference Basis Par Spread
* - Derived Basis Par Spread
*
* Further compare these with a) the forward rate off of the discount curve, b) the LIBOR rate, and
* c) Input Basis Swap Quote.
*/
for (String strMaturityTenor : astrxM6MFwdTenor) {
int iFwdEndDate = dtSpot.addTenor (strMaturityTenor).julian();
int iFwdStartDate = dtSpot.addTenor (strMaturityTenor).subtractTenor (strBasisTenor).julian();
FloatFloatComponent ffc = aFFC[i++];
CaseInsensitiveTreeMap<Double> mapCubicValue = ffc.value (
valParams,
null,
mktParamsCubicFwd,
null
);
CaseInsensitiveTreeMap<Double> mapQuarticValue = ffc.value (
valParams,
null,
mktParamsQuarticFwd,
null
);
CaseInsensitiveTreeMap<Double> mapKLKHyperValue = ffc.value (
valParams,
null,
mktParamsKLKHyperFwd,
null
);
System.out.println (" " + strMaturityTenor + " => " +
FormatUtil.FormatDouble (fcxMCubic.forward (iFwdEndDate), 2, 2, 100.) + " | " +
FormatUtil.FormatDouble (mapCubicValue.get ("ReferenceParBasisSpread"), 2, 2, 1.) + " | " +
FormatUtil.FormatDouble (mapCubicValue.get ("DerivedParBasisSpread"), 2, 2, 1.) + " | " +
FormatUtil.FormatDouble (fcxMQuartic.forward (iFwdEndDate), 2, 2, 100.) + " | " +
FormatUtil.FormatDouble (mapQuarticValue.get ("ReferenceParBasisSpread"), 2, 2, 1.) + " | " +
FormatUtil.FormatDouble (mapQuarticValue.get ("DerivedParBasisSpread"), 2, 2, 1.) + " | " +
FormatUtil.FormatDouble (fcxMKLKHyper.forward (iFwdEndDate), 2, 2, 100.) + " | " +
FormatUtil.FormatDouble (mapKLKHyperValue.get ("ReferenceParBasisSpread"), 2, 2, 1.) + " | " +
FormatUtil.FormatDouble (mapKLKHyperValue.get ("DerivedParBasisSpread"), 2, 2, 1.) + " | " +
FormatUtil.FormatDouble (iFreq * java.lang.Math.log (dc.df (iFwdStartDate) / dc.df (iFwdEndDate)), 1, 2, 100.) + " | " +
FormatUtil.FormatDouble (dc.libor (iFwdStartDate, iFwdEndDate), 1, 2, 100.) + " | "
);
}
return mapForward;
}
/*
* This sample illustrates how to build and test the forward curves across various tenor basis. It shows
* the following steps:
* - Construct the Discount Curve using its instruments and quotes.
* - Build and run the sampling for the 1M-6M Tenor Basis Swap from its instruments and quotes.
* - Build and run the sampling for the 3M-6M Tenor Basis Swap from its instruments and quotes.
* - Build and run the sampling for the 12M-6M Tenor Basis Swap from its instruments and quotes.
*
* USE WITH CARE: This sample ignores errors and does not handle exceptions.
*/
private static final void CustomForwardCurveBuilderSample (
final String strManifestMeasure)
throws Exception
{
String strCurrency = "USD";
JulianDate dtToday = DateUtil.Today().addTenor ("0D");
/*
* Construct the Discount Curve using its instruments and quotes
*/
MergedDiscountForwardCurve dc = MakeDC (
dtToday,
strCurrency,
0.
);
System.out.println ("\n-----------------------------------------------------------------------------------------------------------------------------");
System.out.println ("--------------------------------------------------- 1M-6M Basis Swap --------------------------------------------------");
/*
* Build and run the sampling for the 1M-6M Tenor Basis Swap from its instruments and quotes.
*/
xM6MBasisSample (
dtToday,
strCurrency,
dc,
1,
new String[] {
"1Y", "2Y", "3Y", "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y"
},
strManifestMeasure,
new double[] {
0.00551, // 1Y
0.00387, // 2Y
0.00298, // 3Y
0.00247, // 4Y
0.00211, // 5Y
0.00185, // 6Y
0.00165, // 7Y
0.00150, // 8Y
0.00137, // 9Y
0.00127, // 10Y
0.00119, // 11Y
0.00112, // 12Y
0.00096, // 15Y
0.00079, // 20Y
0.00069, // 25Y
0.00062 // 30Y
}
);
/*
* Build and run the sampling for the 3M-6M Tenor Basis Swap from its instruments and quotes.
*/
System.out.println ("\n-----------------------------------------------------------------------------------------------------------------------------");
System.out.println ("--------------------------------------------------- 3M-6M Basis Swap --------------------------------------------------");
xM6MBasisSample (
dtToday,
strCurrency,
dc,
3,
new String[] {
"1Y", "2Y", "3Y", "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y"
},
strManifestMeasure,
new double[] {
0.00186, // 1Y
0.00127, // 2Y
0.00097, // 3Y
0.00080, // 4Y
0.00067, // 5Y
0.00058, // 6Y
0.00051, // 7Y
0.00046, // 8Y
0.00042, // 9Y
0.00038, // 10Y
0.00035, // 11Y
0.00033, // 12Y
0.00028, // 15Y
0.00022, // 20Y
0.00020, // 25Y
0.00018 // 30Y
}
);
/*
* Build and run the sampling for the 12M-6M Tenor Basis Swap from its instruments and quotes.
*/
System.out.println ("\n-----------------------------------------------------------------------------------------------------------------------------");
System.out.println ("--------------------------------------------------- 12M-6M Basis Swap --------------------------------------------------");
xM6MBasisSample (
dtToday,
strCurrency,
dc,
12,
new String[] {
"1Y", "2Y", "3Y", "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y",
"35Y", "40Y" // Extrapolated
},
strManifestMeasure,
new double[] {
-0.00212, // 1Y
-0.00152, // 2Y
-0.00117, // 3Y
-0.00097, // 4Y
-0.00082, // 5Y
-0.00072, // 6Y
-0.00063, // 7Y
-0.00057, // 8Y
-0.00051, // 9Y
-0.00047, // 10Y
-0.00044, // 11Y
-0.00041, // 12Y
-0.00035, // 15Y
-0.00028, // 20Y
-0.00025, // 25Y
-0.00022, // 30Y
-0.00022, // 35Y Extrapolated
-0.00022, // 40Y Extrapolated
}
);
}
public static final void main (
final String[] astrArgs)
throws Exception
{
/*
* Initialize the Credit Analytics Library
*/
EnvManager.InitEnv ("");
System.out.println ("\n-----------------------------------------------------------------------------------------------------------------------------");
System.out.println ("-----------------------------------------------------------------------------------------------------------------------------");
System.out.println ("----------------------------------------------- BASIS ON THE DERIVED LEG -----------------------------------------------");
System.out.println ("-----------------------------------------------------------------------------------------------------------------------------");
CustomForwardCurveBuilderSample ("DerivedParBasisSpread");
System.out.println ("\n-----------------------------------------------------------------------------------------------------------------------------");
System.out.println ("-----------------------------------------------------------------------------------------------------------------------------");
System.out.println ("---------------------------------------------- BASIS ON THE REFERENCE LEG ----------------------------------------------");
System.out.println ("-----------------------------------------------------------------------------------------------------------------------------");
CustomForwardCurveBuilderSample ("ReferenceParBasisSpread");
}
}