FundingNativeForwardReconciler.java

package org.drip.sample.multicurve;

import org.drip.analytics.date.*;
import org.drip.market.otc.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.valuation.ValuationParams;
import org.drip.product.creator.SingleStreamComponentBuilder;
import org.drip.product.definition.CalibratableComponent;
import org.drip.product.rates.FixFloatComponent;
import org.drip.service.env.EnvManager;
import org.drip.state.creator.ScenarioDiscountCurveBuilder;
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
 * 
 *  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.
 */

/**
 * FundingNativeForwardReconciler demonstrates the Construction of the Forward Curve Native to the Discount
 *  Curve across different Tenors, and display their Reconciliation.
 * 
 * @author Lakshmi Krishnamurthy
 */

public class FundingNativeForwardReconciler {

    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 CalibratableComponent[] DepositInstrumentsFromMaturityDays (
        final JulianDate dtEffective,
        final int[] aiDay,
        final int iNumFuture,
        final String strCurrency)
        throws Exception
    {
        CalibratableComponent[] aCalibComp = new CalibratableComponent[aiDay.length + iNumFuture];

        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,
            iNumFuture,
            strCurrency
        );

        for (int i = aiDay.length; i < aiDay.length + iNumFuture; ++i)
            aCalibComp[i] = aEDF[i - aiDay.length];

        return aCalibComp;
    }

    private static final FixFloatComponent[] 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;
    }

    private static final MergedDiscountForwardCurve MakeDC (
        final JulianDate dtSpot,
        final String strCurrency)
        throws Exception
    {
        /*
         * Construct the array of Deposit instruments and their quotes.
         */

        CalibratableComponent[] aDepositComp = DepositInstrumentsFromMaturityDays (
            dtSpot,
            new int[] {
                30,
                60,
                91,
                182,
                273
            },
            0,
            strCurrency
        );

        double[] adblDepositQuote = new double[] {
            0.0668750,  //  30D
            0.0675000,  //  60D
            0.0678125,  //  91D
            0.0712500,  // 182D
            0.0750000   // 273D
        };

        String[] astrDepositManifestMeasure = new String[] {
            "ForwardRate", //  30D
            "ForwardRate", //  60D
            "ForwardRate", //  91D
            "ForwardRate", // 182D
            "ForwardRate"  // 273D
        };

        /*
         * Construct the array of Swap instruments and their quotes.
         */

        double[] adblSwapQuote = new double[] {
            0.08265,    //  2Y
            0.08550,    //  3Y
            0.08655,    //  4Y
            0.08770,    //  5Y
            0.08910,    //  7Y
            0.08920     // 10Y
        };

        String[] astrSwapManifestMeasure = new String[] {
            "SwapRate",    //  2Y
            "SwapRate",    //  3Y
            "SwapRate",    //  4Y
            "SwapRate",    //  5Y
            "SwapRate",    //  7Y
            "SwapRate"     // 10Y
        };

        CalibratableComponent[] aSwapComp = SwapInstrumentsFromMaturityTenor (
            dtSpot,
            strCurrency,
            new java.lang.String[] {
                "2Y",
                "3Y",
                "4Y",
                "5Y",
                "7Y",
                "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,
                strCurrency
            ),
            aDepositComp,
            adblDepositQuote,
            astrDepositManifestMeasure,
            aSwapComp,
            adblSwapQuote,
            astrSwapManifestMeasure,
            false
        );
    }

    private static final void DiscountForwardReconciliation (
        final JulianDate dtSpot,
        final MergedDiscountForwardCurve dc,
        final ForwardCurve fc,
        final String strTenor)
        throws Exception
    {
        int iNumTenor = 20;
        JulianDate dtStart = dtSpot;

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

        System.out.println ("\t|-------- RECONCILIATION FOR " + fc.label().fullyQualifiedName() + " ---------||");

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

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

        for (int i = 0; i < iNumTenor; ++i) {
            JulianDate dtEnd = dtStart.addTenor (strTenor);

            System.out.println (
                "\t|   [" + dtStart + " - " + dtEnd + "]   |  " +
                FormatUtil.FormatDouble (dc.libor (dtStart, strTenor), 1, 2, 100.) + "% | " +
                FormatUtil.FormatDouble (fc.forward (dtEnd), 1, 2, 100.) + "% ||"
            );

            dtStart = dtEnd;
        }

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

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

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

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

        JulianDate dtSpot = DateUtil.CreateFromYMD (
            1995,
            DateUtil.FEBRUARY,
            3
        );

        String strCurrency = "GBP";
        String[] astrFRATenor = {
            "1M", "3M", "6M", "12M"
        };

        MergedDiscountForwardCurve dc = MakeDC (
            dtSpot,
            strCurrency
        );

        for (String strFRATenor : astrFRATenor) {
            ForwardCurve fcNative = dc.nativeForwardCurve (strFRATenor);

            DiscountForwardReconciliation (
                dtSpot,
                dc,
                fcNative,
                strFRATenor
            );
        }
    }
}