PortfolioPathAggregationDeterministic.java

  1. package org.drip.sample.netting;

  3. import org.drip.analytics.date.*;
  4. import org.drip.exposure.evolver.LatentStateVertexContainer;
  5. import org.drip.exposure.universe.*;
  6. import org.drip.measure.discrete.SequenceGenerator;
  7. import org.drip.measure.dynamics.DiffusionEvaluatorLogarithmic;
  8. import org.drip.measure.process.DiffusionEvolver;
  9. import org.drip.measure.realization.*;
  10. import org.drip.numerical.common.FormatUtil;
  11. import org.drip.service.env.EnvManager;
  12. import org.drip.state.identifier.OTCFixFloatLabel;
  13. import org.drip.xva.gross.*;
  14. import org.drip.xva.netting.CollateralGroupPath;
  15. import org.drip.xva.strategy.*;
  16. import org.drip.xva.vertex.AlbaneseAndersen;

  18. /*
  19.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  20.  */

  22. /*!
  23.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  24.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  25.  * 
  26.  *  This file is part of DRIP, a free-software/open-source library for buy/side financial/trading model
  27.  *      libraries targeting analysts and developers
  28.  *      https://lakshmidrip.github.io/DRIP/
  29.  *  
  30.  *  DRIP is composed of four main libraries:
  31.  *  
  32.  *  - DRIP Fixed Income - https://lakshmidrip.github.io/DRIP-Fixed-Income/
  33.  *  - DRIP Asset Allocation - https://lakshmidrip.github.io/DRIP-Asset-Allocation/
  34.  *  - DRIP Numerical Optimizer - https://lakshmidrip.github.io/DRIP-Numerical-Optimizer/
  35.  *  - DRIP Statistical Learning - https://lakshmidrip.github.io/DRIP-Statistical-Learning/
  36.  * 
  37.  *  - DRIP Fixed Income: Library for Instrument/Trading Conventions, Treasury Futures/Options,
  38.  *      Funding/Forward/Overnight Curves, Multi-Curve Construction/Valuation, Collateral Valuation and XVA
  39.  *      Metric Generation, Calibration and Hedge Attributions, Statistical Curve Construction, Bond RV
  40.  *      Metrics, Stochastic Evolution and Option Pricing, Interest Rate Dynamics and Option Pricing, LMM
  41.  *      Extensions/Calibrations/Greeks, Algorithmic Differentiation, and Asset Backed Models and Analytics.
  42.  * 
  43.  *  - DRIP Asset Allocation: Library for model libraries for MPT framework, Black Litterman Strategy
  44.  *      Incorporator, Holdings Constraint, and Transaction Costs.
  45.  * 
  46.  *  - DRIP Numerical Optimizer: Library for Numerical Optimization and Spline Functionality.
  47.  * 
  48.  *  - DRIP Statistical Learning: Library for Statistical Evaluation and Machine Learning.
  49.  * 
  50.  *  Licensed under the Apache License, Version 2.0 (the "License");
  51.  *      you may not use this file except in compliance with the License.
  52.  *   
  53.  *  You may obtain a copy of the License at
  54.  *      http://www.apache.org/licenses/LICENSE-2.0
  55.  *  
  56.  *  Unless required by applicable law or agreed to in writing, software
  57.  *      distributed under the License is distributed on an "AS IS" BASIS,
  58.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  59.  *  
  60.  *  See the License for the specific language governing permissions and
  61.  *      limitations under the License.
  62.  */

  64. /**
  65.  * PortfolioPathAggregationDeterministic generates an Aggregation of the Portfolio Paths evolved using
  66.  *  Deterministic Market Parameters. The References are:
  67.  *  
  68.  *  - Burgard, C., and M. Kjaer (2014): PDE Representations of Derivatives with Bilateral Counter-party Risk
  69.  *      and Funding Costs, Journal of Credit Risk, 7 (3) 1-19.
  70.  *  
  71.  *  - Burgard, C., and M. Kjaer (2014): In the Balance, Risk, 24 (11) 72-75.
  72.  *  
  73.  *  - Gregory, J. (2009): Being Two-faced over Counter-party Credit Risk, Risk 20 (2) 86-90.
  74.  *  
  75.  *  - Li, B., and Y. Tang (2007): Quantitative Analysis, Derivatives Modeling, and Trading Strategies in the
  76.  *      Presence of Counter-party Credit Risk for the Fixed Income Market, World Scientific Publishing,
  77.  *      Singapore.
  78.  * 
  79.  *  - Piterbarg, V. (2010): Funding Beyond Discounting: Collateral Agreements and Derivatives Pricing, Risk
  80.  *      21 (2) 97-102.
  81.  * 
  82.  * @author Lakshmi Krishnamurthy
  83.  */

  85. public class PortfolioPathAggregationDeterministic {

  87.     private static final double[][] CollateralPortfolioValueRealization (
  88.         final DiffusionEvolver deCollateralPortfolioValue,
  89.         final double dblCollateralPortfolioValueInitial,
  90.         final double dblTime,
  91.         final double dblTimeWidth,
  92.         final int iNumStep,
  93.         final int iNumPath)
  94.         throws Exception
  95.     {
  96.         double[][] aablCollateralPortfolioValue = new double[iNumPath][iNumStep + 1];
  97.         double[] adblTimeWidth = new double[iNumStep];

  99.         for (int i = 0; i < iNumStep; ++i)
  100.             adblTimeWidth[i] = dblTimeWidth;

  102.         for (int i = 0; i < iNumPath; ++i) {
  103.             JumpDiffusionEdge[] aJDE = deCollateralPortfolioValue.incrementSequence (
  104.                 new JumpDiffusionVertex (
  105.                     dblTime,
  106.                     dblCollateralPortfolioValueInitial,
  107.                     0.,
  108.                     false
  109.                 ),
  110.                 JumpDiffusionEdgeUnit.Diffusion (
  111.                     adblTimeWidth,
  112.                     SequenceGenerator.Gaussian (iNumStep)
  113.                 ),
  114.                 dblTimeWidth
  115.             );

  117.             aablCollateralPortfolioValue[i][0] = dblCollateralPortfolioValueInitial;

  119.             for (int j = 1; j <= iNumStep; ++j)
  120.                 aablCollateralPortfolioValue[i][j] = aJDE[j - 1].finish();
  121.         }

  123.         return aablCollateralPortfolioValue;
  124.     }

  126.     public static final void main (
  127.         final String[] astrArgs)
  128.         throws Exception
  129.     {
  130.         EnvManager.InitEnv ("");

  132.         int iNumStep = 10;
  133.         double dblTime = 5.;
  134.         int iNumPath = 50000;
  135.         double dblCollateralPortfolioValueDrift = 0.06;
  136.         double dblCollateralPortfolioValueVolatility = 0.15;
  137.         double dblCollateralPortfolioValueInitial = 1.;
  138.         double dblOvernightNumeraireDrift = 0.004;
  139.         double dblCSADrift = 0.01;
  140.         double dblBankHazardRate = 0.015;
  141.         double dblBankRecoveryRate = 0.40;
  142.         double dblCounterPartyHazardRate = 0.030;
  143.         double dblCounterPartyRecoveryRate = 0.30;

  145.         double dblTimeWidth = dblTime / iNumStep;
  146.         MarketVertex[] aMV = new MarketVertex[iNumStep + 1];
  147.         JulianDate[] adtVertex = new JulianDate[iNumStep + 1];
  148.         double[][] aadblCollateralBalance = new double[iNumPath][iNumStep + 1];
  149.         double dblBankFundingSpread = dblBankHazardRate / (1. - dblBankRecoveryRate);
  150.         MonoPathExposureAdjustment[] aMPEA = new MonoPathExposureAdjustment[iNumPath];
  151.         double dblCounterPartyFundingSpread = dblCounterPartyHazardRate / (1. - dblCounterPartyRecoveryRate);

  153.         JulianDate dtSpot = DateUtil.Today();

  155.         double[][] aadblCollateralPortfolioValue = CollateralPortfolioValueRealization (
  156.             new DiffusionEvolver (
  157.                 DiffusionEvaluatorLogarithmic.Standard (
  158.                     dblCollateralPortfolioValueDrift,
  159.                     dblCollateralPortfolioValueVolatility
  160.                 )
  161.             ),
  162.             dblCollateralPortfolioValueInitial,
  163.             dblTime,
  164.             dblTimeWidth,
  165.             iNumStep,
  166.             iNumPath
  167.         );

  169.         for (int i = 0; i <= iNumStep; ++i)
  170.         {
  171.             LatentStateVertexContainer latentStateVertexContainer = new LatentStateVertexContainer();

  173.             latentStateVertexContainer.add (
  174.                 OTCFixFloatLabel.Standard ("USD-3M-10Y"),
  175.                 Double.NaN
  176.             );

  178.             aMV[i] = MarketVertex.Nodal (
  179.                 adtVertex[i] = dtSpot.addMonths (6 * i),
  180.                 dblOvernightNumeraireDrift,
  181.                 Math.exp (-0.5 * dblOvernightNumeraireDrift * (iNumStep - i)),
  182.                 dblCSADrift,
  183.                 Math.exp (-0.5 * dblCSADrift * (iNumStep - i)),
  184.                 new MarketVertexEntity (
  185.                     Math.exp (-0.5 * dblBankHazardRate * i),
  186.                     dblBankHazardRate,
  187.                     dblBankRecoveryRate,
  188.                     dblBankFundingSpread,
  189.                     Math.exp (-0.5 * dblBankHazardRate * (1. - dblBankRecoveryRate) * (iNumStep - i)),
  190.                     Double.NaN,
  191.                     Double.NaN,
  192.                     Double.NaN
  193.                 ),
  194.                 new MarketVertexEntity (
  195.                     Math.exp (-0.5 * dblCounterPartyHazardRate * i),
  196.                     dblCounterPartyHazardRate,
  197.                     dblCounterPartyRecoveryRate,
  198.                     dblCounterPartyFundingSpread,
  199.                     Math.exp (-0.5 * dblCounterPartyHazardRate * (1. - dblCounterPartyRecoveryRate) * (iNumStep - i)),
  200.                     Double.NaN,
  201.                     Double.NaN,
  202.                     Double.NaN
  203.                 ),
  204.                 latentStateVertexContainer
  205.             );

  207.             for (int j = 0; j < iNumPath; ++j)
  208.                 aadblCollateralBalance[j][i] = 0.;
  209.         }

  211.         MarketPath mp = MarketPath.FromMarketVertexArray (aMV);

  213.         for (int i = 0; i < iNumPath; ++i) {
  214.             AlbaneseAndersen[] aHGVR = new AlbaneseAndersen[iNumStep + 1];

  216.             for (int j = 0; j <= iNumStep; ++j) {
  217.                 aHGVR[j] = new AlbaneseAndersen (
  218.                     adtVertex[j],
  219.                     aadblCollateralPortfolioValue[i][j],
  220.                     0.,
  221.                     0.
  222.                 );
  223.             }

  225.             CollateralGroupPath[] aHGP = new CollateralGroupPath[] {
  226.                 new CollateralGroupPath (
  227.                     aHGVR,
  228.                     mp
  229.                 )
  230.             };

  232.             aMPEA[i] = new MonoPathExposureAdjustment (
  233.                 new AlbaneseAndersenFundingGroupPath[] {
  234.                     new AlbaneseAndersenFundingGroupPath (
  235.                         new AlbaneseAndersenNettingGroupPath[] {
  236.                             new AlbaneseAndersenNettingGroupPath (
  237.                                 aHGP,
  238.                                 mp
  239.                             )
  240.                         },
  241.                         mp
  242.                     )
  243.                 }
  244.             );
  245.         }

  247.         ExposureAdjustmentAggregator eaa = new ExposureAdjustmentAggregator (aMPEA);

  249.         JulianDate[] adtVertexNode = eaa.vertexDates();

  251.         System.out.println();

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

  255.         String strDump = "\t|         DATE         =>" ;

  257.         for (int i = 0; i < adtVertexNode.length; ++i)
  258.             strDump = strDump + " " + adtVertexNode[i] + " |";

  260.         System.out.println (strDump);

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

  264.         double[] adblExposure = eaa.collateralizedExposure();

  266.         strDump = "\t|       EXPOSURE       =>";

  268.         for (int j = 0; j < adblExposure.length; ++j)
  269.             strDump = strDump + "   " + FormatUtil.FormatDouble (adblExposure[j], 1, 4, 1.) + "   |";

  271.         System.out.println (strDump);

  273.         double[] adblPositiveExposure = eaa.collateralizedPositiveExposure();

  275.         strDump = "\t|  POSITIVE EXPOSURE   =>";

  277.         for (int j = 0; j < adblPositiveExposure.length; ++j)
  278.             strDump = strDump + "   " + FormatUtil.FormatDouble (adblPositiveExposure[j], 1, 4, 1.) + "   |";

  280.         System.out.println (strDump);

  282.         double[] adblNegativeExposure = eaa.collateralizedNegativeExposure();

  284.         strDump = "\t|  NEGATIVE EXPOSURE   =>";

  286.         for (int j = 0; j < adblNegativeExposure.length; ++j)
  287.             strDump = strDump + "   " + FormatUtil.FormatDouble (adblNegativeExposure[j], 1, 4, 1.) + "   |";

  289.         System.out.println (strDump);

  291.         double[] adblExposurePV = eaa.collateralizedExposurePV();

  293.         strDump = "\t|      EXPOSURE PV     =>";

  295.         for (int j = 0; j < adblExposurePV.length; ++j)
  296.             strDump = strDump + "   " + FormatUtil.FormatDouble (adblExposurePV[j], 1, 4, 1.) + "   |";

  298.         System.out.println (strDump);

  300.         double[] adblPositiveExposurePV = eaa.collateralizedPositiveExposurePV();

  302.         strDump = "\t| POSITIVE EXPOSURE PV =>";

  304.         for (int j = 0; j < adblPositiveExposurePV.length; ++j)
  305.             strDump = strDump + "   " + FormatUtil.FormatDouble (adblPositiveExposurePV[j], 1, 4, 1.) + "   |";

  307.         System.out.println (strDump);

  309.         double[] adblNegativeExposurePV = eaa.collateralizedNegativeExposurePV();

  311.         strDump = "\t| NEGATIVE EXPOSURE PV =>";

  313.         for (int j = 0; j < adblNegativeExposurePV.length; ++j)
  314.             strDump = strDump + "   " + FormatUtil.FormatDouble (adblNegativeExposurePV[j], 1, 4, 1.) + "   |";

  316.         System.out.println (strDump);

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

  320.         System.out.println();

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

  324.         System.out.println ("\t||  UCVA  => " + FormatUtil.FormatDouble (eaa.ucva().amount(), 2, 2, 100.) + "% ||");

  326.         System.out.println ("\t|| FTDCVA => " + FormatUtil.FormatDouble (eaa.ftdcva().amount(), 2, 2, 100.) + "% ||");

  328.         System.out.println ("\t||  CVA   => " + FormatUtil.FormatDouble (eaa.cva().amount(), 2, 2, 100.) + "% ||");

  330.         System.out.println ("\t||  CVACL => " + FormatUtil.FormatDouble (eaa.cvacl().amount(), 2, 2, 100.) + "% ||");

  332.         System.out.println ("\t||  DVA   => " + FormatUtil.FormatDouble (eaa.dva().amount(), 2, 2, 100.) + "% ||");

  334.         System.out.println ("\t||  FVA   => " + FormatUtil.FormatDouble (eaa.fva().amount(), 2, 2, 100.) + "% ||");

  336.         System.out.println ("\t||  FDA   => " + FormatUtil.FormatDouble (eaa.fda().amount(), 2, 2, 100.) + "% ||");

  338.         System.out.println ("\t||  FCA   => " + FormatUtil.FormatDouble (eaa.fca().amount(), 2, 2, 100.) + "% ||");

  340.         System.out.println ("\t||  FBA   => " + FormatUtil.FormatDouble (eaa.fba().amount(), 2, 2, 100.) + "% ||");

  342.         System.out.println ("\t||  SFVA  => " + FormatUtil.FormatDouble (eaa.sfva().amount(), 2, 2, 100.) + "% ||");

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

  346.         EnvManager.TerminateEnv();
  347.     }
  348. }
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