CrossOvernightFloatingStream.java

package org.drip.sample.ois;

import java.util.*;

import org.drip.analytics.date.JulianDate;
import org.drip.analytics.daycount.Convention;
import org.drip.analytics.support.*;
import org.drip.function.r1tor1.*;
import org.drip.market.definition.OvernightIndex;
import org.drip.market.otc.*;
import org.drip.numerical.common.*;
import org.drip.param.creator.*;
import org.drip.param.market.*;
import org.drip.param.period.*;
import org.drip.param.valuation.*;
import org.drip.product.creator.*;
import org.drip.product.definition.CalibratableComponent;
import org.drip.product.rates.*;
import org.drip.service.env.EnvManager;
import org.drip.spline.basis.PolynomialFunctionSetParams;
import org.drip.spline.params.*;
import org.drip.spline.stretch.*;
import org.drip.state.creator.*;
import org.drip.state.discount.*;
import org.drip.state.estimator.LatentStateStretchBuilder;
import org.drip.state.identifier.*;
import org.drip.state.inference.*;

/*
 * -*- 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
 * 
 *  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.
 */

/**
 * CrossOvernightStream demonstrates the construction, customization, and valuation of Cross-Currency
 *  Overnight Floating Streams.
 * 
 * @author Lakshmi Krishnamurthy
 */

public class CrossOvernightFloatingStream {

    private static final FixFloatComponent OTCOISFixFloat (
        final JulianDate dtSpot,
        final String strCurrency,
        final String strMaturityTenor,
        final double dblCoupon)
    {
        FixedFloatSwapConvention ffConv = OvernightFixedFloatContainer.FundConventionFromJurisdiction (
            strCurrency
        );

        return ffConv.createFixFloatComponent (
            dtSpot,
            strMaturityTenor,
            dblCoupon,
            0.,
            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 SingleStreamComponent[] DepositInstrumentsFromMaturityDays (
        final JulianDate dtEffective,
        final String strCurrency,
        final int[] aiDay)
        throws Exception
    {
        SingleStreamComponent[] aDeposit = new SingleStreamComponent[aiDay.length];

        for (int i = 0; i < aiDay.length; ++i)
            aDeposit[i] = SingleStreamComponentBuilder.Deposit (
                dtEffective,
                dtEffective.addBusDays (
                    aiDay[i],
                    strCurrency
                ),
                OvernightLabel.Create (
                    strCurrency
                )
            );

        return aDeposit;
    }

    /*
     * 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 FixFloatComponent[] OISFromMaturityTenor (
        final JulianDate dtSpot,
        final String strCurrency,
        final String[] astrMaturityTenor,
        final double[] adblCoupon)
        throws Exception
    {
        FixFloatComponent[] aOIS = new FixFloatComponent[astrMaturityTenor.length];

        for (int i = 0; i < astrMaturityTenor.length; ++i)
            aOIS[i] = OTCOISFixFloat (
                dtSpot,
                strCurrency,
                astrMaturityTenor[i],
                adblCoupon[i]
            );

        return aOIS;
    }

    private static final MergedDiscountForwardCurve CustomOISCurveBuilderSample (
        final JulianDate dtSpot,
        final String strCurrency)
        throws Exception
    {
        /*
         * Construct the Array of Deposit Instruments and their Quotes from the given set of parameters
         */

        SingleStreamComponent[] aDepositComp = DepositInstrumentsFromMaturityDays (
            dtSpot,
            strCurrency,
            new int[] {
                1, 2, 3, 7, 14, 21, 30, 60
            }
        );

        double[] adblDepositQuote = new double[] {
            0.01200, 0.01200, 0.01200, 0.01450, 0.01550, 0.01600, 0.01660, 0.01850, // Cash
        };

        /*
         * Construct the Deposit Instrument Set Stretch Builder
         */

        LatentStateStretchSpec depositStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
            "DEPOSIT",
            aDepositComp,
            "ForwardRate",
            adblDepositQuote
        );

        /*
         * Construct the Array of EDF Instruments and their Quotes from the given set of parameters
         */

        SingleStreamComponent[] aEDFComp = SingleStreamComponentBuilder.ForwardRateFuturesPack (
            dtSpot,
            4,
            strCurrency
        );

        double[] adblEDFQuote = new double[] {
            0.01612, 0.01580, 0.01589, 0.01598
        };

        /*
         * Construct the Cash Instrument Set Stretch Builder
         */

        LatentStateStretchSpec edfStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
            "EDF",
            aEDFComp,
            "ForwardRate",
            adblEDFQuote
        );

        /*
         * Construct the Array of OIS Instruments and their Quotes from the given set of parameters
         */

        double[] adblOISQuote = new double[] {
            0.02604,    //  4Y
            0.02808,    //  5Y
            0.02983,    //  6Y
            0.03136,    //  7Y
            0.03268,    //  8Y
            0.03383,    //  9Y
            0.03488     // 10Y
        };

        CalibratableComponent[] aOISComp = OISFromMaturityTenor (
            dtSpot,
            strCurrency,
            new java.lang.String[] {
                "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y"
            },
            adblOISQuote
        );

        /*
         * Construct the OIS Instrument Set Stretch Builder
         */

        LatentStateStretchSpec oisStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
            "SWAP",
            aOISComp,
            "SwapRate",
            adblOISQuote
        );

        LatentStateStretchSpec[] aStretchSpec = new LatentStateStretchSpec[] {
            depositStretch,
            edfStretch,
            oisStretch
        };

        /*
         * Set up the Linear Curve Calibrator using the following parameters:
         *  - Cubic Exponential Mixture Basis Spline Set
         *  - Ck = 2, Segment Curvature Penalty = 2
         *  - Quadratic Rational Shape Controller
         *  - Natural Boundary Setting
         */

        LinearLatentStateCalibrator lcc = new LinearLatentStateCalibrator (
            new SegmentCustomBuilderControl (
                MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
                new PolynomialFunctionSetParams (4),
                SegmentInelasticDesignControl.Create (
                    2,
                    2
                ),
                new ResponseScalingShapeControl (
                    true,
                    new QuadraticRationalShapeControl (0.)
                ),
                null
            ),
            BoundarySettings.NaturalStandard(),
            MultiSegmentSequence.CALIBRATE,
            null,
            null
        );

        /*
         * Construct the Shape Preserving Discount Curve by applying the linear curve calibrator to the array
         *  of Cash and Swap Stretches.
         */

        return ScenarioDiscountCurveBuilder.ShapePreservingDFBuild (
            strCurrency,
            lcc,
            aStretchSpec,
            new ValuationParams (
                dtSpot,
                dtSpot,
                strCurrency
            ),
            null,
            null,
            null,
            1.
        );
    }

    private static final LatentStateFixingsContainer SetFlatOvernightFixings (
        final JulianDate dtStart,
        final JulianDate dtEnd,
        final JulianDate dtValue,
        final ForwardLabel fri,
        final double dblFlatFixing,
        final double dblNotional)
        throws Exception
    {
        LatentStateFixingsContainer lsfc = new LatentStateFixingsContainer();

        double dblAccount = 1.;

        int iPrevDate = dtStart.julian();

        JulianDate dt = dtStart.addDays (1);

        while (dt.julian() <= dtEnd.julian()) {
            lsfc.add (
                dt,
                fri,
                dblFlatFixing
            );

            if (dt.julian() <= dtValue.julian()) {
                double dblAccrualFraction = Convention.YearFraction (
                    iPrevDate,
                    dt.julian(),
                    "Act/360",
                    false,
                    null,
                    "USD"
                );

                dblAccount *= (1. + dblFlatFixing * dblAccrualFraction);
            }

            iPrevDate = dt.julian();

            dt = dt.addBusDays (
                1,
                "USD"
            );
        }

        System.out.println ("\tManual Calc Float Accrued (Geometric Compounding): " + (dblAccount - 1.) * dblNotional);

        System.out.println ("\tManual Calc Float Accrued (Arithmetic Compounding): " +
            ((dtValue.julian() - dtStart.julian()) * dblNotional * dblFlatFixing / 360.));

        return lsfc;
    }

    public static final Map<String, Double> CompoundingRun (
        final ForwardLabel fri)
        throws Exception
    {
        double dblOISVol = 0.3;
        double dblUSDFundingVol = 0.3;
        double dblUSDFundingUSDOISCorrelation = 0.3;

        String strCurrency = fri.currency();

        JulianDate dtToday = org.drip.analytics.date.DateUtil.Today().addTenorAndAdjust (
            "0D",
            strCurrency
        );

        MergedDiscountForwardCurve dc = CustomOISCurveBuilderSample (
            dtToday,
            strCurrency
        );

        JulianDate dtCustomOISStart = dtToday.subtractTenor ("2M");

        JulianDate dtCustomOISMaturity = dtToday.addTenor ("4M");

        CompositePeriodSetting cpsFloating = new CompositePeriodSetting (
            360,
            "ON",
            strCurrency,
            null,
            -1.,
            null,
            null,
            null,
            null
        );

        ComposableFloatingUnitSetting cfusFloating = new ComposableFloatingUnitSetting (
            "ON",
            CompositePeriodBuilder.EDGE_DATE_SEQUENCE_OVERNIGHT,
            null,
            fri,
            CompositePeriodBuilder.REFERENCE_PERIOD_IN_ADVANCE,
            0.
        );

        List<Integer> lsFloatingStreamEdgeDate = CompositePeriodBuilder.OvernightEdgeDates (
            dtCustomOISStart,
            dtCustomOISStart.addTenorAndAdjust (
                "6M",
                strCurrency
            ),
            strCurrency
        );

        Stream floatStream = new Stream (
            CompositePeriodBuilder.FloatingCompositeUnit (
                lsFloatingStreamEdgeDate,
                cpsFloating,
                cfusFloating
            )
        );

        CurveSurfaceQuoteContainer mktParams = MarketParamsBuilder.Create (
            dc,
            null,
            null,
            null,
            null,
            null,
            SetFlatOvernightFixings (
                dtCustomOISStart,
                dtCustomOISMaturity,
                dtToday,
                fri,
                0.003,
                -1.
            )
        );

        ValuationParams valParams = new ValuationParams (
            dtToday,
            dtToday,
            strCurrency
        );

        FundingLabel fundingLabelUSD = FundingLabel.Standard ("USD");

        mktParams.setForwardVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                dtToday.julian(),
                VolatilityLabel.Standard (fri),
                fri.currency(),
                dblOISVol
            )
        );

        mktParams.setFundingVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                dtToday.julian(),
                VolatilityLabel.Standard (fundingLabelUSD),
                "USD",
                dblUSDFundingVol
            )
        );

        mktParams.setForwardFundingCorrelation (
            fri,
            fundingLabelUSD,
            new FlatUnivariate (dblUSDFundingUSDOISCorrelation)
        );

        return floatStream.value (
            valParams,
            null,
            mktParams,
            null
        );
    }

    public static final void main (
        final String[] astrArgs)
        throws Exception
    {
        /*
         * Initialize the Credit Analytics Library
         */

        EnvManager.InitEnv ("");

        String strCurrency = "USD";

        Map<String, Double> mapArithmeticOutput = CompoundingRun (
            OvernightLabel.Create (
                strCurrency
            )
        );

        Map<String, Double> mapGeometricOutput = CompoundingRun (
            ForwardLabel.Create (
                new OvernightIndex (
                    strCurrency + "OIS",
                    "OIS",
                    strCurrency,
                    "Act/360",
                    strCurrency,
                    "ON",
                    0,
                    CompositePeriodBuilder.ACCRUAL_COMPOUNDING_RULE_GEOMETRIC
                ),
                "ON"
            )
        );

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

        System.out.println ("\t  GEOMETRIC |  ARITHMETIC | CHECK");

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

        for (Map.Entry<String, Double> meGeometric : mapGeometricOutput.entrySet()) {
            String strKey = meGeometric.getKey();

            double dblGeometricMeasure = meGeometric.getValue();

            double dblArithmeticMeasure = mapArithmeticOutput.get (strKey);

            String strMatch = NumberUtil.WithinTolerance (
                dblGeometricMeasure,
                dblArithmeticMeasure,
                1.e-08,
                1.e-04
            ) ?
            "MATCH " :
            "DIFFER";

            System.out.println ("\t" +
                FormatUtil.FormatDouble (dblGeometricMeasure, 1, 8, 1.) + " | " +
                FormatUtil.FormatDouble (dblArithmeticMeasure, 1, 8, 1.) + " | " +
                strMatch + " <= " + strKey
            );
        }
    }
}