DeterministicVolTermStructure.java

package org.drip.sample.option;

import org.drip.analytics.date.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.service.env.EnvManager;
import org.drip.state.creator.ScenarioDeterministicVolatilityBuilder;
import org.drip.state.volatility.VolatilityCurve;

/*
 * -*- 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.
 */

/**
 * DeterministicVolatilityTermStructure contains an illustration of the Calibration and Extraction of the
 *  Implied and the Deterministic Volatility Term Structures. This does not deal with Local Volatility
 *  Surfaces.
 * 
 * @author Lakshmi Krishnamurthy
 */

public class DeterministicVolTermStructure {

    private static final void OnGrid (
        final VolatilityCurve vts,
        final String[] astrMaturityTenor,
        final double[] dblNodeInput)
        throws Exception
    {
        System.out.println ("\n\t|------------------------------------|");

        System.out.println ("\t| TNR =>   CALC  |   IMPL  |  INPUT  |");

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

        for (int i = 0; i < astrMaturityTenor.length; ++i)
            System.out.println ("\t| " + astrMaturityTenor[i] + " => " +
                FormatUtil.FormatDouble (vts.node (astrMaturityTenor[i]), 2, 2, 100.) + "% | " +
                FormatUtil.FormatDouble (vts.impliedVol (astrMaturityTenor[i]), 2, 2, 100.) + "% | " +
                FormatUtil.FormatDouble (dblNodeInput[i], 2, 2, 100.) + "% |");

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

    private static final void OffGrid (
        final String strHeader,
        final String[] astrLabel,
        final VolatilityCurve[] aVTS,
        final String[] astrMaturityTenor)
        throws Exception
    {
        System.out.println ("\n\n\t\t" + strHeader + "\n");

        System.out.print ("\t| TNR =>");

        for (int i = 0; i < aVTS.length; ++i)
            System.out.print (" " + astrLabel[i] + " | ");

        System.out.println ("\n");

        for (int i = 0; i < astrMaturityTenor.length; ++i) {
            System.out.print ("\t| " + astrMaturityTenor[i] + " =>");

            for (int j = 0; j < aVTS.length; ++j)
                System.out.print ("  " + FormatUtil.FormatDouble (aVTS[j].node (astrMaturityTenor[i]), 2, 2, 100.) + "%   | ");

            System.out.print ("\n");
        }

        System.out.println ("\n");
    }

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

        EnvManager.InitEnv ("");

        JulianDate dtToday = DateUtil.Today();

        String[] astrMaturityTenor = new String[] {
            "01Y", "02Y", "03Y", "04Y", "05Y", "06Y", "07Y", "08Y", "09Y"
        };
        double[] adblImpliedCallVolatility = new double[] {
            0.700, 0.672, 0.661, 0.596, 0.551, 0.518, 0.492, 0.471, 0.452
        };

        VolatilityCurve tsCallVolatilityCubicPoly =
            ScenarioDeterministicVolatilityBuilder.CubicPolynomialTermStructure (
                "CUBIC_POLY_CALLVOL_TERMSTRUCTURE",
                dtToday,
                "USD",
                astrMaturityTenor,
                adblImpliedCallVolatility
            );

        VolatilityCurve tsCallVolatilityQuarticPoly =
            ScenarioDeterministicVolatilityBuilder.QuarticPolynomialTermStructure (
                "QUARTIC_POLY_CALLVOL_TERMSTRUCTURE",
                dtToday,
                "USD",
                astrMaturityTenor,
                adblImpliedCallVolatility
            );

        VolatilityCurve tsCallVolatilityKaklisPandelis =
            ScenarioDeterministicVolatilityBuilder.KaklisPandelisTermStructure (
                "KAKLIS_PANDELIS_CALLVOL_TERMSTRUCTURE",
                dtToday,
                "USD",
                astrMaturityTenor,
                adblImpliedCallVolatility
            );

        VolatilityCurve tsCallVolatilityKLKHyperbolic =
            ScenarioDeterministicVolatilityBuilder.KLKHyperbolicTermStructure (
                "KLK_HYPERBOLIC_CALLVOL_TERMSTRUCTURE",
                dtToday,
                "USD",
                astrMaturityTenor,
                adblImpliedCallVolatility,
                1.
            );

        VolatilityCurve tsCallVolatilityKLKRationalLinear =
            ScenarioDeterministicVolatilityBuilder.KLKRationalLinearTermStructure (
                "KLK_RATIONAL_LINEAR_CALLVOL_TERMSTRUCTURE",
                dtToday,
                "USD",
                astrMaturityTenor,
                adblImpliedCallVolatility,
                1.
            );

        VolatilityCurve tsCallVolatilityKLKRationalQuadratic =
            ScenarioDeterministicVolatilityBuilder.KLKRationalQuadraticTermStructure (
                "KLK_RATIONAL_QUADRATIC_CALLVOL_TERMSTRUCTURE",
                dtToday,
                "USD",
                astrMaturityTenor,
                adblImpliedCallVolatility,
                0.0001
            );

        OnGrid (
            tsCallVolatilityKLKHyperbolic,
            astrMaturityTenor,
            adblImpliedCallVolatility
        );

        String[] astrOffGridTenor = new String[] {
            "18M", "30M", "42M", "54M", "06Y", "09Y"
        };

        OffGrid (
            "ATM_CALLVOL_TERM_STRUCTURE",
            new String[] {
                "Cubic Poly", "Quart Poly", "KaklisPand", "KLKHyperbl", "KLKRatlLin", "KLKRatlQua"
            },
            new VolatilityCurve[] {
                tsCallVolatilityCubicPoly,
                tsCallVolatilityQuarticPoly,
                tsCallVolatilityKaklisPandelis,
                tsCallVolatilityKLKHyperbolic,
                tsCallVolatilityKLKRationalLinear,
                tsCallVolatilityKLKRationalQuadratic
            },
            astrOffGridTenor
        );
    }
}