MarketSurfaceTermStructure.java

  1. package org.drip.sample.option;

  3. import java.util.*;

  5. import org.drip.analytics.date.*;
  6. import org.drip.analytics.definition.*;
  7. import org.drip.numerical.common.FormatUtil;
  8. import org.drip.numerical.fourier.PhaseAdjuster;
  9. import org.drip.param.pricer.HestonOptionPricerParams;
  10. import org.drip.pricer.option.HestonStochasticVolatilityAlgorithm;
  11. import org.drip.spline.basis.PolynomialFunctionSetParams;
  12. import org.drip.spline.params.*;
  13. import org.drip.spline.stretch.MultiSegmentSequenceBuilder;
  14. import org.drip.state.creator.ScenarioMarketSurfaceBuilder;

  16. /*
  17.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  18.  */

  20. /*!
  21.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  22.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  23.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  24.  * Copyright (C) 2015 Lakshmi Krishnamurthy
  25.  * Copyright (C) 2014 Lakshmi Krishnamurthy
  26.  * 
  27.  *  This file is part of DRIP, a free-software/open-source library for buy/side financial/trading model
  28.  *      libraries targeting analysts and developers
  29.  *      https://lakshmidrip.github.io/DRIP/
  30.  *  
  31.  *  DRIP is composed of four main libraries:
  32.  *  
  33.  *  - DRIP Fixed Income - https://lakshmidrip.github.io/DRIP-Fixed-Income/
  34.  *  - DRIP Asset Allocation - https://lakshmidrip.github.io/DRIP-Asset-Allocation/
  35.  *  - DRIP Numerical Optimizer - https://lakshmidrip.github.io/DRIP-Numerical-Optimizer/
  36.  *  - DRIP Statistical Learning - https://lakshmidrip.github.io/DRIP-Statistical-Learning/
  37.  * 
  38.  *  - DRIP Fixed Income: Library for Instrument/Trading Conventions, Treasury Futures/Options,
  39.  *      Funding/Forward/Overnight Curves, Multi-Curve Construction/Valuation, Collateral Valuation and XVA
  40.  *      Metric Generation, Calibration and Hedge Attributions, Statistical Curve Construction, Bond RV
  41.  *      Metrics, Stochastic Evolution and Option Pricing, Interest Rate Dynamics and Option Pricing, LMM
  42.  *      Extensions/Calibrations/Greeks, Algorithmic Differentiation, and Asset Backed Models and Analytics.
  43.  * 
  44.  *  - DRIP Asset Allocation: Library for model libraries for MPT framework, Black Litterman Strategy
  45.  *      Incorporator, Holdings Constraint, and Transaction Costs.
  46.  * 
  47.  *  - DRIP Numerical Optimizer: Library for Numerical Optimization and Spline Functionality.
  48.  * 
  49.  *  - DRIP Statistical Learning: Library for Statistical Evaluation and Machine Learning.
  50.  * 
  51.  *  Licensed under the Apache License, Version 2.0 (the "License");
  52.  *      you may not use this file except in compliance with the License.
  53.  *   
  54.  *  You may obtain a copy of the License at
  55.  *      http://www.apache.org/licenses/LICENSE-2.0
  56.  *  
  57.  *  Unless required by applicable law or agreed to in writing, software
  58.  *      distributed under the License is distributed on an "AS IS" BASIS,
  59.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  60.  *  
  61.  *  See the License for the specific language governing permissions and
  62.  *      limitations under the License.
  63.  */

  65. /**
  66.  * MarketSurfaceTermStructure contains an illustration of the Creation and Usage of the Strike Anchored and
  67.  *  Maturity Anchored Term Structures extracted from the given Market Surface.
  68.  * 
  69.  * @author Lakshmi Krishnamurthy
  70.  */

  72. public class MarketSurfaceTermStructure {

  74.     private static final SegmentCustomBuilderControl CubicPolySCBC()
  75.         throws Exception
  76.     {
  77.         return new SegmentCustomBuilderControl (
  78.             MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
  79.             new PolynomialFunctionSetParams (4),
  80.             SegmentInelasticDesignControl.Create (
  81.                 2,
  82.                 2
  83.             ),
  84.             null,
  85.             null
  86.         );
  87.     }

  89.     private static final void EvaluateSplineSurface (
  90.         final MarketSurface mktSurf,
  91.         final double[] adblStrikeATMFactor,
  92.         final String[] astrMaturityTenor)
  93.         throws Exception
  94.     {
  95.         System.out.println ("\t|------------------------------------------------------------|");

  97.         System.out.print ("\t|------------------------------------------------------------|\n\t|  ATM/TTE  =>");

  99.         for (String strMaturity : astrMaturityTenor)
  100.             System.out.print ("    " + strMaturity + "  ");

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

  104.         for (double dblStrike : adblStrikeATMFactor) {
  105.             System.out.print ("\t|  " + FormatUtil.FormatDouble (dblStrike, 1, 2, 1.) + "    =>");

  107.             for (String strMaturity : astrMaturityTenor)
  108.                 System.out.print ("  " + FormatUtil.FormatDouble (mktSurf.node (dblStrike, strMaturity), 2, 2, 100.) + "%");

  110.             System.out.print ("  |\n");
  111.         }

  113.         System.out.println ("\t|------------------------------------------------------------|");
  114.     }

  116.     private static final void EvaluateStrikeTermStructure (
  117.         final MarketSurface mktSurf,
  118.         final double[] adblStrikeATMFactor,
  119.         final String[] astrMaturityTenor)
  120.         throws Exception
  121.     {
  122.         System.out.println ("\n\t|--------- STRIKE TERM STRUCTURE FROM MARKET SURFACE --------|");

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

  126.         System.out.print ("\t|------------------------------------------------------------|\n\t|  ATM/TTE  =>");

  128.         for (String strMaturity : astrMaturityTenor)
  129.             System.out.print ("    " + strMaturity + "  ");

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

  133.         for (double dblStrike : adblStrikeATMFactor) {
  134.             System.out.print ("\t|  " + FormatUtil.FormatDouble (dblStrike, 1, 2, 1.) + "    =>");

  136.             NodeStructure tsStrike = mktSurf.xAnchorTermStructure (dblStrike);

  138.             for (String strMaturity : astrMaturityTenor)
  139.                 System.out.print ("  " + FormatUtil.FormatDouble (tsStrike.node (strMaturity), 2, 2, 100.) + "%");

  141.             System.out.print ("  |\n");
  142.         }

  144.         System.out.println ("\t|------------------------------------------------------------|");
  145.     }

  147.     private static final void EvaluateMaturityTermStructure (
  148.         final MarketSurface mktSurf,
  149.         final double[] adblStrikeATMFactor,
  150.         final String[] astrMaturityTenor)
  151.         throws Exception
  152.     {
  153.         System.out.println ("\n\t|-------- MATURITY TERM STRUCTURE FROM MARKET SURFACE -------|");

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

  157.         System.out.print ("\t|------------------------------------------------------------|\n\t|  ATM/TTE  =>");

  159.         Map<String, NodeStructure> mapMaturityTS = new TreeMap<String, NodeStructure>();

  161.         for (String strMaturity : astrMaturityTenor) {
  162.             System.out.print ("    " + strMaturity + "  ");

  164.             mapMaturityTS.put (strMaturity, mktSurf.maturityAnchorTermStructure (strMaturity));
  165.         }

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

  169.         for (double dblStrike : adblStrikeATMFactor) {
  170.             System.out.print ("\t|  " + FormatUtil.FormatDouble (dblStrike, 1, 2, 1.) + "    =>");

  172.             for (String strMaturity : astrMaturityTenor) {
  173.                 NodeStructure tsMaturity = mapMaturityTS.get (strMaturity);

  175.                 System.out.print ("  " + FormatUtil.FormatDouble (tsMaturity.node ((int) dblStrike), 2, 2, 100.) + "%");
  176.             }

  178.             System.out.print ("  |\n");
  179.         }

  181.         System.out.println ("\t|------------------------------------------------------------|");
  182.     }

  184.     public static final void main (
  185.         final String[] astrArgs)
  186.         throws Exception
  187.     {
  188.         JulianDate dtStart = DateUtil.Today();

  190.         double[] adblStrikeATMFactorCalib = new double[] {
  191.             0.8, 0.9, 1.0, 1.1, 1.2
  192.         };
  193.         String[] astrMaturityTenorCalib = new String[] {
  194.             "12M", "24M", "36M", "48M", "60M"
  195.         };

  197.         double dblRho = 0.3;
  198.         double dblKappa = 1.;
  199.         double dblSigma = 0.5;
  200.         double dblTheta = 0.2;
  201.         double dblLambda = 0.;

  203.         HestonOptionPricerParams hopp = new HestonOptionPricerParams (
  204.             HestonStochasticVolatilityAlgorithm.PAYOFF_TRANSFORM_SCHEME_AMST_2007,
  205.             dblRho,
  206.             dblKappa,
  207.             dblSigma,
  208.             dblTheta,
  209.             dblLambda,
  210.             PhaseAdjuster.MULTI_VALUE_BRANCH_POWER_PHASE_TRACKER_KAHL_JACKEL
  211.         );

  213.         MarketSurface priceSurfCubicPoly = ScenarioMarketSurfaceBuilder.HestonRunMarketSurface (
  214.             "HESTON1993_CUBICPOLY_CALLPRICE_SURFACE",
  215.             dtStart,
  216.             "USD",
  217.             0.01,
  218.             1.,
  219.             false,
  220.             0.20,
  221.             adblStrikeATMFactorCalib,
  222.             astrMaturityTenorCalib,
  223.             hopp,
  224.             true,
  225.             CubicPolySCBC(),
  226.             CubicPolySCBC()
  227.         );

  229.         EvaluateSplineSurface (
  230.             priceSurfCubicPoly,
  231.             adblStrikeATMFactorCalib,
  232.             astrMaturityTenorCalib
  233.         );

  235.         EvaluateSplineSurface (
  236.             priceSurfCubicPoly,
  237.             new double[] {0.500, 0.700, 0.850, 1.000, 1.150, 1.300, 1.500},
  238.             new String[] {"06M", "21M", "36M", "51M", "66M"}
  239.         );

  241.         EvaluateStrikeTermStructure (
  242.             priceSurfCubicPoly,
  243.             new double[] {0.500, 0.700, 0.850, 1.000, 1.150, 1.300, 1.500},
  244.             new String[] {"06M", "21M", "36M", "51M", "66M"}
  245.         );

  247.         EvaluateMaturityTermStructure (
  248.             priceSurfCubicPoly,
  249.             new double[] {0.500, 0.700, 0.850, 1.000, 1.150, 1.300, 1.500},
  250.             new String[] {"06M", "21M", "36M", "51M", "66M"}
  251.         );
  252.     }
  253. }
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