DomesticCollateralForeignForexAnalysis.java
package org.drip.sample.piterbarg2012;
import org.drip.analytics.date.*;
import org.drip.analytics.support.CaseInsensitiveTreeMap;
import org.drip.function.r1tor1.*;
import org.drip.param.creator.*;
import org.drip.param.market.CurveSurfaceQuoteContainer;
import org.drip.param.valuation.*;
import org.drip.product.fx.DomesticCollateralizedForeignForward;
import org.drip.product.params.CurrencyPair;
import org.drip.service.env.EnvManager;
import org.drip.state.creator.*;
import org.drip.state.curve.ForeignCollateralizedDiscountCurve;
import org.drip.state.discount.MergedDiscountForwardCurve;
import org.drip.state.fx.FXCurve;
import org.drip.state.identifier.*;
import org.drip.state.nonlinear.*;
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.
*/
/**
* DomesticCollateralForeignForexAnalysis contains an analysis of the correlation and volatility impact on the
* price of a Domestic Collateralized ForeignPay-out Forex Contract.
*
* @author Lakshmi Krishnamurthy
*/
public class DomesticCollateralForeignForexAnalysis {
public static final void main (
final String[] astrArgs)
throws Exception
{
/*
* Initialize the Credit Analytics Library
*/
EnvManager.InitEnv ("");
JulianDate dtToday = DateUtil.Today();
String strDomesticCurrency = "USD";
String strForeignCurrency = "EUR";
String strMaturity = "1Y";
double dblFXFwdStrike = 0.984;
double dblDomesticCollateralRate = 0.02;
double dblCollateralizedFXRate = 1.10;
CurrencyPair cp = CurrencyPair.FromCode (strForeignCurrency + "/" + strDomesticCurrency);
MergedDiscountForwardCurve dcCcyDomesticCollatDomestic = ScenarioDiscountCurveBuilder.ExponentiallyCompoundedFlatRate (
dtToday,
strDomesticCurrency,
dblDomesticCollateralRate
);
ValuationParams valParams = new ValuationParams (
dtToday,
dtToday,
strDomesticCurrency
);
FXCurve fxCurve = new FlatForwardFXCurve (
dtToday.julian(),
cp,
dblCollateralizedFXRate,
new int[] {dtToday.julian()},
new double[] {dblCollateralizedFXRate}
);
VolatilityCurve vcForeignFunding = new FlatForwardVolatilityCurve (
dtToday.julian(),
VolatilityLabel.Standard (CollateralLabel.Standard (strForeignCurrency)),
strDomesticCurrency,
new int[] {dtToday.julian()},
new double[] {0.}
);
VolatilityCurve vcFX = new FlatForwardVolatilityCurve (
dtToday.julian(),
VolatilityLabel.Standard (FXLabel.Standard (cp)),
strDomesticCurrency,
new int[] {dtToday.julian()},
new double[] {0.}
);
MergedDiscountForwardCurve dcCcyForeignCollatDomestic = new ForeignCollateralizedDiscountCurve (
strForeignCurrency,
dcCcyDomesticCollatDomestic,
fxCurve,
vcForeignFunding,
vcFX,
new FlatUnivariate (0.)
);
CurveSurfaceQuoteContainer mktParams = MarketParamsBuilder.Create (
null,
null,
null,
null,
null,
null,
null
);
mktParams.setPayCurrencyCollateralCurrencyCurve (
strForeignCurrency,
strDomesticCurrency,
dcCcyForeignCollatDomestic
);
mktParams.setPayCurrencyCollateralCurrencyCurve (
strDomesticCurrency,
strDomesticCurrency,
dcCcyDomesticCollatDomestic
);
mktParams.setFXState (
ScenarioFXCurveBuilder.CubicPolynomialCurve (
"FX::" + cp.code(),
dtToday,
cp,
new String[] {"10Y"},
new double[] {dblCollateralizedFXRate},
dblCollateralizedFXRate
)
);
DomesticCollateralizedForeignForward dcff = new DomesticCollateralizedForeignForward (
cp,
dblFXFwdStrike,
dtToday.addTenor (strMaturity)
);
CaseInsensitiveTreeMap<Double> mapBaseValue = dcff.value (
new ValuationParams (
dtToday,
dtToday,
strDomesticCurrency
),
null,
mktParams,
null
);
double dblBaselinePrice = mapBaseValue.get ("Price");
double dblBaselineParForward = mapBaseValue.get ("ParForward");
double[] adblForeignRatesVolatility = new double[] {
0.1, 0.2, 0.3, 0.4, 0.5
};
double[] adblFXVolatility = new double[] {
0.10, 0.15, 0.20, 0.25, 0.30
};
double[] adblFXForeignRatesCorrelation = new double[] {
-0.99, -0.50, 0.00, 0.50, 0.99
};
System.out.println ("\tPrinting the Domestic Collateralized Foreign Forex Output in Order (Left -> Right):");
System.out.println ("\t\tPrice (%)");
System.out.println ("\t\tPrice Difference (%)");
System.out.println ("\t\tPar Forward (abs)");
System.out.println ("\t\tPar Forward Difference (abs)");
System.out.println ("\t-------------------------------------------------------------");
System.out.println ("\t-------------------------------------------------------------");
for (double dblForeignRatesVolatility : adblForeignRatesVolatility) {
for (double dblFXVolatility : adblFXVolatility) {
for (double dblFXForeignRatesCorrelation : adblFXForeignRatesCorrelation) {
dcCcyForeignCollatDomestic = new ForeignCollateralizedDiscountCurve (
strForeignCurrency,
dcCcyDomesticCollatDomestic,
fxCurve,
new FlatForwardVolatilityCurve (
dtToday.julian(),
VolatilityLabel.Standard (CollateralLabel.Standard (strForeignCurrency)),
strDomesticCurrency,
new int[] {dtToday.julian()},
new double[] {dblForeignRatesVolatility}
),
new FlatForwardVolatilityCurve (
dtToday.julian(),
VolatilityLabel.Standard (FXLabel.Standard (cp)),
strDomesticCurrency,
new int[] {dtToday.julian()},
new double[] {dblFXVolatility}
),
new FlatUnivariate (dblFXForeignRatesCorrelation)
);
mktParams.setPayCurrencyCollateralCurrencyCurve (
strForeignCurrency,
strDomesticCurrency,
dcCcyForeignCollatDomestic
);
CaseInsensitiveTreeMap<Double> mapDCFF = dcff.value (
valParams,
null,
mktParams,
null
);
double dblPrice = mapDCFF.get ("Price");
double dblParForward = mapDCFF.get ("ParForward");
System.out.println ("\t[" +
org.drip.numerical.common.FormatUtil.FormatDouble (dblForeignRatesVolatility, 2, 0, 100.) + "%," +
org.drip.numerical.common.FormatUtil.FormatDouble (dblFXVolatility, 2, 0, 100.) + "%," +
org.drip.numerical.common.FormatUtil.FormatDouble (dblFXForeignRatesCorrelation, 2, 0, 100.) + "%] = " +
org.drip.numerical.common.FormatUtil.FormatDouble (dblPrice, 2, 2, 100.) + " | " +
org.drip.numerical.common.FormatUtil.FormatDouble (dblPrice - dblBaselinePrice, 2, 2, 100.) + " | " +
org.drip.numerical.common.FormatUtil.FormatDouble (dblParForward, 1, 4, 1.) + " | " +
org.drip.numerical.common.FormatUtil.FormatDouble (dblParForward - dblBaselineParForward, 1, 4, 1.)
);
}
}
}
}
}