FundingCurveQuoteSensitivity.java

package org.drip.sample.sensitivity;

import org.drip.analytics.date.*;
import org.drip.function.r1tor1.QuadraticRationalShapeControl;
import org.drip.market.otc.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.numerical.differentiation.WengertJacobian;
import org.drip.param.creator.*;
import org.drip.param.valuation.*;
import org.drip.product.creator.*;
import org.drip.product.definition.*;
import org.drip.product.rates.*;
import org.drip.service.env.EnvManager;
import org.drip.spline.basis.*;
import org.drip.spline.params.*;
import org.drip.spline.stretch.*;
import org.drip.state.creator.ScenarioDiscountCurveBuilder;
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
 * Copyright (C) 2013 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.
 */

/**
 * FundingCurveQuoteSensitivity demonstrates the calculation of the Funding curve sensitivity to the
 *  calibration instrument quotes. It does the following:
 *  - Construct the Array of Cash/Swap Instruments and their Quotes from the given set of parameters.
 *  - Construct the Cash/Swap Instrument Set Stretch Builder.
 *  - 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
 *  - Construct the Shape Preserving Discount Curve by applying the linear curve calibrator to the array
 *      of Cash and Swap Stretches.
 *  - Cross-Comparison of the Cash/Swap Calibration Instrument "Rate" metric across the different curve
 *      construction methodologies.
 *  - Display of the Cash Instrument Discount Factor Quote Jacobian Sensitivities.
 *  - Display of the Swap Instrument Discount Factor Quote Jacobian Sensitivities.
 * 
 * @author Lakshmi Krishnamurthy
 */

public class FundingCurveQuoteSensitivity {

    private static final FixFloatComponent OTCIRS (
        final JulianDate dtSpot,
        final String strCurrency,
        final String strMaturityTenor,
        final double dblCoupon)
    {
        FixedFloatSwapConvention ffConv = IBORFixedFloatContainer.ConventionFromJurisdiction (
            strCurrency,
            "ALL",
            strMaturityTenor,
            "MAIN"
        );

        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[] SwapInstrumentsFromMaturityTenor (
        final JulianDate dtSpot,
        final String strCurrency,
        final String[] astrMaturityTenor)
        throws Exception
    {
        FixFloatComponent[] aIRS = new FixFloatComponent[astrMaturityTenor.length];

        for (int i = 0; i < astrMaturityTenor.length; ++i) {
            FixFloatComponent irs = OTCIRS (
                dtSpot,
                strCurrency,
                astrMaturityTenor[i],
                0.
            );

            irs.setPrimaryCode ("IRS." + astrMaturityTenor[i] + "." + strCurrency);

            aIRS[i] = irs;
        }

        return aIRS;
    }

    private static final void TenorJack (
        final JulianDate dtStart,
        final String strTenor,
        final String strCurrency,
        final String strManifestMeasure,
        final MergedDiscountForwardCurve dc)
        throws Exception
    {
        CalibratableComponent irsBespoke = OTCIRS (
            dtStart,
            strCurrency,
            strTenor,
            0.
        );

        WengertJacobian wjDFQuoteBespokeMat = dc.jackDDFDManifestMeasure (
            irsBespoke.maturityDate(),
            strManifestMeasure
        );

        System.out.println (strTenor + " => " + wjDFQuoteBespokeMat.displayString());
    }

    private static final void Forward6MRateJack (
        final JulianDate dtStart,
        final String strStartTenor,
        final String strManifestMeasure,
        final MergedDiscountForwardCurve dc)
    {
        JulianDate dtBegin = dtStart.addTenor (strStartTenor);

        WengertJacobian wjForwardRate = dc.jackDForwardDManifestMeasure (
            dtBegin,
            "6M",
            strManifestMeasure,
            0.5
        );

        System.out.println ("[" + dtBegin + " | 6M] => " + wjForwardRate.displayString());
    }

    /*
     * This sample demonstrates the calculation of the discount curve sensitivity to the calibration
     *  instrument quotes. It does the following:
     *  - Construct the Array of Cash/Swap Instruments and their Quotes from the given set of parameters.
     *  - Construct the Cash/Swap Instrument Set Stretch Builder.
     *  - 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
     *  - Construct the Shape Preserving Discount Curve by applying the linear curve calibrator to the array
     *      of Cash and Swap Stretches.
     *  - Cross-Comparison of the Cash/Swap Calibration Instrument "Rate" metric across the different curve
     *      construction methodologies.
     *  - Display of the Cash Instrument Discount Factor Quote Jacobian Sensitivities.
     *  - Display of the Swap Instrument Discount Factor Quote Jacobian Sensitivities.
     * 
     *      USE WITH CARE: This sample ignores errors and does not handle exceptions.
     */

    private static final void DiscountCurveQuoteSensitivitySample (
        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, 7, 14, 30, 60
            }
        );

        double[] adblDepositQuote = new double[] {
            0.0013, 0.0017, 0.0017, 0.0018, 0.0020, 0.0023
        }; // Cash Rate

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

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

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

        SingleStreamComponent[] aEDFComp = SingleStreamComponentBuilder.ForwardRateFuturesPack (
            dtSpot,
            8,
            strCurrency
        );

        double[] adblEDFQuote = new double[] {
            0.0027, 0.0032, 0.0041, 0.0054, 0.0077, 0.0104, 0.0134, 0.0160
        };

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

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

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

        FixFloatComponent[] aSwapComp = SwapInstrumentsFromMaturityTenor (
            dtSpot,
            strCurrency,
            new java.lang.String[] {
                "4Y", "5Y", "6Y", "7Y", "8Y", "9Y", "10Y", "11Y", "12Y", "15Y", "20Y", "25Y", "30Y", "40Y", "50Y"
            }
        );

        double[] adblSwapQuote = new double[] {
            0.0166, 0.0206, 0.0241, 0.0269, 0.0292, 0.0311, 0.0326, 0.0340, 0.0351, 0.0375, 0.0393, 0.0402, 0.0407, 0.0409, 0.0409
        };

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

        LatentStateStretchSpec swapStretch = LatentStateStretchBuilder.ForwardFundingStretchSpec (
            "SWAP",
            aSwapComp,
            "SwapRate",
            adblSwapQuote
        );

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

        /*
         * Set up the Linear Curve Calibrator using the following Default Segment Control parameters:
         *  - Cubic Exponential Mixture Basis Spline Set
         *  - Ck = 2, Segment Curvature Penalty = 2
         *  - Quadratic Rational Shape Controller
         *  - Prior Quote Sensitivity Control with first derivative tail fade, with FADE ON
         *  - Natural Boundary Setting
         */

        LinearLatentStateCalibrator lcc = new LinearLatentStateCalibrator (
            new SegmentCustomBuilderControl (
                MultiSegmentSequenceBuilder.BASIS_SPLINE_KLK_HYPERBOLIC_TENSION,
                new ExponentialTensionSetParams (2.),
                SegmentInelasticDesignControl.Create (
                    2,
                    2
                ),
                new ResponseScalingShapeControl (
                    true,
                    new QuadraticRationalShapeControl (0.)
                ),
                new org.drip.spline.params.PreceedingManifestSensitivityControl (
                    true,
                    1,
                    null
                )
            ),
            BoundarySettings.NaturalStandard(),
            MultiSegmentSequence.CALIBRATE,
            null,
            null
        );

        /*
         * Set up the DEPOSIT Segment Control parameters with the following details:
         *  - Cubic Exponential Mixture Basis Spline Set
         *  - Ck = 2, Segment Curvature Penalty = 2
         *  - Quadratic Rational Shape Controller
         *  - Prior Quote Sensitivity Control with first derivative tail fade, with FADE ON
         *  - Natural Boundary Setting
         */

        lcc.setStretchSegmentBuilderControl (
            depositStretch.name(),
            new SegmentCustomBuilderControl (
                MultiSegmentSequenceBuilder.BASIS_SPLINE_KLK_HYPERBOLIC_TENSION,
                new ExponentialTensionSetParams (2.),
                SegmentInelasticDesignControl.Create (
                    2,
                    2
                ),
                new ResponseScalingShapeControl (
                    true,
                    new QuadraticRationalShapeControl (0.)
                ),
                new org.drip.spline.params.PreceedingManifestSensitivityControl (
                    true,
                    1,
                    null
                )
            )
        );

        /*
         * Set up the FUTURE Segment Control parameters with the following details:
         *  - Cubic Exponential Mixture Basis Spline Set
         *  - Ck = 2, Segment Curvature Penalty = 2
         *  - Quadratic Rational Shape Controller
         *  - Prior Quote Sensitivity Control with first derivative tail fade, with FADE OFF, RETAIN ON
         *  - Natural Boundary Setting
         */

        lcc.setStretchSegmentBuilderControl (
            edfStretch.name(),
            new SegmentCustomBuilderControl (
                MultiSegmentSequenceBuilder.BASIS_SPLINE_KLK_HYPERBOLIC_TENSION,
                new ExponentialTensionSetParams (2.),
                SegmentInelasticDesignControl.Create (
                    2,
                    2
                ),
                new ResponseScalingShapeControl (
                    true,
                    new QuadraticRationalShapeControl (0.)
                ),
                new org.drip.spline.params.PreceedingManifestSensitivityControl (
                    false,
                    1,
                    null
                )
            )
        );

        /*
         * Set up the SWAP Segment Control parameters with the following details:
         *  - Cubic Exponential Mixture Basis Spline Set
         *  - Ck = 2, Segment Curvature Penalty = 2
         *  - Quadratic Rational Shape Controller
         *  - Prior Quote Sensitivity Control with first derivative tail fade, with FADE ON
         *  - Natural Boundary Setting
         */

        lcc.setStretchSegmentBuilderControl (
            swapStretch.name(),
            new SegmentCustomBuilderControl (
                MultiSegmentSequenceBuilder.BASIS_SPLINE_KLK_HYPERBOLIC_TENSION,
                new ExponentialTensionSetParams (2.),
                SegmentInelasticDesignControl.Create (
                    2,
                    2
                ),
                new ResponseScalingShapeControl (
                    true,
                    new QuadraticRationalShapeControl (0.)
                ),
                new org.drip.spline.params.PreceedingManifestSensitivityControl (
                    true,
                    1,
                    null
                )
            )
        );

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

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

        MergedDiscountForwardCurve dc = ScenarioDiscountCurveBuilder.ShapePreservingDFBuild (
            strCurrency,
            lcc,
            aStretchSpec,
            valParams,
            null,
            null,
            null,
            1.
        );

        /*
         * Cross-Comparison of the DEPOSIT Calibration Instrument "Rate" metric across the different curve
         *  construction methodologies.
         */

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

        System.out.println ("\t     DEPOSIT INSTRUMENTS CALIBRATION RECOVERY");

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

        for (int i = 0; i < aDepositComp.length; ++i)
            System.out.println ("\t[" + aDepositComp[i].maturityDate() + "] = " +
                FormatUtil.FormatDouble (aDepositComp[i].measureValue (valParams, null,
                    MarketParamsBuilder.Create (dc, null, null, null, null, null, null),
                        null, "Rate"), 1, 6, 1.) + " | " + FormatUtil.FormatDouble (adblDepositQuote[i], 1, 6, 1.));

        /*
         * Cross-Comparison of the FUTURE Calibration Instrument "Rate" metric across the different curve
         *  construction methodologies.
         */

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

        System.out.println ("\t     FUTURE INSTRUMENTS CALIBRATION RECOVERY");

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

        for (int i = 0; i < aEDFComp.length; ++i)
            System.out.println ("\t[" + aEDFComp[i].maturityDate() + "] = " +
                FormatUtil.FormatDouble (aEDFComp[i].measureValue (valParams, null,
                    MarketParamsBuilder.Create (dc, null, null, null, null, null, null),
                        null, "Rate"), 1, 6, 1.) + " | " + FormatUtil.FormatDouble (adblEDFQuote[i], 1, 6, 1.));

        /*
         * Cross-Comparison of the SWAP Calibration Instrument "Rate" metric across the different curve
         *  construction methodologies.
         */

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

        System.out.println ("\t     SWAP INSTRUMENTS CALIBRATION RECOVERY");

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

        for (int i = 0; i < aSwapComp.length; ++i)
            System.out.println ("\t[" + aSwapComp[i].maturityDate() + "] = " +
                FormatUtil.FormatDouble (aSwapComp[i].measureValue (valParams, null,
                    MarketParamsBuilder.Create (dc, null, null, null, null, null, null),
                        null, "CalibSwapRate"), 1, 6, 1.) + " | " + FormatUtil.FormatDouble (adblSwapQuote[i], 1, 6, 1.));

        /*
         * Display of the DEPOSIT Instrument Discount Factor Quote Jacobian Sensitivities.
         */

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

        System.out.println ("\t     DEPOSIT MATURITY DISCOUNT FACTOR JACOBIAN");

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

        for (int i = 0; i < aDepositComp.length; ++i) {
            org.drip.numerical.differentiation.WengertJacobian wj = dc.jackDDFDManifestMeasure (aDepositComp[i].maturityDate(), "PV");

            System.out.println (aDepositComp[i].maturityDate() + " => " + wj.displayString());
        }

        /*
         * Display of the FUTURE Instrument Discount Factor Quote Jacobian Sensitivities.
         */

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

        System.out.println ("\t     FUTURE MATURITY DISCOUNT FACTOR JACOBIAN");

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

        for (int i = 0; i < aEDFComp.length; ++i) {
            org.drip.numerical.differentiation.WengertJacobian wj = dc.jackDDFDManifestMeasure (
                aEDFComp[i].maturityDate(),
                "PV"
            );

            System.out.println (aEDFComp[i].maturityDate() + " => " + wj.displayString());
        }

        /*
         * Display of the SWAP Instrument Discount Factor Quote Jacobian Sensitivities.
         */

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

        System.out.println ("\t     SWAP MATURITY DISCOUNT FACTOR JACOBIAN");

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

        for (int i = 0; i < aSwapComp.length; ++i) {
            org.drip.numerical.differentiation.WengertJacobian wjDFQuote = dc.jackDDFDManifestMeasure (
                aSwapComp[i].maturityDate(),
                "PV"
            );

            System.out.println (aSwapComp[i].maturityDate() + " => " + wjDFQuote.displayString());
        }

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

        System.out.println ("\t     COMPONENT-BY-COMPONENT QUOTE JACOBIAN");

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

        WengertJacobian wj = dc.compJackDPVDManifestMeasure (dtSpot);

        System.out.println (wj.displayString());

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

        System.out.println ("\t     BESPOKE 35Y SWAP QUOTE JACOBIAN");

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

        CalibratableComponent irs35Y = OTCIRS (
            dtSpot,
            strCurrency,
            "35Y",
            0.
        );

        WengertJacobian wjIRSBespokeQuoteJack = irs35Y.jackDDirtyPVDManifestMeasure (
            valParams,
            null,
            MarketParamsBuilder.Create (
                dc,
                null,
                null,
                null,
                null,
                null,
                null,
                null
            ),
            null
        );

        System.out.println (wjIRSBespokeQuoteJack.displayString());

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

        System.out.println ("\t     BESPOKE SWAP MATURITY QUOTE JACOBIAN");

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

        TenorJack (dtSpot, "30Y", strCurrency, "PV", dc);

        TenorJack (dtSpot, "32Y", strCurrency, "PV", dc);

        TenorJack (dtSpot, "34Y", strCurrency, "PV", dc);

        TenorJack (dtSpot, "36Y", strCurrency, "PV", dc);

        TenorJack (dtSpot, "38Y", strCurrency, "PV", dc);

        TenorJack (dtSpot, "40Y", strCurrency, "PV", dc);

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

        System.out.println ("\t     DISCOUNT CURVE IMPLIED 6M FORWARD RATE QUOTE JACOBIAN");

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

        Forward6MRateJack (dtSpot, "1D", "PV", dc);

        Forward6MRateJack (dtSpot, "3M", "PV", dc);

        Forward6MRateJack (dtSpot, "6M", "PV", dc);

        Forward6MRateJack (dtSpot, "1Y", "PV", dc);

        Forward6MRateJack (dtSpot, "2Y", "PV", dc);

        Forward6MRateJack (dtSpot, "5Y", "PV", dc);
    }

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

        EnvManager.InitEnv ("");

        String strCurrency = "USD";

        DiscountCurveQuoteSensitivitySample (
            DateUtil.Today(),
            strCurrency
        );
    }
}