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
);
}
}