CRQFoundationMarginComparison.java

package org.drip.sample.simmcurvature;

import java.util.HashMap;
import java.util.Map;

import org.drip.analytics.support.CaseInsensitiveHashMap;
import org.drip.numerical.common.FormatUtil;
import org.drip.service.env.EnvManager;
import org.drip.simm.foundation.MarginEstimationSettings;
import org.drip.simm.margin.RiskClassAggregateCR;
import org.drip.simm.margin.RiskMeasureAggregateCR;
import org.drip.simm.parameters.RiskClassSensitivitySettingsCR;
import org.drip.simm.product.BucketSensitivityCR;
import org.drip.simm.product.RiskClassSensitivityCR;
import org.drip.simm.product.RiskFactorTenorSensitivity;
import org.drip.simm.product.RiskMeasureSensitivityCR;

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

/*!
 * Copyright (C) 2018 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.
 */

/**
 * CRQFoundationMarginComparison illustrates the Comparison of the Credit (Qualifying) Margin Estimates using
 *  different Schemes for Calculating the Position-Bucket Curvature Margin. The References are:
 *  
 *  - Andersen, L. B. G., M. Pykhtin, and A. Sokol (2017): Credit Exposure in the Presence of Initial Margin,
 *      https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2806156, eSSRN.
 *  
 *  - Albanese, C., S. Caenazzo, and O. Frankel (2017): Regression Sensitivities for Initial Margin
 *      Calculations, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2763488, eSSRN.
 *  
 *  - Anfuso, F., D. Aziz, P. Giltinan, and K. Loukopoulus (2017): A Sound Modeling and Back-testing
 *      Framework for Forecasting Initial Margin Requirements,
 *      https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2716279, eSSRN.
 *  
 *  - Caspers, P., P. Giltinan, R. Lichters, and N. Nowaczyk (2017): Forecasting Initial Margin Requirements
 *      - A Model Evaluation https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2911167, eSSRN.
 *  
 *  - International Swaps and Derivatives Association (2017): SIMM v2.0 Methodology,
 *      https://www.isda.org/a/oFiDE/isda-simm-v2.pdf.
 * 
 * @author Lakshmi Krishnamurthy
 */

public class CRQFoundationMarginComparison
{

    private static final void AddTenorSensitivity (
        final Map<String, Double> tenorSensitivityMap,
        final double notional,
        final String tenor)
        throws Exception
    {
        if (tenorSensitivityMap.containsKey (tenor))
        {
            tenorSensitivityMap.put (
                tenor,
                tenorSensitivityMap.get (tenor) + notional * (Math.random() - 0.5)
            );
        }
        else
        {
            tenorSensitivityMap.put (
                tenor,
                notional * (Math.random() - 0.5)
            );
        }
    }

    private static final RiskFactorTenorSensitivity CurveTenorSensitivityMap (
        final double notional)
        throws Exception
    {
        Map<String, Double> tenorSensitivityMap = new HashMap<String, Double>();

        AddTenorSensitivity (
            tenorSensitivityMap,
            notional,
            "1Y"
        );

        AddTenorSensitivity (
            tenorSensitivityMap,
            notional,
            "2Y"
        );

        AddTenorSensitivity (
            tenorSensitivityMap,
            notional,
            "3Y"
        );

        AddTenorSensitivity (
            tenorSensitivityMap,
            notional,
            "5Y"
        );

        AddTenorSensitivity (
            tenorSensitivityMap,
            notional,
            "10Y"
        );

        return new RiskFactorTenorSensitivity (tenorSensitivityMap);
    }

    private static final void ComponentRiskFactorTenorSensitivity (
        final Map<String, RiskFactorTenorSensitivity> tenorSensitivityMap,
        final double notional,
        final String componentName)
        throws Exception
    {
        RiskFactorTenorSensitivity ustRiskFactorSensitivity = CurveTenorSensitivityMap (notional);

        tenorSensitivityMap.put (
            componentName,
            ustRiskFactorSensitivity
        );
    }

    private static final void ISDABucketCovarianceMargin (
        final String positionBucketCovarianceScheme,
        final Map<String, BucketSensitivityCR> bucketDeltaSensitivityMap,
        final Map<String, BucketSensitivityCR> bucketVegaSensitivityMap,
        final RiskClassSensitivitySettingsCR riskClassSensitivitySettings,
        final MarginEstimationSettings marginEstimationSettings)
        throws Exception
    {
        RiskClassAggregateCR riskClassAggregate = new RiskClassSensitivityCR (
            new RiskMeasureSensitivityCR (bucketDeltaSensitivityMap),
            new RiskMeasureSensitivityCR (bucketVegaSensitivityMap),
            new RiskMeasureSensitivityCR (bucketVegaSensitivityMap)
        ).aggregate (
            riskClassSensitivitySettings,
            marginEstimationSettings
        );

        RiskMeasureAggregateCR deltaRiskMeasureAggregate = riskClassAggregate.deltaMargin();

        RiskMeasureAggregateCR vegaRiskMeasureAggregate = riskClassAggregate.vegaMargin();

        RiskMeasureAggregateCR curvatureRiskMeasureAggregate = riskClassAggregate.curvatureMargin();

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

        System.out.println ("\t|       " + positionBucketCovarianceScheme + " SBA MARGIN       ||");

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

        System.out.println ("\t|  MEASURE  =>  CORE  | RESIDUAL | TOTAL ||");

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

        System.out.println ("\t|   DELTA   => " +
            FormatUtil.FormatDouble (Math.sqrt (deltaRiskMeasureAggregate.coreSBAVariance()), 5, 0, 1.) +
                " |  " +
            FormatUtil.FormatDouble (Math.sqrt (deltaRiskMeasureAggregate.residualSBAVariance()), 5, 0, 1.) +
                "  |" +
            FormatUtil.FormatDouble (deltaRiskMeasureAggregate.sba(), 5, 0, 1.) + " ||"
        );

        System.out.println ("\t|   VEGA    => " +
            FormatUtil.FormatDouble (Math.sqrt (vegaRiskMeasureAggregate.coreSBAVariance()), 5, 0, 1.) +
                " |  " +
            FormatUtil.FormatDouble (Math.sqrt (vegaRiskMeasureAggregate.residualSBAVariance()), 5, 0, 1.) +
                "  |" +
            FormatUtil.FormatDouble (vegaRiskMeasureAggregate.sba(), 5, 0, 1.) + " ||"
        );

        System.out.println ("\t| CURVATURE => " +
            FormatUtil.FormatDouble (Math.sqrt (curvatureRiskMeasureAggregate.coreSBAVariance()), 5, 0, 1.) +
                " |  " +
            FormatUtil.FormatDouble (Math.sqrt (curvatureRiskMeasureAggregate.residualSBAVariance()), 5, 0, 1.) +
                "  |" +
            FormatUtil.FormatDouble (curvatureRiskMeasureAggregate.sba(), 5, 0, 1.) + " ||"
        );

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

        System.out.println();
    }

    public static final void main (
        final String[] argumentArray)
        throws Exception
    {
        EnvManager.InitEnv ("");

        double notional = 100.;
        int[] bucketIndexArray = {
             1,
             2,
             3,
             4,
             5,
             6,
             7,
             8,
             9,
            10,
            11,
            12,
        };
        String[][] bucketComponentGrid = {
            {"01a", "01b", "01c", "01d", "01e", "01f"},
            {"02a", "02b", "02c", "02d", "02e", "02f"},
            {"03a", "03b", "03c", "03d", "03e", "03f"},
            {"04a", "04b", "04c", "04d", "04e", "04f"},
            {"05a", "05b", "05c", "05d", "05e", "05f"},
            {"06a", "06b", "06c", "06d", "06e", "06f"},
            {"07a", "07b", "07c", "07d", "07e", "07f"},
            {"08a", "08b", "08c", "08d", "08e", "08f"},
            {"09a", "09b", "09c", "09d", "09e", "09f"},
            {"10a", "10b", "10c", "10d", "10e", "10f"},
            {"11a", "11b", "11c", "11d", "11e", "11f"},
            {"12a", "12b", "12c", "12d", "12e", "12f"},
        };

        Map<String, BucketSensitivityCR> bucketDeltaSensitivityMap =
            new HashMap<String, BucketSensitivityCR>();

        Map<String, BucketSensitivityCR> bucketVegaSensitivityMap =
            new HashMap<String, BucketSensitivityCR>();

        for (int bucketIndex : bucketIndexArray)
        {
            Map<String, RiskFactorTenorSensitivity> tenorDeltaSensitivityMap = new
                CaseInsensitiveHashMap<RiskFactorTenorSensitivity>();

            Map<String, RiskFactorTenorSensitivity> tenorVegaSensitivityMap = new
                CaseInsensitiveHashMap<RiskFactorTenorSensitivity>();

            for (String componentName : bucketComponentGrid[bucketIndex - 1])
            {
                ComponentRiskFactorTenorSensitivity (
                    tenorDeltaSensitivityMap,
                    notional,
                    componentName
                );

                ComponentRiskFactorTenorSensitivity (
                    tenorVegaSensitivityMap,
                    notional,
                    componentName
                );
            }

            bucketDeltaSensitivityMap.put (
                "" + bucketIndex,
                new BucketSensitivityCR (tenorDeltaSensitivityMap)
            );

            bucketVegaSensitivityMap.put (
                "" + bucketIndex,
                new BucketSensitivityCR (tenorVegaSensitivityMap)
            );
        }

        RiskClassSensitivitySettingsCR riskClassSensitivitySettings =
            RiskClassSensitivitySettingsCR.ISDA_CRQ_20();

        ISDABucketCovarianceMargin (
            "           FRTB",
            bucketDeltaSensitivityMap,
            bucketVegaSensitivityMap,
            riskClassSensitivitySettings,
            MarginEstimationSettings.FRTB
                (MarginEstimationSettings.POSITION_PRINCIPAL_COMPONENT_COVARIANCE_ESTIMATOR_ISDA)
        );

        ISDABucketCovarianceMargin (
            "     ISDA DELTA",
            bucketDeltaSensitivityMap,
            bucketVegaSensitivityMap,
            riskClassSensitivitySettings,
            MarginEstimationSettings.ISDADelta
                (MarginEstimationSettings.POSITION_PRINCIPAL_COMPONENT_COVARIANCE_ESTIMATOR_ISDA)
        );

        ISDABucketCovarianceMargin (
            "CORNISH FISCHER",
            bucketDeltaSensitivityMap,
            bucketVegaSensitivityMap,
            riskClassSensitivitySettings,
            MarginEstimationSettings.CornishFischer
                (MarginEstimationSettings.POSITION_PRINCIPAL_COMPONENT_COVARIANCE_ESTIMATOR_FRTB)
        );

        EnvManager.TerminateEnv();
    }
}