EquityDeltaMargin21.java

package org.drip.sample.simmeq;

import java.util.Map;
import java.util.TreeMap;

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.BucketAggregate;
import org.drip.simm.margin.RiskMeasureAggregate;
import org.drip.simm.parameters.RiskMeasureSensitivitySettings;
import org.drip.simm.product.BucketSensitivity;
import org.drip.simm.product.RiskMeasureSensitivity;

/*
 * -*- 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.
 */

/**
 * EquityDeltaMargin21 illustrates the Computation of the SIMM 2.1 Delta Margin across a Group of Equity
 *  Bucket Exposure Sensitivities. 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 EquityDeltaMargin21
{

    private static final void AddBucketRiskFactorSensitivity (
        final Map<String, Map<String, Double>> bucketRiskFactorSensitivityMap,
        final int bucketIndex,
        final double notional,
        final String[] equityArray)
    {
        Map<String, Double> riskFactorSensitivityMap = new CaseInsensitiveHashMap<Double>();

        for (String equity : equityArray)
        {
            riskFactorSensitivityMap.put (
                equity,
                notional * (Math.random() - 0.5)
            );
        }

        bucketRiskFactorSensitivityMap.put (
            "" + bucketIndex,
            riskFactorSensitivityMap
        );
    }

    private static final Map<String, Map<String, Double>> BucketRiskFactorSensitivityMap (
        final double notional)
        throws Exception
    {
        Map<String, Map<String, Double>> bucketRiskFactorSensitivityMap =
            new TreeMap<String, Map<String, Double>>();

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            -1,
            notional,
            new String[]
            {
                "BOEING  ",
                "LOCKHEED",
                "RAND    ",
                "RAYTHEON",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            1,
            notional,
            new String[]
            {
                "ADP     ",
                "PSEANDG ",
                "STAPLES ",
                "U-HAUL  ",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            2,
            notional,
            new String[]
            {
                "CISCO   ",
                "DEERE   ",
                "HALIBTN ",
                "VERIZON ",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            3,
            notional,
            new String[]
            {
                "DUKE    ",
                "MONSANTO",
                "MMM     ",
                "VEDANTA ",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            4,
            notional,
            new String[]
            {
                "AMAZON  ",
                "GOLDMAN ",
                "MORGAN  ",
                "REMAX   ",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            5,
            notional,
            new String[]
            {
                "ALDI    ",
                "INFOSYS ",
                "OLLA    ",
                "RELIANCE",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            6,
            notional,
            new String[]
            {
                "GCC     ",
                "NOKIA   ",
                "SIEMENS ",
                "VODAFONE",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            7,
            notional,
            new String[]
            {
                "ADIDAS  ",
                "BAYER   ",
                "BILLERTN",
                "DE BEER ",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            8,
            notional,
            new String[]
            {
                "NOKIA   ",
                "NOMURA  ",
                "QATARSOV",
                "SOTHEBY ",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            9,
            notional,
            new String[]
            {
                "AUTODESK",
                "CALYPSO ",
                "NUMERIX ",
                "WEBLOGIC",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            10,
            notional,
            new String[]
            {
                "COGNIZAN",
                "TATAMOTO",
                "TOBLERON",
                "TVS     ",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            11,
            notional,
            new String[]
            {
                "DJIA    ",
                "LEHMAN  ",
                "RUSSELL ",
                "SANDP   ",
            }
        );

        AddBucketRiskFactorSensitivity (
            bucketRiskFactorSensitivityMap,
            12,
            notional,
            new String[]
            {
                "CBOE    ",
                "CITI    ",
                "RUSSELL ",
                "VIX     ",
            }
        );

        return bucketRiskFactorSensitivityMap;
    }

    private static final void DisplayBucketRiskFactorSensitivity (
        final Map<String, Map<String, Double>> bucketRiskFactorSensitivityMap)
        throws Exception
    {
        System.out.println ("\t|--------------------------||");

        System.out.println ("\t|    RISK FACTOR DELTA     ||");

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

        System.out.println ("\t|  L -> R:                 ||");

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

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

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

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

        for (Map.Entry<String, Map<String, Double>> bucketSensitivityMapEntry :
            bucketRiskFactorSensitivityMap.entrySet())
        {
            String bucketIndex = bucketSensitivityMapEntry.getKey();

            Map<String, Double> riskFactorSensitivityMap = bucketSensitivityMapEntry.getValue();

            for (Map.Entry<String, Double> riskFactorSensitivityMapEntry :
                riskFactorSensitivityMap.entrySet())
            {
                String currency = riskFactorSensitivityMapEntry.getKey();

                double riskFactorSensitivity = riskFactorSensitivityMapEntry.getValue();

                System.out.println (
                    "\t| " +
                    currency + " => " +
                    FormatUtil.FormatDouble (Integer.parseInt (bucketIndex), 2, 0, 1.) + " | " +
                    FormatUtil.FormatDouble (riskFactorSensitivity, 2, 2, 1.) + " ||"
                );
            }
        }

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

        System.out.println();
    }

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

        double notional = 100.;

        MarginEstimationSettings marginEstimationSettings = MarginEstimationSettings.CornishFischer
            (MarginEstimationSettings.POSITION_PRINCIPAL_COMPONENT_COVARIANCE_ESTIMATOR_ISDA);

        RiskMeasureSensitivitySettings riskMeasureSensitivitySettings =
            RiskMeasureSensitivitySettings.ISDA_EQ_DELTA_21();

        Map<String, Map<String, Double>> bucketRiskFactorSensitivityMap = BucketRiskFactorSensitivityMap
            (notional);

        DisplayBucketRiskFactorSensitivity (bucketRiskFactorSensitivityMap);

        Map<String, BucketSensitivity> bucketSensitivityMap = new TreeMap<String, BucketSensitivity>();

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

        System.out.println ("\t|    BUCKET AGGREGATE    ||");

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

        System.out.println ("\t|  L -> R:               ||");

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

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

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

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

        for (Map.Entry<String, Map<String, Double>> bucketSensitivityMapEntry :
            bucketRiskFactorSensitivityMap.entrySet())
        {
            String bucketIndex = bucketSensitivityMapEntry.getKey();

            BucketSensitivity bucketSensitivity = new BucketSensitivity
                (bucketSensitivityMapEntry.getValue());

            bucketSensitivityMap.put (
                "" + bucketIndex,
                bucketSensitivity
            );

            BucketAggregate bucketAggregate = bucketSensitivity.aggregate
                (riskMeasureSensitivitySettings.bucketSettingsMap().get (bucketIndex));

            System.out.println ("\t| " +
                FormatUtil.FormatDouble (Integer.parseInt (bucketIndex), 2, 0, 1.) + " => " +
                FormatUtil.FormatDouble (Math.sqrt (bucketAggregate.sensitivityMarginVariance()), 5, 0, 1.) + " | " +
                FormatUtil.FormatDouble (bucketAggregate.cumulativeSensitivityMargin(), 5, 0, 1.) + " ||"
            );
        }

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

        System.out.println();

        RiskMeasureAggregate riskMeasureAggregate = new RiskMeasureSensitivity
            (bucketSensitivityMap).linearAggregate (
                riskMeasureSensitivitySettings,
                marginEstimationSettings
            );

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

        System.out.println ("\t|               SBA BASED DELTA MARGIN                ||");

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

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

        System.out.println ("\t|    L -> R:                                          ||");

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

        System.out.println ("\t|            - Core Delta SBA Margin                  ||");

        System.out.println ("\t|            - Residual Delta SBA Margin              ||");

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

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

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

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

        EnvManager.TerminateEnv();
    }
}