RatesCurrencyVegaMarginFlow20.java

package org.drip.sample.simmir;

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

import org.drip.numerical.common.FormatUtil;
import org.drip.service.env.EnvManager;
import org.drip.simm.margin.BucketAggregateIR;
import org.drip.simm.margin.SensitivityAggregateIR;
import org.drip.simm.margin.RiskMeasureAggregateIR;
import org.drip.simm.parameters.BucketSensitivitySettingsIR;
import org.drip.simm.parameters.BucketVegaSettingsIR;
import org.drip.simm.product.BucketSensitivityIR;
import org.drip.simm.product.RiskFactorTenorSensitivity;

/*
 * -*- 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.
 */

/**
 * RatesCurrencyVegaMarginFlow20 illustrates the Steps in the Computation of the SIMM 2.0 IR Vega Margin for
 *  a Currency Bucket's IR 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 RatesCurrencyVegaMarginFlow20
{

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

        tenorSensitivityMap.put (
            "2W",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "1M",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "3M",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "6M",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "1Y",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "2Y",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "3Y",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "5Y",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "10Y",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "15Y",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "20Y",
            notional * (Math.random() - 0.5)
        );

        tenorSensitivityMap.put (
            "30Y",
            notional * (Math.random() - 0.5)
        );

        return new RiskFactorTenorSensitivity (tenorSensitivityMap);
    }

    private static final void DisplayBucketSensitivityIR (
        final BucketSensitivityIR bucketSensitivityIR)
        throws Exception
    {
        Map<String, Double> oisTenorSensitivity = bucketSensitivityIR.oisTenorSensitivity().sensitivityMap();

        Map<String, Double> libor1MTenorSensitivity =
            bucketSensitivityIR.libor1MTenorSensitivity().sensitivityMap();

        Map<String, Double> libor3MTenorSensitivity =
            bucketSensitivityIR.libor3MTenorSensitivity().sensitivityMap();

        Map<String, Double> libor6MTenorSensitivity =
            bucketSensitivityIR.libor6MTenorSensitivity().sensitivityMap();

        Map<String, Double> libor12MTenorSensitivity =
            bucketSensitivityIR.libor12MTenorSensitivity().sensitivityMap();

        Map<String, Double> primeTenorSensitivity =
            bucketSensitivityIR.primeTenorSensitivity().sensitivityMap();

        Map<String, Double> municipalTenorSensitivity =
            bucketSensitivityIR.municipalTenorSensitivity().sensitivityMap();

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

        System.out.println ("\t||                             INTEREST CURVE TENOR SENSITIVITY                            ||");

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

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

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

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

        System.out.println ("\t||            - OIS Tenor Vega Sensitivity                                                 ||");

        System.out.println ("\t||            - LIBOR1M Tenor Vega Sensitivity                                             ||");

        System.out.println ("\t||            - LIBOR3M Tenor Vega Sensitivity                                             ||");

        System.out.println ("\t||            - LIBOR6M Tenor Vega Sensitivity                                             ||");

        System.out.println ("\t||            - LIBOR12M Tenor Vega Sensitivity                                            ||");

        System.out.println ("\t||            - PRIME Tenor Vega Sensitivity                                               ||");

        System.out.println ("\t||            - MUNICIPAL Tenor Vega Sensitivity                                           ||");

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

        System.out.println ("\t||    OIS    |  LIBOR1M   |  LIBOR3M   |  LIBOR6M   |  LIBOR12M  |   PRIME    | MUNICIPAL  ||");

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

        for (String tenor : oisTenorSensitivity.keySet())
        {
            System.out.println (
                "\t||  " +
                FormatUtil.FormatDouble (oisTenorSensitivity.get (tenor), 2, 2, 1.) + "   |   " +
                FormatUtil.FormatDouble (libor1MTenorSensitivity.get (tenor), 2, 2, 1.) + "   |   " +
                FormatUtil.FormatDouble (libor3MTenorSensitivity.get (tenor), 2, 2, 1.) + "   |   " +
                FormatUtil.FormatDouble (libor6MTenorSensitivity.get (tenor), 2, 2, 1.) + "   |   " +
                FormatUtil.FormatDouble (libor12MTenorSensitivity.get (tenor), 2, 2, 1.) + "   |   " +
                FormatUtil.FormatDouble (primeTenorSensitivity.get (tenor), 2, 2, 1.) + "   |   " +
                FormatUtil.FormatDouble (municipalTenorSensitivity.get (tenor), 2, 2, 1.) + "   ||"
            );
        }

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

        System.out.println();
    }

    private static final void VegaMarginCovarianceEntry (
        final SensitivityAggregateIR irSensitivityAggregate)
        throws Exception
    {
        double marginCovariance_OIS_OIS = irSensitivityAggregate.marginCovariance_OIS_OIS();

        double marginCovariance_OIS_LIBOR1M = irSensitivityAggregate.marginCovariance_OIS_LIBOR1M();

        double marginCovariance_OIS_LIBOR3M = irSensitivityAggregate.marginCovariance_OIS_LIBOR3M();

        double marginCovariance_OIS_LIBOR6M = irSensitivityAggregate.marginCovariance_OIS_LIBOR6M();

        double marginCovariance_OIS_LIBOR12M = irSensitivityAggregate.marginCovariance_OIS_LIBOR12M();

        double marginCovariance_OIS_PRIME = irSensitivityAggregate.marginCovariance_OIS_PRIME();

        double marginCovariance_OIS_MUNICIPAL = irSensitivityAggregate.marginCovariance_OIS_MUNICIPAL();

        double marginCovariance_LIBOR1M_LIBOR1M = irSensitivityAggregate.marginCovariance_LIBOR1M_LIBOR1M();

        double marginCovariance_LIBOR1M_LIBOR3M = irSensitivityAggregate.marginCovariance_LIBOR1M_LIBOR3M();

        double marginCovariance_LIBOR1M_LIBOR6M = irSensitivityAggregate.marginCovariance_LIBOR1M_LIBOR6M();

        double marginCovariance_LIBOR1M_LIBOR12M = irSensitivityAggregate.marginCovariance_LIBOR1M_LIBOR12M();

        double marginCovariance_LIBOR1M_PRIME = irSensitivityAggregate.marginCovariance_LIBOR1M_PRIME();

        double marginCovariance_LIBOR1M_MUNICIPAL = irSensitivityAggregate.marginCovariance_LIBOR1M_MUNICIPAL();

        double marginCovariance_LIBOR3M_LIBOR3M = irSensitivityAggregate.marginCovariance_LIBOR3M_LIBOR3M();

        double marginCovariance_LIBOR3M_LIBOR6M = irSensitivityAggregate.marginCovariance_LIBOR3M_LIBOR6M();

        double marginCovariance_LIBOR3M_LIBOR12M = irSensitivityAggregate.marginCovariance_LIBOR3M_LIBOR12M();

        double marginCovariance_LIBOR3M_PRIME = irSensitivityAggregate.marginCovariance_LIBOR3M_PRIME();

        double marginCovariance_LIBOR3M_MUNICIPAL = irSensitivityAggregate.marginCovariance_LIBOR3M_MUNICIPAL();

        double marginCovariance_LIBOR6M_LIBOR6M = irSensitivityAggregate.marginCovariance_LIBOR6M_LIBOR6M();

        double marginCovariance_LIBOR6M_LIBOR12M = irSensitivityAggregate.marginCovariance_LIBOR6M_LIBOR12M();

        double marginCovariance_LIBOR6M_PRIME = irSensitivityAggregate.marginCovariance_LIBOR6M_PRIME();

        double marginCovariance_LIBOR6M_MUNICIPAL = irSensitivityAggregate.marginCovariance_LIBOR6M_MUNICIPAL();

        double marginCovariance_LIBOR12M_LIBOR12M = irSensitivityAggregate.marginCovariance_LIBOR12M_LIBOR12M();

        double marginCovariance_LIBOR12M_PRIME = irSensitivityAggregate.marginCovariance_LIBOR12M_PRIME();

        double marginCovariance_LIBOR12M_MUNICIPAL = irSensitivityAggregate.marginCovariance_LIBOR12M_MUNICIPAL();

        double marginCovariance_PRIME_PRIME = irSensitivityAggregate.marginCovariance_PRIME_PRIME();

        double marginCovariance_PRIME_MUNICIPAL = irSensitivityAggregate.marginCovariance_PRIME_MUNICIPAL();

        double marginCovariance_MUNICIPAL_MUNICIPAL = irSensitivityAggregate.marginCovariance_MUNICIPAL_MUNICIPAL();

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

        System.out.println ("\t||  IR RISK FACTOR MARGIN COVARIANCE   ||");

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

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

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

        System.out.println ("\t||        - Curve #1                   ||");

        System.out.println ("\t||        - Curve #2                   ||");

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

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

        System.out.println (
            "\t|| OIS       - OIS       => " +
            FormatUtil.FormatDouble (marginCovariance_OIS_OIS, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| OIS       - LIBOR1M   => " +
            FormatUtil.FormatDouble (marginCovariance_OIS_LIBOR1M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| OIS       - LIBOR3M   => " +
            FormatUtil.FormatDouble (marginCovariance_OIS_LIBOR3M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| OIS       - LIBOR6M   => " +
            FormatUtil.FormatDouble (marginCovariance_OIS_LIBOR6M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| OIS       - LIBOR12M  => " +
            FormatUtil.FormatDouble (marginCovariance_OIS_LIBOR12M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| OIS       - PRIME     => " +
            FormatUtil.FormatDouble (marginCovariance_OIS_PRIME, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| OIS       - MUNICIPAL => " +
            FormatUtil.FormatDouble (marginCovariance_OIS_MUNICIPAL, 9, 0, 1.) + " ||"
        );

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

        System.out.println (
            "\t|| LIBOR1M   - LIBOR1M   => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR1M_LIBOR1M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR1M   - LIBOR3M   => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR1M_LIBOR3M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR1M   - LIBOR6M   => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR1M_LIBOR6M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR1M   - LIBOR12M  => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR1M_LIBOR12M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR1M   - PRIME     => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR1M_PRIME, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR1M   - MUNICIPAL => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR1M_MUNICIPAL, 9, 0, 1.) + " ||"
        );

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

        System.out.println (
            "\t|| LIBOR3M   - LIBOR3M   => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR3M_LIBOR3M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR3M   - LIBOR6M   => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR3M_LIBOR6M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR3M   - LIBOR12M  => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR3M_LIBOR12M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR3M   - PRIME     => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR3M_PRIME, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR3M   - MUNICIPAL => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR3M_MUNICIPAL, 9, 0, 1.) + " ||"
        );

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

        System.out.println (
            "\t|| LIBOR6M   - LIBOR6M   => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR6M_LIBOR6M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR6M   - LIBOR12M  => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR6M_LIBOR12M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR6M   - PRIME     => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR6M_PRIME, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR6M   - MUNICIPAL => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR6M_MUNICIPAL, 9, 0, 1.) + " ||"
        );

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

        System.out.println (
            "\t|| LIBOR12M  - LIBOR12M  => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR12M_LIBOR12M, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR12M  - PRIME     => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR12M_PRIME, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| LIBOR12M  - MUNICIPAL => " +
            FormatUtil.FormatDouble (marginCovariance_LIBOR12M_MUNICIPAL, 9, 0, 1.) + " ||"
        );

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

        System.out.println (
            "\t|| PRIME     - PRIME     => " +
            FormatUtil.FormatDouble (marginCovariance_PRIME_PRIME, 9, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| PRIME     - MUNICIPAL => " +
            FormatUtil.FormatDouble (marginCovariance_PRIME_MUNICIPAL, 9, 0, 1.) + " ||"
        );

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

        System.out.println (
            "\t|| MUNICIPAL - MUNICIPAL => " +
            FormatUtil.FormatDouble (marginCovariance_MUNICIPAL_MUNICIPAL, 9, 0, 1.) + " ||"
        );

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

        System.out.println();
    }

    private static final void DisplayRiskMeasureAggregate (
        final RiskMeasureAggregateIR riskMeasureAggregateIR)
        throws Exception
    {
        System.out.println ("\t||--------------------------------------------||");

        System.out.println ("\t||   IR RISK CLASS AGGREGATE MARGIN METRICS   ||");

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

        System.out.println (
            "\t|| Core Vega SBA Variance      => " +
            FormatUtil.FormatDouble (riskMeasureAggregateIR.coreSBAVariance(), 10, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| Residual Vega SBA Variance  => " +
            FormatUtil.FormatDouble (riskMeasureAggregateIR.residualSBAVariance(), 10, 0, 1.) + " ||"
        );

        System.out.println (
            "\t|| Vega SBA                    => " +
            FormatUtil.FormatDouble (riskMeasureAggregateIR.sba(), 10, 0, 1.) + " ||"
        );

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

        System.out.println();
    }

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

        double notional = 100.;
        String currency = "USD";

        BucketSensitivitySettingsIR bucketSensitivitySettingsIR = BucketVegaSettingsIR.ISDA_20 (currency);

        BucketSensitivityIR bucketSensitivityIR = new BucketSensitivityIR (
            CurveTenorSensitivityMap (notional),
            CurveTenorSensitivityMap (notional),
            CurveTenorSensitivityMap (notional),
            CurveTenorSensitivityMap (notional),
            CurveTenorSensitivityMap (notional),
            CurveTenorSensitivityMap (notional),
            CurveTenorSensitivityMap (notional)
        );

        DisplayBucketSensitivityIR (bucketSensitivityIR);

        BucketAggregateIR bucketAggregateIR = bucketSensitivityIR.aggregate (bucketSensitivitySettingsIR);

        SensitivityAggregateIR irVegaAggregate = bucketAggregateIR.riskFactorAggregate().linearMargin
            (bucketSensitivitySettingsIR);

        VegaMarginCovarianceEntry (irVegaAggregate);

        Map<String, BucketAggregateIR> bucketAggregateIRMap = new HashMap<String, BucketAggregateIR>();

        bucketAggregateIRMap.put (
            currency,
            bucketAggregateIR
        );

        RiskMeasureAggregateIR riskMeasureAggregateIR = new RiskMeasureAggregateIR (
            bucketAggregateIRMap,
            irVegaAggregate.cumulativeMarginCovariance(),
            0.
        );

        DisplayRiskMeasureAggregate (riskMeasureAggregateIR);

        EnvManager.TerminateEnv();
    }
}