EQMarginComparison.java

package org.drip.sample.simmvariance;

import java.util.HashMap;
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.RiskClassAggregate;
import org.drip.simm.margin.RiskMeasureAggregate;
import org.drip.simm.parameters.RiskClassSensitivitySettings;
import org.drip.simm.product.BucketSensitivity;
import org.drip.simm.product.RiskClassSensitivity;
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.
 */

/**
 * EQMarginComparison illustrates the Comparison of the Equity Margin Estimates using difference Schemes for
 *  Calculating the Position-Bucket Principal Component Co-variance. 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 EQMarginComparison
{

    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 ISDABucketCovarianceMargin (
        final String positionBucketCovarianceScheme,
        final Map<String, BucketSensitivity> bucketDeltaSensitivityMap,
        final Map<String, BucketSensitivity> bucketVegaSensitivityMap,
        final RiskClassSensitivitySettings riskClassSensitivitySettings,
        final MarginEstimationSettings marginEstimationSettings)
        throws Exception
    {
        RiskClassAggregate riskClassAggregate = new RiskClassSensitivity (
            new RiskMeasureSensitivity (bucketDeltaSensitivityMap),
            new RiskMeasureSensitivity (bucketVegaSensitivityMap),
            new RiskMeasureSensitivity (bucketVegaSensitivityMap)
        ).aggregate (
            riskClassSensitivitySettings,
            marginEstimationSettings
        );

        RiskMeasureAggregate deltaRiskMeasureAggregate = riskClassAggregate.deltaMargin();

        RiskMeasureAggregate vegaRiskMeasureAggregate = riskClassAggregate.vegaMargin();

        RiskMeasureAggregate 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[] inputArray)
        throws Exception
    {
        EnvManager.InitEnv ("");

        double notional = 100.;
        int vegaDurationDays = 365;

        RiskClassSensitivitySettings riskClassSensitivitySettings = RiskClassSensitivitySettings.ISDA_EQ_20
            (vegaDurationDays);

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

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

        for (Map.Entry<String, Map<String, Double>> bucketDeltaMapEntry : bucketDeltaMap.entrySet())
        {
            bucketDeltaSensitivityMap.put (
                bucketDeltaMapEntry.getKey(),
                new BucketSensitivity (bucketDeltaMapEntry.getValue())
            );
        }

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

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

        for (Map.Entry<String, Map<String, Double>> bucketVegaMapEntry : bucketVegaMap.entrySet())
        {
            bucketVegaSensitivityMap.put (
                bucketVegaMapEntry.getKey(),
                new BucketSensitivity (bucketVegaMapEntry.getValue())
            );
        }

        ISDABucketCovarianceMargin (
            MarginEstimationSettings.POSITION_PRINCIPAL_COMPONENT_COVARIANCE_ESTIMATOR_ISDA,
            bucketDeltaSensitivityMap,
            bucketVegaSensitivityMap,
            riskClassSensitivitySettings,
            MarginEstimationSettings.CornishFischer
                (MarginEstimationSettings.POSITION_PRINCIPAL_COMPONENT_COVARIANCE_ESTIMATOR_ISDA)
        );

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

        EnvManager.TerminateEnv();
    }
}