CallVolSplineSurface.java

package org.drip.sample.stochasticvolatility;

import org.drip.analytics.date.*;
import org.drip.analytics.definition.MarketSurface;
import org.drip.numerical.common.FormatUtil;
import org.drip.numerical.fourier.PhaseAdjuster;
import org.drip.param.pricer.HestonOptionPricerParams;
import org.drip.pricer.option.HestonStochasticVolatilityAlgorithm;
import org.drip.spline.basis.*;
import org.drip.spline.params.*;
import org.drip.spline.stretch.MultiSegmentSequenceBuilder;
import org.drip.state.creator.ScenarioMarketSurfaceBuilder;

/*
 * -*- 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
 * 
 *  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.
 */

/**
 * CallVolSplineSurface demonstrates the spline volatility surface generator by a stochastic volatility
 *  algorithm, i.e., in this case the Heston 1993 algorithm.
 * 
 * @author Lakshmi Krishnamurthy
 */

public class CallVolSplineSurface {
    private static final SegmentCustomBuilderControl CubicPolySCBC()
        throws Exception
    {
        return new SegmentCustomBuilderControl (
            MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL,
            new PolynomialFunctionSetParams (4),
            SegmentInelasticDesignControl.Create (
                2,
                2
            ),
            null,
            null
        );
    }

    private static final SegmentCustomBuilderControl KLKHyperbolicSCBC (
        final double dblTension)
        throws Exception
    {
        return new SegmentCustomBuilderControl (
            MultiSegmentSequenceBuilder.BASIS_SPLINE_KLK_HYPERBOLIC_TENSION,
            new ExponentialTensionSetParams (dblTension),
            SegmentInelasticDesignControl.Create (
                2,
                2
            ),
            null,
            null
        );
    }

    private static final void EvaluateSplineSurface (
        final MarketSurface volSurface,
        final double[] adblStrikeATMFactor,
        final String[] astrMaturityTenor)
        throws Exception
    {
        System.out.println ("\t|------------------------------------------------------------|");

        System.out.print ("\t|------------------------------------------------------------|\n\t|  ATM/TTE  =>");

        for (String strMaturity : astrMaturityTenor)
            System.out.print ("    " + strMaturity + "  ");

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

        for (double dblStrike : adblStrikeATMFactor) {
            System.out.print ("\t|  " + FormatUtil.FormatDouble (dblStrike, 1, 2, 1.) + "    =>");

            for (String strMaturity : astrMaturityTenor)
                System.out.print ("  " + FormatUtil.FormatDouble (volSurface.node (dblStrike, strMaturity), 2, 2, 100.) + "%");

            System.out.print ("  |\n");
        }

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

    public static final void main (
        final String[] astrArgs)
        throws Exception
    {
        JulianDate dtStart = DateUtil.Today();

        double[] adblStrikeATMFactorCalib = new double[] {
            0.8, 0.9, 1.0, 1.1, 1.2
        };
        String[] astrMaturityTenorCalib = new String[] {
            "12M", "24M", "36M", "48M", "60M"
        };

        double dblRho = 0.3;
        double dblKappa = 1.;
        double dblSigma = 0.5;
        double dblTheta = 0.2;
        double dblLambda = 0.;

        HestonOptionPricerParams hopp = new HestonOptionPricerParams (
            HestonStochasticVolatilityAlgorithm.PAYOFF_TRANSFORM_SCHEME_AMST_2007,
            dblRho,
            dblKappa,
            dblSigma,
            dblTheta,
            dblLambda,
            PhaseAdjuster.MULTI_VALUE_BRANCH_POWER_PHASE_TRACKER_KAHL_JACKEL
        );

        MarketSurface priceSurfCubicPoly = ScenarioMarketSurfaceBuilder.HestonRunMarketSurface (
            "HESTON1993_CUBICPOLY_VOLATILITY_SURFACE",
            dtStart,
            "USD",
            0.01,
            1.,
            false,
            0.20,
            adblStrikeATMFactorCalib,
            astrMaturityTenorCalib,
            hopp,
            false,
            CubicPolySCBC(),
            CubicPolySCBC()
        );

        EvaluateSplineSurface (
            priceSurfCubicPoly,
            adblStrikeATMFactorCalib,
            astrMaturityTenorCalib
        );

        EvaluateSplineSurface (
            priceSurfCubicPoly,
            new double[] {
                0.500, 0.700, 0.850, 1.000, 1.150, 1.300, 1.500
            },
            new String[] {
                "06M", "21M", "36M", "51M", "66M"
            }
        );

        MarketSurface priceSurfKLKHyper = ScenarioMarketSurfaceBuilder.HestonRunMarketSurface (
            "HESTON1993_KLKHYPER_VOLATILITY_SURFACE",
            dtStart,
            "USD",
            0.01,
            1.,
            false,
            0.20,
            adblStrikeATMFactorCalib,
            astrMaturityTenorCalib,
            hopp,
            false,
            KLKHyperbolicSCBC (4.),
            KLKHyperbolicSCBC (2.)
        );

        EvaluateSplineSurface (
            priceSurfKLKHyper,
            adblStrikeATMFactorCalib,
            astrMaturityTenorCalib
        );

        EvaluateSplineSurface (
            priceSurfKLKHyper,
            new double[] {
                0.500, 0.700, 0.850, 1.000, 1.150, 1.300, 1.500
            },
            new String[] {
                "06M", "21M", "36M", "51M", "66M"
            }
        );
    }
}