OTCCrossCurrencySwaps.java

package org.drip.sample.xccy;

import org.drip.analytics.date.*;
import org.drip.analytics.support.CaseInsensitiveTreeMap;
import org.drip.function.r1tor1.FlatUnivariate;
import org.drip.market.otc.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.param.market.CurveSurfaceQuoteContainer;
import org.drip.param.valuation.*;
import org.drip.product.params.CurrencyPair;
import org.drip.product.rates.FloatFloatComponent;
import org.drip.service.env.EnvManager;
import org.drip.state.creator.*;
import org.drip.state.discount.*;
import org.drip.state.forward.ForwardCurve;
import org.drip.state.identifier.*;

/*
 * -*- 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
 * 
 *  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.
 */

/**
 * OTCCrossCurrencySwaps demonstrates the Construction and Valuation of the Cross-Currency Floating Swap of
 *  OTC contracts.
 *
 * @author Lakshmi Krishnamurthy
 */

public class OTCCrossCurrencySwaps {

    private static final FloatFloatComponent OTCCrossCurrencyFloatFloat (
        final String strReferenceCurrency,
        final String strDerivedCurrency,
        final JulianDate dtSpot,
        final String strMaturityTenor,
        final double dblBasis,
        final double dblDerivedNotionalScaler)
    {
        CrossFloatSwapConvention ccfc = CrossFloatConventionContainer.ConventionFromJurisdiction (
            strReferenceCurrency,
            strDerivedCurrency
        );

        return ccfc.createFloatFloatComponent (
            dtSpot,
            strMaturityTenor,
            dblBasis,
            1.,
            -1. * dblDerivedNotionalScaler
        );
    }

    private static final void OTCCrossCurrencyRun (
        final JulianDate dtSpot,
        final String strReferenceCurrency,
        final String strDerivedCurrency,
        final String strMaturityTenor,
        final double dblBasis,
        final double dblReferenceDerivedFXRate)
        throws Exception
    {
        double dblReferenceFundingRate = 0.02;
        double dblDerived3MForwardRate = 0.02;

        double dblReferenceFundingVol = 0.3;
        double dblDerivedForward3MVol = 0.3;
        double dblReferenceDerivedFXVol = 0.3;

        double dblDerived3MReferenceDerivedFXCorr = 0.1;
        double dblReferenceFundingDerived3MCorr = 0.1;
        double dblReferenceFundingReferenceDerivedFXCorr = 0.1;

        MergedDiscountForwardCurve dcReferenceFunding = ScenarioDiscountCurveBuilder.ExponentiallyCompoundedFlatRate (
            dtSpot,
            strReferenceCurrency,
            dblReferenceFundingRate
        );

        ForwardLabel friDerived3M = ForwardLabel.Create (
            strDerivedCurrency,
            "3M"
        );

        ForwardCurve fcDerived3M = ScenarioForwardCurveBuilder.FlatForwardForwardCurve (
            dtSpot,
            friDerived3M,
            dblDerived3MForwardRate
        );

        CurrencyPair cp = CurrencyPair.FromCode (
            strReferenceCurrency + "/" + strDerivedCurrency
        );

        FXLabel fxLabel = FXLabel.Standard (cp);

        FundingLabel fundingLabelReference = org.drip.state.identifier.FundingLabel.Standard (
            strReferenceCurrency
        );

        CurveSurfaceQuoteContainer mktParams = new CurveSurfaceQuoteContainer();

        mktParams.setForwardState (
            fcDerived3M
        );

        mktParams.setFundingState (
            dcReferenceFunding
        );

        mktParams.setFXState (
            ScenarioFXCurveBuilder.CubicPolynomialCurve (
                "FX::" + cp.code(),
                dtSpot,
                cp,
                new String[] {"10Y"},
                new double[] {dblReferenceDerivedFXRate},
                dblReferenceDerivedFXRate
            )
        );

        mktParams.setForwardVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                dtSpot.julian(),
                VolatilityLabel.Standard (friDerived3M),
                strDerivedCurrency,
                dblDerivedForward3MVol
            )
        );

        mktParams.setFundingVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                dtSpot.julian(),
                VolatilityLabel.Standard (fundingLabelReference),
                strReferenceCurrency,
                dblReferenceFundingVol
            )
        );

        mktParams.setFXVolatility (
            ScenarioDeterministicVolatilityBuilder.FlatForward (
                dtSpot.julian(),
                VolatilityLabel.Standard (fxLabel),
                strDerivedCurrency,
                dblReferenceDerivedFXVol
            )
        );

        mktParams.setForwardFundingCorrelation (
            friDerived3M,
            fundingLabelReference,
            new FlatUnivariate (
                dblReferenceFundingDerived3MCorr
            )
        );

        mktParams.setForwardFXCorrelation (
            friDerived3M,
            fxLabel,
            new FlatUnivariate (
                dblDerived3MReferenceDerivedFXCorr
            )
        );

        mktParams.setFundingFXCorrelation (
            fundingLabelReference,
            fxLabel,
            new FlatUnivariate (
                dblReferenceFundingReferenceDerivedFXCorr
            )
        );

        FloatFloatComponent xccySwap = OTCCrossCurrencyFloatFloat (
            strReferenceCurrency,
            strDerivedCurrency,
            dtSpot,
            strMaturityTenor,
            dblBasis,
            1. / dblReferenceDerivedFXRate
        );

        xccySwap.setPrimaryCode (
            strDerivedCurrency + "_" + strReferenceCurrency + "_OTC::FLOATFLOAT::" + strMaturityTenor
        );

        mktParams.setFixing (
            xccySwap.effectiveDate(),
            fxLabel,
            dblReferenceDerivedFXRate
        );

        ValuationParams valParams = new ValuationParams (
            dtSpot,
            dtSpot,
            strReferenceCurrency + "," + strDerivedCurrency
        );

        CaseInsensitiveTreeMap<Double> mapXCcyOutput = xccySwap.value (
            valParams,
            null,
            mktParams,
            null
        );

        System.out.println (
            "\t| " + xccySwap.name() + "  [" + xccySwap.effectiveDate() + " -> " + xccySwap.maturityDate() + "]  =>  " +
            FormatUtil.FormatDouble (mapXCcyOutput.get ("Price"), 1, 2, 1.) + "  |  " +
            FormatUtil.FormatDouble (mapXCcyOutput.get ("DerivedParBasisSpread"), 1, 2, 1.) + "  |  " +
            FormatUtil.FormatDouble (mapXCcyOutput.get ("ReferenceParBasisSpread"), 1, 2, 1.) + "  |  " +
            FormatUtil.FormatDouble (mapXCcyOutput.get ("DerivedCleanDV01"), 1, 2, 10000.) + "  |  " +
            FormatUtil.FormatDouble (mapXCcyOutput.get ("ReferenceCleanDV01"), 1, 2, 10000.) + "  |"
        );
    }

    public static final void main (
        final String[] astrArgs)
        throws Exception
    {

        /*
         * Initialize the Credit Analytics Library
         */

        EnvManager.InitEnv ("");

        JulianDate dtSpot = DateUtil.Today();

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

        System.out.println ("\t\tCROSS-CURRENCY FLOAT-FLOAT COMPONENT RUNS");

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

        System.out.println ("\tL -> R:");

        System.out.println ("\t\tCross Currency Swap Name");

        System.out.println ("\t\tFloat-Float Effective");

        System.out.println ("\t\tFloat-Float Maturity");

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

        System.out.println ("\t\tDerived Stream Par Basis Spread");

        System.out.println ("\t\tReference Stream Par Basis Spread");

        System.out.println ("\t\tAnnualized Derived Stream Duration");

        System.out.println ("\t\tAnnualized Reference Stream Duration");

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

        OTCCrossCurrencyRun (dtSpot, "USD", "AUD", "2Y", 0.0003, 0.7769);

        OTCCrossCurrencyRun (dtSpot, "USD", "CAD", "2Y", 0.0003, 0.7861);

        OTCCrossCurrencyRun (dtSpot, "USD", "CHF", "2Y", 0.0003, 1.0811);

        OTCCrossCurrencyRun (dtSpot, "USD", "CLP", "2Y", 0.0003, 0.0016);

        OTCCrossCurrencyRun (dtSpot, "USD", "DKK", "2Y", 0.0003, 0.1517);

        OTCCrossCurrencyRun (dtSpot, "USD", "EUR", "2Y", 0.0003, 1.1294);

        OTCCrossCurrencyRun (dtSpot, "USD", "GBP", "2Y", 0.0003, 1.5004);

        OTCCrossCurrencyRun (dtSpot, "USD", "JPY", "2Y", 0.0003, 0.0085);

        OTCCrossCurrencyRun (dtSpot, "USD", "MXN", "2Y", 0.0003, 0.0666);

        OTCCrossCurrencyRun (dtSpot, "USD", "NOK", "2Y", 0.0003, 0.1288);

        OTCCrossCurrencyRun (dtSpot, "USD", "PLN", "2Y", 0.0003, 0.2701);

        OTCCrossCurrencyRun (dtSpot, "USD", "SEK", "2Y", 0.0003, 0.1211);

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