CPGAUncollateralized.java
package org.drip.sample.xvadigest;
import org.drip.analytics.date.*;
import org.drip.exposure.evolver.LatentStateVertexContainer;
import org.drip.exposure.universe.*;
import org.drip.measure.discrete.SequenceGenerator;
import org.drip.measure.dynamics.DiffusionEvaluatorLinear;
import org.drip.measure.process.DiffusionEvolver;
import org.drip.measure.realization.*;
import org.drip.measure.statistics.UnivariateDiscreteThin;
import org.drip.numerical.common.FormatUtil;
import org.drip.service.env.EnvManager;
import org.drip.state.identifier.OTCFixFloatLabel;
import org.drip.xva.gross.*;
import org.drip.xva.netting.CollateralGroupPath;
import org.drip.xva.strategy.*;
import org.drip.xva.vertex.AlbaneseAndersen;
/*
* -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
*/
/*!
* Copyright (C) 2018 Lakshmi Krishnamurthy
* Copyright (C) 2017 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.
*/
/**
* CPGAUncollateralized illustrates the Counter Party Aggregation over Netting Groups based Uncollateralized
* Collateral Groups with several Fix-Float Swaps. The References are:
*
* - Burgard, C., and M. Kjaer (2014): PDE Representations of Derivatives with Bilateral Counter-party Risk
* and Funding Costs, Journal of Credit Risk, 7 (3) 1-19.
*
* - Burgard, C., and M. Kjaer (2014): In the Balance, Risk, 24 (11) 72-75.
*
* - Gregory, J. (2009): Being Two-faced over Counter-party Credit Risk, Risk 20 (2) 86-90.
*
* - Li, B., and Y. Tang (2007): Quantitative Analysis, Derivatives Modeling, and Trading Strategies in the
* Presence of Counter-party Credit Risk for the Fixed Income Market, World Scientific Publishing,
* Singapore.
*
* - Piterbarg, V. (2010): Funding Beyond Discounting: Collateral Agreements and Derivatives Pricing, Risk
* 21 (2) 97-102.
*
* @author Lakshmi Krishnamurthy
*/
public class CPGAUncollateralized {
private static final double[] ATMSwapRateOffsetRealization (
final DiffusionEvolver deATMSwapRateOffset,
final double dblATMSwapRateOffsetInitial,
final double dblTime,
final double dblTimeWidth,
final int iNumStep)
throws Exception
{
double[] adblATMSwapRateOffset = new double[iNumStep + 1];
adblATMSwapRateOffset[0] = dblATMSwapRateOffsetInitial;
double[] adblTimeWidth = new double[iNumStep];
for (int i = 0; i < iNumStep; ++i)
adblTimeWidth[i] = dblTimeWidth;
JumpDiffusionEdge[] aJDE = deATMSwapRateOffset.incrementSequence (
new JumpDiffusionVertex (
dblTime,
dblATMSwapRateOffsetInitial,
0.,
false
),
JumpDiffusionEdgeUnit.Diffusion (
adblTimeWidth,
SequenceGenerator.Gaussian (iNumStep)
),
dblTimeWidth
);
for (int j = 1; j <= iNumStep; ++j)
adblATMSwapRateOffset[j] = aJDE[j - 1].finish();
return adblATMSwapRateOffset;
}
private static final double[] SwapPortfolioValueRealization (
final DiffusionEvolver deATMSwapRate,
final double dblATMSwapRateStart,
final int iNumStep,
final double dblTime,
final double dblTimeWidth,
final int iNumSwap)
throws Exception
{
double[] adblSwapPortfolioValueRealization = new double[iNumStep + 1];
for (int i = 0; i < iNumStep; ++i)
adblSwapPortfolioValueRealization[i] = 0.;
for (int i = 0; i < iNumSwap; ++i) {
double[] adblATMSwapRateOffsetRealization = ATMSwapRateOffsetRealization (
deATMSwapRate,
dblATMSwapRateStart,
dblTime,
dblTimeWidth,
iNumStep
);
for (int j = 0; j <= iNumStep; ++j)
adblSwapPortfolioValueRealization[j] += dblTimeWidth * (iNumStep - j) * adblATMSwapRateOffsetRealization[j];
}
return adblSwapPortfolioValueRealization;
}
private static final double[][] SwapPortfolioValueRealization (
final DiffusionEvolver deATMSwapRate,
final double dblSwapPortfolioValueStart,
final int iNumStep,
final double dblTime,
final double dblTimeWidth,
final int iNumSwap,
final int iNumSimulation)
throws Exception
{
double[][] aadblSwapPortfolioValueRealization = new double[iNumSimulation][];
for (int i = 0; i < iNumSimulation; ++i)
aadblSwapPortfolioValueRealization[i] = SwapPortfolioValueRealization (
deATMSwapRate,
dblSwapPortfolioValueStart,
iNumStep,
dblTime,
dblTimeWidth,
iNumSwap
);
return aadblSwapPortfolioValueRealization;
}
private static final void UDTDump (
final String strHeader,
final JulianDate[] adtVertexNode,
final UnivariateDiscreteThin[] aUDT)
throws Exception
{
System.out.println ("\t|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|");
System.out.println (strHeader);
System.out.println ("\t|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|");
String strDump = "\t| DATE =>" ;
for (int i = 0; i < adtVertexNode.length; ++i)
strDump = strDump + " " + adtVertexNode[i] + " |";
System.out.println (strDump);
System.out.println ("\t|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|");
strDump = "\t| AVERAGE =>";
for (int j = 0; j < aUDT.length; ++j)
strDump = strDump + " " + FormatUtil.FormatDouble (aUDT[j].average(), 2, 4, 1.) + " |";
System.out.println (strDump);
strDump = "\t| MAXIMUM =>";
for (int j = 0; j < aUDT.length; ++j)
strDump = strDump + " " + FormatUtil.FormatDouble (aUDT[j].maximum(), 2, 4, 1.) + " |";
System.out.println (strDump);
strDump = "\t| MINIMUM =>";
for (int j = 0; j < aUDT.length; ++j)
strDump = strDump + " " + FormatUtil.FormatDouble (aUDT[j].minimum(), 2, 4, 1.) + " |";
System.out.println (strDump);
strDump = "\t| ERROR =>";
for (int j = 0; j < aUDT.length; ++j)
strDump = strDump + " " + FormatUtil.FormatDouble (aUDT[j].error(), 2, 4, 1.) + " |";
System.out.println (strDump);
System.out.println ("\t|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|");
}
private static final void UDTDump (
final String strHeader,
final UnivariateDiscreteThin udt)
throws Exception
{
System.out.println (
strHeader +
FormatUtil.FormatDouble (udt.average(), 3, 2, 100.) + "% | " +
FormatUtil.FormatDouble (udt.maximum(), 3, 2, 100.) + "% | " +
FormatUtil.FormatDouble (udt.minimum(), 3, 2, 100.) + "% | " +
FormatUtil.FormatDouble (udt.error(), 3, 2, 100.) + "% ||"
);
}
public static final void main (
final String[] astrArgs)
throws Exception
{
EnvManager.InitEnv ("");
int iNumStep = 10;
int iNumSwap = 10;
double dblTime = 5.;
int iNumPath = 10000;
double dblATMSwapRateStart = 0.;
double dblATMSwapRateDrift = 0.;
double dblATMSwapRateVolatility = 0.25;
double dblOvernightNumeraireDrift = 0.01;
double dblCSADrift = 0.01;
double dblBankHazardRate = 0.015;
double dblBankRecoveryRate = 0.40;
double dblCounterPartyHazardRate = 0.030;
double dblCounterPartyRecoveryRate = 0.30;
JulianDate dtSpot = DateUtil.Today();
double dblTimeWidth = dblTime / iNumStep;
MarketVertex[] aMV = new MarketVertex[iNumStep + 1];
JulianDate[] adtVertex = new JulianDate[iNumStep + 1];
double[][] aadblCollateralBalance = new double[iNumPath][iNumStep + 1];
double dblBankFundingSpread = dblBankHazardRate / (1. - dblBankRecoveryRate);
MonoPathExposureAdjustment[] aMPEA = new MonoPathExposureAdjustment[iNumPath];
double dblCounterPartyFundingSpread = dblCounterPartyHazardRate / (1. - dblCounterPartyRecoveryRate);
double[][] aadblSwapPortfolioValueRealization = SwapPortfolioValueRealization (
new DiffusionEvolver (
DiffusionEvaluatorLinear.Standard (
dblATMSwapRateDrift,
dblATMSwapRateVolatility
)
),
dblATMSwapRateStart,
iNumStep,
dblTime,
dblTimeWidth,
iNumSwap,
iNumPath
);
for (int i = 0; i <= iNumStep; ++i)
{
LatentStateVertexContainer latentStateVertexContainer = new LatentStateVertexContainer();
latentStateVertexContainer.add (
OTCFixFloatLabel.Standard ("USD-3M-10Y"),
Double.NaN
);
aMV[i] = MarketVertex.Nodal (
adtVertex[i] = dtSpot.addMonths (6 * i),
dblOvernightNumeraireDrift,
Math.exp (-0.5 * dblOvernightNumeraireDrift * (iNumStep - i)),
dblCSADrift,
Math.exp (-0.5 * dblCSADrift * (iNumStep - i)),
new MarketVertexEntity (
Math.exp (-0.5 * dblBankHazardRate * i),
dblBankHazardRate,
dblBankRecoveryRate,
dblBankFundingSpread,
Math.exp (-0.5 * dblBankHazardRate * (1. - dblBankRecoveryRate) * (iNumStep - i)),
Double.NaN,
Double.NaN,
Double.NaN
),
new MarketVertexEntity (
Math.exp (-0.5 * dblCounterPartyHazardRate * i),
dblCounterPartyHazardRate,
dblCounterPartyRecoveryRate,
dblCounterPartyFundingSpread,
Math.exp (-0.5 * dblCounterPartyHazardRate * (1. - dblCounterPartyRecoveryRate) * (iNumStep - i)),
Double.NaN,
Double.NaN,
Double.NaN
),
latentStateVertexContainer
);
}
MarketPath mp = MarketPath.FromMarketVertexArray (aMV);
for (int i = 0; i < iNumPath; ++i) {
AlbaneseAndersen[] aHGVR = new AlbaneseAndersen[iNumStep + 1];
for (int j = 0; j <= iNumStep; ++j) {
aadblCollateralBalance[i][j] = 0.;
aHGVR[j] = new AlbaneseAndersen (
adtVertex[j],
aadblSwapPortfolioValueRealization[i][j],
0.,
aadblCollateralBalance[i][j]
);
}
CollateralGroupPath[] aHGP = new CollateralGroupPath[] {
new CollateralGroupPath (
aHGVR,
mp
)
};
aMPEA[i] = new MonoPathExposureAdjustment (
new AlbaneseAndersenFundingGroupPath[] {
new AlbaneseAndersenFundingGroupPath (
new AlbaneseAndersenNettingGroupPath[] {
new AlbaneseAndersenNettingGroupPath (
aHGP,
mp
)
},
mp
)
}
);
}
ExposureAdjustmentAggregator eaa = new ExposureAdjustmentAggregator (aMPEA);
ExposureAdjustmentDigest ead = eaa.digest();
System.out.println();
UDTDump (
"\t| COLLATERALIZED EXPOSURE |",
eaa.vertexDates(),
ead.collateralizedExposure()
);
UDTDump (
"\t| UNCOLLATERALIZED EXPOSURE |",
eaa.vertexDates(),
ead.uncollateralizedExposure()
);
UDTDump (
"\t| COLLATERALIZED EXPOSURE PV |",
eaa.vertexDates(),
ead.collateralizedExposurePV()
);
UDTDump (
"\t| UNCOLLATERALIZED EXPOSURE PV |",
eaa.vertexDates(),
ead.uncollateralizedExposurePV()
);
UDTDump (
"\t| COLLATERALIZED POSITIVE EXPOSURE PV |",
eaa.vertexDates(),
ead.collateralizedPositiveExposure()
);
UDTDump (
"\t| UNCOLLATERALIZED POSITIVE EXPOSURE PV |",
eaa.vertexDates(),
ead.uncollateralizedPositiveExposure()
);
UDTDump (
"\t| COLLATERALIZED NEGATIVE EXPOSURE PV |",
eaa.vertexDates(),
ead.collateralizedNegativeExposure()
);
UDTDump (
"\t| UNCOLLATERALIZED NEGATIVE EXPOSURE PV |",
eaa.vertexDates(),
ead.uncollateralizedNegativeExposure()
);
System.out.println();
System.out.println ("\t||-----------------------------------------------------||");
System.out.println ("\t|| UCVA CVA FTDCVA DVA FCA UNIVARIATE THIN STATISTICS ||");
System.out.println ("\t||-----------------------------------------------------||");
System.out.println ("\t|| L -> R: ||");
System.out.println ("\t|| - Path Average ||");
System.out.println ("\t|| - Path Maximum ||");
System.out.println ("\t|| - Path Minimum ||");
System.out.println ("\t|| - Monte Carlo Error ||");
System.out.println ("\t||-----------------------------------------------------||");
UDTDump (
"\t|| UCVA => ",
ead.ucva()
);
UDTDump (
"\t|| FTDCVA => ",
ead.ftdcva()
);
UDTDump (
"\t|| CVA => ",
ead.cva()
);
UDTDump (
"\t|| CVACL => ",
ead.cvacl()
);
UDTDump (
"\t|| DVA => ",
ead.dva()
);
UDTDump (
"\t|| FVA => ",
ead.fva()
);
UDTDump (
"\t|| FDA => ",
ead.fda()
);
UDTDump (
"\t|| FCA => ",
ead.fca()
);
UDTDump (
"\t|| FBA => ",
ead.fba()
);
UDTDump (
"\t|| SFVA => ",
ead.sfva()
);
System.out.println ("\t||-----------------------------------------------------||");
UDTDump (
"\t|| Total => ",
ead.totalVA()
);
System.out.println ("\t||-----------------------------------------------------||");
System.out.println();
EnvManager.TerminateEnv();
}
}