ProductClassMargin.java

  1. package org.drip.simm.estimator;

  3. /*
  4.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  5.  */

  7. /*!
  8.  * Copyright (C) 2020 Lakshmi Krishnamurthy
  9.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  10.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  11.  * 
  12.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  13.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  14.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  15.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  16.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  17.  *      and computational support.
  18.  *  
  19.  *      https://lakshmidrip.github.io/DROP/
  20.  *  
  21.  *  DROP is composed of three modules:
  22.  *  
  23.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  24.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  25.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  26.  * 
  27.  *  DROP Product Core implements libraries for the following:
  28.  *  - Fixed Income Analytics
  29.  *  - Loan Analytics
  30.  *  - Transaction Cost Analytics
  31.  * 
  32.  *  DROP Portfolio Core implements libraries for the following:
  33.  *  - Asset Allocation Analytics
  34.  *  - Asset Liability Management Analytics
  35.  *  - Capital Estimation Analytics
  36.  *  - Exposure Analytics
  37.  *  - Margin Analytics
  38.  *  - XVA Analytics
  39.  * 
  40.  *  DROP Computational Core implements libraries for the following:
  41.  *  - Algorithm Support
  42.  *  - Computation Support
  43.  *  - Function Analysis
  44.  *  - Model Validation
  45.  *  - Numerical Analysis
  46.  *  - Numerical Optimizer
  47.  *  - Spline Builder
  48.  *  - Statistical Learning
  49.  * 
  50.  *  Documentation for DROP is Spread Over:
  51.  * 
  52.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  53.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  54.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  55.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  56.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  57.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  58.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  59.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  60.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  61.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  62.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  63.  * 
  64.  *  Licensed under the Apache License, Version 2.0 (the "License");
  65.  *      you may not use this file except in compliance with the License.
  66.  *   
  67.  *  You may obtain a copy of the License at
  68.  *      http://www.apache.org/licenses/LICENSE-2.0
  69.  *  
  70.  *  Unless required by applicable law or agreed to in writing, software
  71.  *      distributed under the License is distributed on an "AS IS" BASIS,
  72.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  73.  *  
  74.  *  See the License for the specific language governing permissions and
  75.  *      limitations under the License.
  76.  */

  78. /**
  79.  * <i>ProductClassMargin</i> holds the Initial Margin Estimates for a Single Product Class across the Six
  80.  * Risk Factors - Interest Rate, Credit Qualifying, Credit Non-Qualifying, Equity, Commodity, and FX. The
  81.  * References are:
  82.  * 
  83.  * <br><br>
  84.  *  <ul>
  85.  *      <li>
  86.  *          Andersen, L. B. G., M. Pykhtin, and A. Sokol (2017): Credit Exposure in the Presence of Initial
  87.  *              Margin https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2806156 <b>eSSRN</b>
  88.  *      </li>
  89.  *      <li>
  90.  *          Albanese, C., S. Caenazzo, and O. Frankel (2017): Regression Sensitivities for Initial Margin
  91.  *              Calculations https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2763488 <b>eSSRN</b>
  92.  *      </li>
  93.  *      <li>
  94.  *          Anfuso, F., D. Aziz, P. Giltinan, and K. Loukopoulus (2017): A Sound Modeling and Back-testing
  95.  *              Framework for Forecasting Initial Margin Requirements
  96.  *                  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2716279 <b>eSSRN</b>
  97.  *      </li>
  98.  *      <li>
  99.  *          Caspers, P., P. Giltinan, R. Lichters, and N. Nowaczyk (2017): Forecasting Initial Margin
  100.  *              Requirements - A Model Evaluation https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2911167
  101.  *                  <b>eSSRN</b>
  102.  *      </li>
  103.  *      <li>
  104.  *          International Swaps and Derivatives Association (2017): SIMM v2.0 Methodology
  105.  *              https://www.isda.org/a/oFiDE/isda-simm-v2.pdf
  106.  *      </li>
  107.  *  </ul>
  108.  * 
  109.  * <br><br>
  110.  *  <ul>
  111.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
  112.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/MarginAnalyticsLibrary.md">Initial and Variation Margin Analytics</a></li>
  113.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/simm/README.md">Initial Margin Analytics based on ISDA SIMM and its Variants</a></li>
  114.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/simm/estimator/README.md">ISDA SIMM Core + Add-On Estimator</a></li>
  115.  *  </ul>
  116.  * <br><br>
  117.  * 
  118.  * @author Lakshmi Krishnamurthy
  119.  */

  121. public class ProductClassMargin
  122. {
  123.     private org.drip.simm.margin.RiskClassAggregate _fxRiskClassAggregate = null;
  124.     private org.drip.simm.margin.RiskClassAggregateIR _irRiskClassAggregate = null;
  125.     private org.drip.simm.margin.RiskClassAggregate _equityRiskClassAggregate = null;
  126.     private org.drip.simm.margin.RiskClassAggregate _commodityRiskClassAggregate = null;
  127.     private org.drip.simm.margin.RiskClassAggregateCR _creditQualifyingRiskClassAggregate = null;
  128.     private org.drip.simm.margin.RiskClassAggregateCR _creditNonQualifyingRiskClassAggregate = null;

  130.     /**
  131.      * ProductClassMargin Constructor
  132.      * 
  133.      * @param irRiskClassAggregate IR Risk Class Aggregate
  134.      * @param creditQualifyingRiskClassAggregate Credit Qualifying Risk Class Aggregate
  135.      * @param creditNonQualifyingRiskClassAggregate Credit Non-Qualifying Risk Class Aggregate
  136.      * @param equityRiskClassAggregate Equity Risk Class Aggregate
  137.      * @param fxRiskClassAggregate FX Risk Class Aggregate
  138.      * @param commodityRiskClassAggregate Commodity Risk Class Aggregate
  139.      * 
  140.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  141.      */

  143.     public ProductClassMargin (
  144.         final org.drip.simm.margin.RiskClassAggregateIR irRiskClassAggregate,
  145.         final org.drip.simm.margin.RiskClassAggregateCR creditQualifyingRiskClassAggregate,
  146.         final org.drip.simm.margin.RiskClassAggregateCR creditNonQualifyingRiskClassAggregate,
  147.         final org.drip.simm.margin.RiskClassAggregate equityRiskClassAggregate,
  148.         final org.drip.simm.margin.RiskClassAggregate fxRiskClassAggregate,
  149.         final org.drip.simm.margin.RiskClassAggregate commodityRiskClassAggregate)
  150.         throws java.lang.Exception
  151.     {
  152.         _irRiskClassAggregate = irRiskClassAggregate;
  153.         _fxRiskClassAggregate = fxRiskClassAggregate;
  154.         _equityRiskClassAggregate = equityRiskClassAggregate;
  155.         _commodityRiskClassAggregate = commodityRiskClassAggregate;
  156.         _creditQualifyingRiskClassAggregate = creditQualifyingRiskClassAggregate;
  157.         _creditNonQualifyingRiskClassAggregate = creditNonQualifyingRiskClassAggregate;

  159.         if ((null == _equityRiskClassAggregate &&
  160.             null == _commodityRiskClassAggregate &&
  161.             null == _fxRiskClassAggregate &&
  162.             null == _irRiskClassAggregate &&
  163.             null == _creditQualifyingRiskClassAggregate &&
  164.             null == _creditNonQualifyingRiskClassAggregate))
  165.         {
  166.             throw new java.lang.Exception ("ProductClassMargin => Invalid Inputs");
  167.         }
  168.     }

  170.     /**
  171.      * Retrieve the Interest Rate Risk Class Aggregate
  172.      * 
  173.      * @return The Interest Rate Risk Class Aggregate
  174.      */

  176.     public org.drip.simm.margin.RiskClassAggregateIR irRiskClassAggregate()
  177.     {
  178.         return _irRiskClassAggregate;
  179.     }

  181.     /**
  182.      * Retrieve the Credit Qualifying Risk Class Aggregate
  183.      * 
  184.      * @return The Credit Qualifying Risk Class Aggregate
  185.      */

  187.     public org.drip.simm.margin.RiskClassAggregateCR creditQualifyingRiskClassAggregate()
  188.     {
  189.         return _creditQualifyingRiskClassAggregate;
  190.     }

  192.     /**
  193.      * Retrieve the Credit Non-Qualifying Risk Class Aggregate
  194.      * 
  195.      * @return The Credit Non-Qualifying Risk Class Aggregate
  196.      */

  198.     public org.drip.simm.margin.RiskClassAggregateCR creditNonQualifyingRiskClassAggregate()
  199.     {
  200.         return _creditNonQualifyingRiskClassAggregate;
  201.     }

  203.     /**
  204.      * Retrieve the Equity Risk Class Aggregate
  205.      * 
  206.      * @return The Equity Risk Class Aggregate
  207.      */

  209.     public org.drip.simm.margin.RiskClassAggregate equityRiskClassAggregate()
  210.     {
  211.         return _equityRiskClassAggregate;
  212.     }

  214.     /**
  215.      * Retrieve the FX Risk Class Aggregate
  216.      * 
  217.      * @return The FX Risk Class Aggregate
  218.      */

  220.     public org.drip.simm.margin.RiskClassAggregate fxRiskClassAggregate()
  221.     {
  222.         return _fxRiskClassAggregate;
  223.     }

  225.     /**
  226.      * Retrieve the Commodity Risk Class Aggregate
  227.      * 
  228.      * @return The Commodity Risk Class Aggregate
  229.      */

  231.     public org.drip.simm.margin.RiskClassAggregate commodityRiskClassAggregate()
  232.     {
  233.         return _commodityRiskClassAggregate;
  234.     }

  236.     /**
  237.      * Compute the Total IM
  238.      * 
  239.      * @param labelCorrelation Cross Risk Class Label Correlation
  240.      * 
  241.      * @return The Total IM
  242.      * 
  243.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  244.      */

  246.     public double total (
  247.         final org.drip.measure.stochastic.LabelCorrelation labelCorrelation)
  248.         throws java.lang.Exception
  249.     {
  250.         if (null == labelCorrelation)
  251.         {
  252.             throw new java.lang.Exception ("ProductClassMargin::total => Invalid Inputs");
  253.         }

  255.         double irIM = null == _irRiskClassAggregate ? 0. : _irRiskClassAggregate.margin();

  257.         double fxIM = null == _fxRiskClassAggregate ? 0. : _fxRiskClassAggregate.margin();

  259.         double equityIM = null == _equityRiskClassAggregate ? 0. : _equityRiskClassAggregate.margin();

  261.         double commodityIM = null == _commodityRiskClassAggregate ? 0. :
  262.             _commodityRiskClassAggregate.margin();

  264.         double creditQualifyingIM = null == _creditQualifyingRiskClassAggregate ? 0. :
  265.             _creditQualifyingRiskClassAggregate.margin();

  267.         double creditNonQualifyingIM = null == _creditNonQualifyingRiskClassAggregate ? 0. :
  268.             _creditNonQualifyingRiskClassAggregate.margin();

  270.         double totalIM = 0.;
  271.         totalIM = totalIM + irIM *irIM;
  272.         totalIM = totalIM + creditQualifyingIM * creditQualifyingIM;
  273.         totalIM = totalIM + creditNonQualifyingIM * creditNonQualifyingIM;
  274.         totalIM = totalIM + equityIM * equityIM;
  275.         totalIM = totalIM + fxIM * fxIM;
  276.         totalIM = totalIM + commodityIM * commodityIM;

  278.         totalIM = totalIM + labelCorrelation.entry (
  279.             org.drip.simm.common.Chargram.IR,
  280.             org.drip.simm.common.Chargram.CRQ
  281.         ) * irIM * creditQualifyingIM;

  283.         totalIM = totalIM + labelCorrelation.entry (
  284.             org.drip.simm.common.Chargram.IR,
  285.             org.drip.simm.common.Chargram.CRNQ
  286.         ) * irIM * creditNonQualifyingIM;

  288.         totalIM = totalIM + labelCorrelation.entry (
  289.             org.drip.simm.common.Chargram.IR,
  290.             org.drip.simm.common.Chargram.EQ
  291.         ) * irIM * equityIM;

  293.         totalIM = totalIM + labelCorrelation.entry (
  294.             org.drip.simm.common.Chargram.IR,
  295.             org.drip.simm.common.Chargram.FX
  296.         ) * irIM * fxIM;

  298.         totalIM = totalIM + labelCorrelation.entry (
  299.             org.drip.simm.common.Chargram.IR,
  300.             org.drip.simm.common.Chargram.CT
  301.         ) * irIM * commodityIM;

  303.         totalIM = totalIM + labelCorrelation.entry (
  304.             org.drip.simm.common.Chargram.CRQ,
  305.             org.drip.simm.common.Chargram.CRNQ
  306.         ) * creditQualifyingIM * creditNonQualifyingIM;

  308.         totalIM = totalIM + labelCorrelation.entry (
  309.             org.drip.simm.common.Chargram.CRQ,
  310.             org.drip.simm.common.Chargram.EQ
  311.         ) * creditQualifyingIM * equityIM;

  313.         totalIM = totalIM + labelCorrelation.entry (
  314.             org.drip.simm.common.Chargram.CRQ,
  315.             org.drip.simm.common.Chargram.FX
  316.         ) * creditQualifyingIM * fxIM;

  318.         totalIM = totalIM + labelCorrelation.entry (
  319.             org.drip.simm.common.Chargram.CRQ,
  320.             org.drip.simm.common.Chargram.CT
  321.         ) * creditQualifyingIM * commodityIM;

  323.         totalIM = totalIM + labelCorrelation.entry (
  324.             org.drip.simm.common.Chargram.CRNQ,
  325.             org.drip.simm.common.Chargram.EQ
  326.         ) * creditNonQualifyingIM * equityIM;

  328.         totalIM = totalIM + labelCorrelation.entry (
  329.             org.drip.simm.common.Chargram.CRNQ,
  330.             org.drip.simm.common.Chargram.FX
  331.         ) * creditNonQualifyingIM * fxIM;

  333.         totalIM = totalIM + labelCorrelation.entry (
  334.             org.drip.simm.common.Chargram.CRNQ,
  335.             org.drip.simm.common.Chargram.CT
  336.         ) * creditNonQualifyingIM * commodityIM;

  338.         totalIM = totalIM + labelCorrelation.entry (
  339.             org.drip.simm.common.Chargram.EQ,
  340.             org.drip.simm.common.Chargram.FX
  341.         ) * equityIM * fxIM;

  343.         totalIM = totalIM + labelCorrelation.entry (
  344.             org.drip.simm.common.Chargram.EQ,
  345.             org.drip.simm.common.Chargram.CT
  346.         ) * equityIM * commodityIM;

  348.         totalIM = totalIM + labelCorrelation.entry (
  349.             org.drip.simm.common.Chargram.FX,
  350.             org.drip.simm.common.Chargram.CT
  351.         ) * fxIM * commodityIM;

  353.         return java.lang.Math.sqrt (totalIM);
  354.     }
  355. }
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