CurvatureEstimatorResponseFunction.java
package org.drip.simm.foundation;
/*
* -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
*/
/*!
* Copyright (C) 2020 Lakshmi Krishnamurthy
* Copyright (C) 2019 Lakshmi Krishnamurthy
* Copyright (C) 2018 Lakshmi Krishnamurthy
*
* This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
* asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
* analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
* equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
* numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
* and computational support.
*
* https://lakshmidrip.github.io/DROP/
*
* DROP is composed of three modules:
*
* - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
* - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
* - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
*
* DROP Product Core implements libraries for the following:
* - Fixed Income Analytics
* - Loan Analytics
* - Transaction Cost Analytics
*
* DROP Portfolio Core implements libraries for the following:
* - Asset Allocation Analytics
* - Asset Liability Management Analytics
* - Capital Estimation Analytics
* - Exposure Analytics
* - Margin Analytics
* - XVA Analytics
*
* DROP Computational Core implements libraries for the following:
* - Algorithm Support
* - Computation Support
* - Function Analysis
* - Model Validation
* - Numerical Analysis
* - Numerical Optimizer
* - Spline Builder
* - Statistical Learning
*
* Documentation for DROP is Spread Over:
*
* - Main => https://lakshmidrip.github.io/DROP/
* - Wiki => https://github.com/lakshmiDRIP/DROP/wiki
* - GitHub => https://github.com/lakshmiDRIP/DROP
* - Repo Layout Taxonomy => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
* - Javadoc => https://lakshmidrip.github.io/DROP/Javadoc/index.html
* - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
* - Release Versions => https://lakshmidrip.github.io/DROP/version.html
* - Community Credits => https://lakshmidrip.github.io/DROP/credits.html
* - Issues Catalog => https://github.com/lakshmiDRIP/DROP/issues
* - JUnit => https://lakshmidrip.github.io/DROP/junit/index.html
* - Jacoco => https://lakshmidrip.github.io/DROP/jacoco/index.html
*
* 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.
*/
/**
* <i>CurvatureEstimatorResponseFunction</i> estimates the Curvature Margin from the Curvature Sensitivities
* using the Curvature Response Function. The References are:
*
* <br><br>
* <ul>
* <li>
* 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 <b>eSSRN</b>
* </li>
* <li>
* Albanese, C., S. Caenazzo, and O. Frankel (2017): Regression Sensitivities for Initial Margin
* Calculations https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2763488 <b>eSSRN</b>
* </li>
* <li>
* 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 <b>eSSRN</b>
* </li>
* <li>
* 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
* <b>eSSRN</b>
* </li>
* <li>
* International Swaps and Derivatives Association (2017): SIMM v2.0 Methodology
* https://www.isda.org/a/oFiDE/isda-simm-v2.pdf
* </li>
* </ul>
*
* <br><br>
* <ul>
* <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
* <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/MarginAnalyticsLibrary.md">Initial and Variation Margin Analytics</a></li>
* <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>
* <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/simm/foundation/README.md">Foundation Utilities for ISDA SIMM</a></li>
* </ul>
* <br><br>
*
* @author Lakshmi Krishnamurthy
*/
public class CurvatureEstimatorResponseFunction implements org.drip.simm.foundation.CurvatureEstimator
{
private org.drip.simm.foundation.CurvatureResponse _curvatureResponse = null;
/**
* Construct the Cornish Fischer Instance of the Curvature Estimator
*
* @return The Cornish Fischer Instance of the Curvature Estimator
*/
public static final CurvatureEstimatorResponseFunction CornishFischer()
{
try
{
return new CurvatureEstimatorResponseFunction
(org.drip.simm.foundation.CurvatureResponseCornishFischer.Standard());
}
catch (java.lang.Exception e)
{
e.printStackTrace();
}
return null;
}
/**
* CurvatureEstimatorResponseFunction Constructor
*
* @param curvatureResponse The Curvature Response Function
*
* @throws java.lang.Exception Thrown if the Inputs are Invalid
*/
public CurvatureEstimatorResponseFunction (
final org.drip.simm.foundation.CurvatureResponse curvatureResponse)
throws java.lang.Exception
{
if (null == (_curvatureResponse = curvatureResponse))
{
throw new java.lang.Exception
("CurvatureEstimatorResponseFunction Constructor => Invalid Inputs");
}
}
/**
* Retrieve the Curvature Response Function
*
* @return The Curvature Response Function
*/
public org.drip.simm.foundation.CurvatureResponse curvatureResponse()
{
return _curvatureResponse;
}
@Override public double margin (
final double cumulativeRiskFactorSensitivity,
final double cumulativeRiskFactorSensitivityPositive,
final double riskFactorSensitivityVariance)
throws java.lang.Exception
{
if (!org.drip.numerical.common.NumberUtil.IsValid (riskFactorSensitivityVariance) ||
0. > riskFactorSensitivityVariance)
{
throw new java.lang.Exception ("CurvatureEstimatorResponseFunction::margin => Invalid Inputs");
}
return java.lang.Math.max (
cumulativeRiskFactorSensitivity +
_curvatureResponse.lambda (
cumulativeRiskFactorSensitivity,
cumulativeRiskFactorSensitivityPositive
) * java.lang.Math.sqrt (riskFactorSensitivityVariance),
0.
);
}
@Override public boolean isCorrelatorQuadratric()
{
return true;
}
@Override public double varianceModulator (
final java.lang.String bucketKey1,
final double bucketVariance1,
final java.lang.String bucketKey2,
final double bucketVariance2)
throws java.lang.Exception
{
return 1.;
}
}