BucketVegaSettings.java

  1. package org.drip.simm.parameters;

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

  120. public class BucketVegaSettings extends org.drip.simm.parameters.BucketSensitivitySettings
  121. {
  122.     private double _impliedVolatility = java.lang.Double.NaN;
  123.     private double _historicalVolatilityRatio = java.lang.Double.NaN;

  125.     /**
  126.      * Retrieve the ISDA 2.0 Equity Vega Settings
  127.      * 
  128.      * @param bucketIndex The Bucket Index
  129.      * 
  130.      * @return The ISDA 2.0 Equity Vega Settings
  131.      */

  133.     public static BucketVegaSettings ISDA_EQ_20 (
  134.         final int bucketIndex)
  135.     {
  136.         org.drip.simm.equity.EQBucket equityBucket =
  137.             org.drip.simm.equity.EQSettingsContainer20.BucketMap().get (bucketIndex);

  139.         if (null == equityBucket)
  140.         {
  141.             return null;
  142.         }

  144.         try
  145.         {
  146.             return new BucketVegaSettings (
  147.                 equityBucket.vegaRiskWeight() * equityBucket.deltaRiskWeight(),
  148.                 org.drip.simm.equity.EQRiskThresholdContainer20.DeltaVegaThresholdMap().get
  149.                     (bucketIndex).vega(),
  150.                 equityBucket.memberCorrelation(),
  151.                 java.lang.Math.sqrt (365. / 14.) /
  152.                     org.drip.measure.gaussian.NormalQuadrature.InverseCDF (0.99),
  153.                 org.drip.simm.equity.EQSystemics20.HISTORICAL_VOLATILITY_RATIO
  154.             );
  155.         }
  156.         catch (java.lang.Exception e)
  157.         {
  158.             e.printStackTrace();
  159.         }

  161.         return null;
  162.     }

  164.     /**
  165.      * Retrieve the ISDA 2.1 Equity Vega Settings
  166.      * 
  167.      * @param bucketIndex The Bucket Index
  168.      * 
  169.      * @return The ISDA 2.1 Equity Vega Settings
  170.      */

  172.     public static BucketVegaSettings ISDA_EQ_21 (
  173.         final int bucketIndex)
  174.     {
  175.         org.drip.simm.equity.EQBucket equityBucket =
  176.             org.drip.simm.equity.EQSettingsContainer21.BucketMap().get (bucketIndex);

  178.         if (null == equityBucket)
  179.         {
  180.             return null;
  181.         }

  183.         try
  184.         {
  185.             return new BucketVegaSettings (
  186.                 equityBucket.vegaRiskWeight() * equityBucket.deltaRiskWeight(),
  187.                 org.drip.simm.equity.EQRiskThresholdContainer21.DeltaVegaThresholdMap().get
  188.                     (bucketIndex).vega(),
  189.                 equityBucket.memberCorrelation(),
  190.                 java.lang.Math.sqrt (365. / 14.) /
  191.                     org.drip.measure.gaussian.NormalQuadrature.InverseCDF (0.99),
  192.                 org.drip.simm.equity.EQSystemics21.HISTORICAL_VOLATILITY_RATIO
  193.             );
  194.         }
  195.         catch (java.lang.Exception e)
  196.         {
  197.             e.printStackTrace();
  198.         }

  200.         return null;
  201.     }

  203.     /**
  204.      * Construct the Standard ISDA 2.0 Commodity Vega Settings for the specified Bucket
  205.      * 
  206.      * @param bucketIndex The Bucket Index
  207.      * 
  208.      * @return The Standard ISDA 2.0 Commodity Vega Settings for the specified Bucket
  209.      */

  211.     public static BucketVegaSettings ISDA_CT_20 (
  212.         final int bucketIndex)
  213.     {
  214.         org.drip.simm.commodity.CTBucket commodityBucket =
  215.             org.drip.simm.commodity.CTSettingsContainer20.BucketMap().get (bucketIndex);

  217.         if (null == commodityBucket)
  218.         {
  219.             return null;
  220.         }

  222.         try
  223.         {
  224.             return new org.drip.simm.parameters.BucketVegaSettings (
  225.                 org.drip.simm.commodity.CTSystemics20.VEGA_RISK_WEIGHT * commodityBucket.deltaRiskWeight(),
  226.                 org.drip.simm.commodity.CTRiskThresholdContainer20.DeltaVegaThresholdMap().get
  227.                     (bucketIndex).vega(),
  228.                 commodityBucket.memberCorrelation(),
  229.                 java.lang.Math.sqrt (365. / 14.) /
  230.                     org.drip.measure.gaussian.NormalQuadrature.InverseCDF (0.99),
  231.                 org.drip.simm.commodity.CTSystemics20.HISTORICAL_VOLATILITY_RATIO
  232.             );
  233.         }
  234.         catch (java.lang.Exception e)
  235.         {
  236.             e.printStackTrace();
  237.         }

  239.         return null;
  240.     }

  242.     /**
  243.      * Construct the Standard ISDA 2.1 Commodity Vega Settings for the specified Bucket
  244.      * 
  245.      * @param bucketIndex The Bucket Index
  246.      * 
  247.      * @return The Standard ISDA 2.1 Commodity Vega Settings for the specified Bucket
  248.      */

  250.     public static BucketVegaSettings ISDA_CT_21 (
  251.         final int bucketIndex)
  252.     {
  253.         org.drip.simm.commodity.CTBucket commodityBucket =
  254.             org.drip.simm.commodity.CTSettingsContainer21.BucketMap().get (bucketIndex);

  256.         if (null == commodityBucket)
  257.         {
  258.             return null;
  259.         }

  261.         try
  262.         {
  263.             return new org.drip.simm.parameters.BucketVegaSettings (
  264.                 org.drip.simm.commodity.CTSystemics21.VEGA_RISK_WEIGHT * commodityBucket.deltaRiskWeight(),
  265.                 org.drip.simm.commodity.CTRiskThresholdContainer21.DeltaVegaThresholdMap().get
  266.                     (bucketIndex).vega(),
  267.                 commodityBucket.memberCorrelation(),
  268.                 java.lang.Math.sqrt (365. / 14.) /
  269.                     org.drip.measure.gaussian.NormalQuadrature.InverseCDF (0.99),
  270.                 org.drip.simm.commodity.CTSystemics21.HISTORICAL_VOLATILITY_RATIO
  271.             );
  272.         }
  273.         catch (java.lang.Exception e)
  274.         {
  275.             e.printStackTrace();
  276.         }

  278.         return null;
  279.     }

  281.     /**
  282.      * Construct the Standard ISDA 2.0 Bucket FX Settings
  283.      * 
  284.      * @param vegaCategory The Vega Category
  285.      * 
  286.      * @return The Standard ISDA 2.0 Bucket FX Settings
  287.      */

  289.     public static BucketVegaSettings ISDA_FX_20 (
  290.         final java.lang.String vegaCategory)
  291.     {
  292.         java.util.Map<java.lang.String, java.lang.Double> fxConcentrationCategoryVegaMap =
  293.             org.drip.simm.fx.FXRiskThresholdContainer20.CategoryVegaMap();

  295.         try
  296.         {
  297.             return fxConcentrationCategoryVegaMap.containsKey (vegaCategory) ?
  298.                 new org.drip.simm.parameters.BucketVegaSettings (
  299.                     org.drip.simm.fx.FXSystemics20.VEGA_RISK_WEIGHT *
  300.                         org.drip.simm.fx.FXSystemics20.DELTA_RISK_WEIGHT,
  301.                     fxConcentrationCategoryVegaMap.get (vegaCategory),
  302.                     org.drip.simm.fx.FXSystemics20.CORRELATION,
  303.                     java.lang.Math.sqrt (365. / 14.) /
  304.                         org.drip.measure.gaussian.NormalQuadrature.InverseCDF (0.99),
  305.                     org.drip.simm.fx.FXSystemics20.HISTORICAL_VOLATILITY_RATIO
  306.                 ) : null;
  307.         }
  308.         catch (java.lang.Exception e)
  309.         {
  310.             e.printStackTrace();
  311.         }

  313.         return null;
  314.     }

  316.     /**
  317.      * Construct the Standard ISDA 2.1 Bucket FX Settings
  318.      * 
  319.      * @param vegaCategory The Vega Category
  320.      * 
  321.      * @return The Standard ISDA 2.1 Bucket FX Settings
  322.      */

  324.     public static BucketVegaSettings ISDA_FX_21 (
  325.         final java.lang.String vegaCategory)
  326.     {
  327.         java.util.Map<java.lang.String, java.lang.Double> fxConcentrationCategoryVegaMap =
  328.             org.drip.simm.fx.FXRiskThresholdContainer21.CategoryVegaMap();

  330.         try
  331.         {
  332.             return fxConcentrationCategoryVegaMap.containsKey (vegaCategory) ?
  333.                 new org.drip.simm.parameters.BucketVegaSettings (
  334.                     org.drip.simm.fx.FXSystemics21.VEGA_RISK_WEIGHT *
  335.                         org.drip.simm.fx.FXSystemics21.DELTA_RISK_WEIGHT,
  336.                     fxConcentrationCategoryVegaMap.get (vegaCategory),
  337.                     org.drip.simm.fx.FXSystemics21.CORRELATION,
  338.                     java.lang.Math.sqrt (365. / 14.) /
  339.                         org.drip.measure.gaussian.NormalQuadrature.InverseCDF (0.99),
  340.                     org.drip.simm.fx.FXSystemics21.HISTORICAL_VOLATILITY_RATIO
  341.                 ) : null;
  342.         }
  343.         catch (java.lang.Exception e)
  344.         {
  345.             e.printStackTrace();
  346.         }

  348.         return null;
  349.     }

  351.     /**
  352.      * BucketVegaSettings Constructor
  353.      * 
  354.      * @param riskWeight The Vega Risk Weight
  355.      * @param concentrationFactor The Concentration Factor
  356.      * @param memberCorrelation The Member Correlation
  357.      * @param impliedVolatility The Implied Volatility
  358.      * @param historicalVolatilityRatio The Historical Volatility Ratio
  359.      * 
  360.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  361.      */

  363.     public BucketVegaSettings (
  364.         final double riskWeight,
  365.         final double concentrationFactor,
  366.         final double memberCorrelation,
  367.         final double impliedVolatility,
  368.         final double historicalVolatilityRatio)
  369.         throws java.lang.Exception
  370.     {
  371.         super (
  372.             riskWeight,
  373.             concentrationFactor,
  374.             memberCorrelation
  375.         );

  377.         if (!org.drip.numerical.common.NumberUtil.IsValid (_impliedVolatility = impliedVolatility) ||
  378.                 0. > _impliedVolatility ||
  379.             !org.drip.numerical.common.NumberUtil.IsValid (_historicalVolatilityRatio =
  380.                 historicalVolatilityRatio) || 0. > _historicalVolatilityRatio)
  381.         {
  382.             throw new java.lang.Exception ("BucketVegaSettings Constructor => Invalid Inputs");
  383.         }
  384.     }

  386.     /**
  387.      * Retrieve the Implied Volatility
  388.      * 
  389.      * @return The Implied Volatility
  390.      */

  392.     public double impliedVolatility()
  393.     {
  394.         return _impliedVolatility;
  395.     }

  397.     /**
  398.      * Retrieve the Historical Volatility Ratio
  399.      * 
  400.      * @return The Historical Volatility Ratio
  401.      */

  403.     public double historicalVolatilityRatio()
  404.     {
  405.         return _historicalVolatilityRatio;
  406.     }

  408.     /**
  409.      * Retrieve the Raw Vega Risk Weight
  410.      * 
  411.      * @return The Raw Vega Risk Weight
  412.      */

  414.     public double rawRiskWeight()
  415.     {
  416.         return super.riskWeight();
  417.     }

  419.     @Override public double riskWeight()
  420.     {
  421.         return super.riskWeight() * _impliedVolatility;
  422.     }
  423. }
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