BucketSensitivity.java

  1. package org.drip.simm.product;

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

  119. public class BucketSensitivity
  120. {
  121.     private java.util.Map<java.lang.String, java.lang.Double> _riskFactorSensitivityMap = null;

  123.     private org.drip.simm.margin.BucketAggregate linearAggregate (
  124.         final org.drip.simm.parameters.BucketSensitivitySettings bucketSensitivitySettings)
  125.     {
  126.         double cumulativeRiskFactorSensitivity = 0.;
  127.         double weightedAggregateSensitivityVariance = 0.;

  129.         double memberCorrelation = bucketSensitivitySettings.memberCorrelation();

  131.         double bucketSensitivityRiskWeight = bucketSensitivitySettings.riskWeight();

  133.         double concentrationNormalizer = 1. / bucketSensitivitySettings.concentrationThreshold();

  135.         java.util.Map<java.lang.String, org.drip.simm.margin.RiskFactorAggregate>
  136.             augmentedBucketSensitivityMap = new
  137.                 org.drip.analytics.support.CaseInsensitiveHashMap<org.drip.simm.margin.RiskFactorAggregate>();

  139.         for (java.util.Map.Entry<java.lang.String, java.lang.Double> riskFactorSensitivityMapEntry :
  140.             _riskFactorSensitivityMap.entrySet())
  141.         {
  142.             double riskFactorSensitivity = riskFactorSensitivityMapEntry.getValue();

  144.             double concentrationRiskFactor = java.lang.Math.max (
  145.                 1.,
  146.                 java.lang.Math.sqrt (java.lang.Math.abs (riskFactorSensitivity) * concentrationNormalizer)
  147.             );

  149.             double riskFactorSensitivityMargin = riskFactorSensitivity * bucketSensitivityRiskWeight *
  150.                 concentrationRiskFactor;
  151.             cumulativeRiskFactorSensitivity = cumulativeRiskFactorSensitivity + riskFactorSensitivity;

  153.             try
  154.             {
  155.                 augmentedBucketSensitivityMap.put (
  156.                     riskFactorSensitivityMapEntry.getKey(),
  157.                     new org.drip.simm.margin.RiskFactorAggregate (
  158.                         riskFactorSensitivityMargin,
  159.                         concentrationRiskFactor
  160.                     )
  161.                 );
  162.             }
  163.             catch (java.lang.Exception e)
  164.             {
  165.                 e.printStackTrace();

  167.                 return null;
  168.             }
  169.         }

  171.         for (java.util.Map.Entry<java.lang.String, org.drip.simm.margin.RiskFactorAggregate>
  172.             augmentedBucketSensitivityMapOuterEntry : augmentedBucketSensitivityMap.entrySet())
  173.         {
  174.             org.drip.simm.margin.RiskFactorAggregate augmentedRiskFactorSensitivityOuter =
  175.                 augmentedBucketSensitivityMapOuterEntry.getValue();

  177.             double riskFactorSensitivityOuter = augmentedRiskFactorSensitivityOuter.sensitivityMargin();

  179.             double concentrationRiskFactorOuter =
  180.                 augmentedRiskFactorSensitivityOuter.concentrationRiskFactor();

  182.             java.lang.String riskFactorKeyOuter = augmentedBucketSensitivityMapOuterEntry.getKey();

  184.             for (java.util.Map.Entry<java.lang.String, org.drip.simm.margin.RiskFactorAggregate>
  185.                 augmentedBucketSensitivityMapInnerEntry : augmentedBucketSensitivityMap.entrySet())
  186.             {
  187.                 org.drip.simm.margin.RiskFactorAggregate augmentedRiskFactorSensitivityInner =
  188.                     augmentedBucketSensitivityMapInnerEntry.getValue();

  190.                 double concentrationRiskFactorInner =
  191.                     augmentedRiskFactorSensitivityInner.concentrationRiskFactor();

  193.                 double riskFactorSensitivityInner =
  194.                     augmentedRiskFactorSensitivityInner.sensitivityMargin();

  196.                 double concentrationScaleDown = java.lang.Math.min (
  197.                     concentrationRiskFactorInner,
  198.                     concentrationRiskFactorOuter
  199.                 ) / java.lang.Math.max (
  200.                     concentrationRiskFactorInner,
  201.                     concentrationRiskFactorOuter
  202.                 );

  204.                 weightedAggregateSensitivityVariance = weightedAggregateSensitivityVariance +
  205.                     concentrationScaleDown * riskFactorSensitivityOuter *
  206.                         (riskFactorKeyOuter.equalsIgnoreCase
  207.                             (augmentedBucketSensitivityMapInnerEntry.getKey()) ? 1. : memberCorrelation) *
  208.                                 riskFactorSensitivityInner;
  209.             }
  210.         }

  212.         try
  213.         {
  214.             return new org.drip.simm.margin.BucketAggregate (
  215.                 augmentedBucketSensitivityMap,
  216.                 weightedAggregateSensitivityVariance,
  217.                 cumulativeRiskFactorSensitivity
  218.             );
  219.         }
  220.         catch (java.lang.Exception e)
  221.         {
  222.             e.printStackTrace();
  223.         }

  225.         return null;
  226.     }

  228.     private org.drip.simm.margin.BucketAggregate curvatureAggregate (
  229.         final org.drip.simm.parameters.BucketSensitivitySettings bucketSensitivitySettings)
  230.     {
  231.         double cumulativeRiskFactorSensitivity = 0.;
  232.         double weightedAggregateSensitivityVariance = 0.;

  234.         double memberCorrelation = bucketSensitivitySettings.memberCorrelation();

  236.         double bucketSensitivityRiskWeight = bucketSensitivitySettings.riskWeight();

  238.         double concentrationNormalizer = 1. / bucketSensitivitySettings.concentrationThreshold();

  240.         java.util.Map<java.lang.String, org.drip.simm.margin.RiskFactorAggregate>
  241.             augmentedBucketSensitivityMap = new
  242.                 org.drip.analytics.support.CaseInsensitiveHashMap<org.drip.simm.margin.RiskFactorAggregate>();

  244.         for (java.util.Map.Entry<java.lang.String, java.lang.Double> riskFactorSensitivityMapEntry :
  245.             _riskFactorSensitivityMap.entrySet())
  246.         {
  247.             double riskFactorSensitivity = riskFactorSensitivityMapEntry.getValue();

  249.             double concentrationRiskFactor = java.lang.Math.max (
  250.                 1.,
  251.                 java.lang.Math.sqrt (java.lang.Math.abs (riskFactorSensitivity) * concentrationNormalizer)
  252.             );

  254.             double riskFactorSensitivityMargin = riskFactorSensitivity * bucketSensitivityRiskWeight *
  255.                 concentrationRiskFactor;
  256.             cumulativeRiskFactorSensitivity = cumulativeRiskFactorSensitivity + riskFactorSensitivity;

  258.             try
  259.             {
  260.                 augmentedBucketSensitivityMap.put (
  261.                     riskFactorSensitivityMapEntry.getKey(),
  262.                     new org.drip.simm.margin.RiskFactorAggregate (
  263.                         riskFactorSensitivityMargin,
  264.                         concentrationRiskFactor
  265.                     )
  266.                 );
  267.             }
  268.             catch (java.lang.Exception e)
  269.             {
  270.                 e.printStackTrace();

  272.                 return null;
  273.             }
  274.         }

  276.         for (java.util.Map.Entry<java.lang.String, org.drip.simm.margin.RiskFactorAggregate>
  277.             augmentedBucketSensitivityMapOuterEntry : augmentedBucketSensitivityMap.entrySet())
  278.         {
  279.             org.drip.simm.margin.RiskFactorAggregate augmentedRiskFactorSensitivityOuter =
  280.                 augmentedBucketSensitivityMapOuterEntry.getValue();

  282.             double riskFactorSensitivityOuter = augmentedRiskFactorSensitivityOuter.sensitivityMargin();

  284.             java.lang.String riskFactorKeyOuter = augmentedBucketSensitivityMapOuterEntry.getKey();

  286.             for (java.util.Map.Entry<java.lang.String, org.drip.simm.margin.RiskFactorAggregate>
  287.                 augmentedBucketSensitivityMapInnerEntry : augmentedBucketSensitivityMap.entrySet())
  288.             {
  289.                 org.drip.simm.margin.RiskFactorAggregate augmentedRiskFactorSensitivityInner =
  290.                     augmentedBucketSensitivityMapInnerEntry.getValue();

  292.                 weightedAggregateSensitivityVariance = weightedAggregateSensitivityVariance +
  293.                     riskFactorSensitivityOuter * (riskFactorKeyOuter.equalsIgnoreCase
  294.                         (augmentedBucketSensitivityMapInnerEntry.getKey()) ? 1. : memberCorrelation *
  295.                             memberCorrelation) * augmentedRiskFactorSensitivityInner.sensitivityMargin();
  296.             }
  297.         }

  299.         try
  300.         {
  301.             return new org.drip.simm.margin.BucketAggregate (
  302.                 augmentedBucketSensitivityMap,
  303.                 weightedAggregateSensitivityVariance,
  304.                 cumulativeRiskFactorSensitivity
  305.             );
  306.         }
  307.         catch (java.lang.Exception e)
  308.         {
  309.             e.printStackTrace();
  310.         }

  312.         return null;
  313.     }

  315.     /**
  316.      * BucketSensitivity Constructor
  317.      * 
  318.      * @param riskFactorSensitivityMap The Map of Risk Factor Sensitivities
  319.      * 
  320.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  321.      */

  323.     public BucketSensitivity (
  324.         final java.util.Map<java.lang.String, java.lang.Double> riskFactorSensitivityMap)
  325.         throws java.lang.Exception
  326.     {
  327.         if (null == (_riskFactorSensitivityMap = riskFactorSensitivityMap) ||
  328.             0 == _riskFactorSensitivityMap.size())
  329.         {
  330.             throw new java.lang.Exception ("BucketSensitivity Constructor => Invalid Inputs");
  331.         }
  332.     }

  334.     /**
  335.      * Retrieve the Map of Risk Factor Sensitivities
  336.      * 
  337.      * @return The Map of Risk Factor Sensitivities
  338.      */

  340.     public java.util.Map<java.lang.String, java.lang.Double> riskFactorSensitivityMap()
  341.     {
  342.         return _riskFactorSensitivityMap;
  343.     }

  345.     /**
  346.      * Weight and Adjust the Input Sensitivities
  347.      * 
  348.      * @param bucketSensitivitySettings The Bucket Sensitivity Settings
  349.      * 
  350.      * @return Map of Weighted and Adjusted Input Sensitivities
  351.      */

  353.     public org.drip.simm.margin.BucketAggregate aggregate (
  354.         final org.drip.simm.parameters.BucketSensitivitySettings bucketSensitivitySettings)
  355.     {
  356.         if (null == bucketSensitivitySettings)
  357.         {
  358.             return null;
  359.         }

  361.         return bucketSensitivitySettings instanceof org.drip.simm.parameters.BucketCurvatureSettings ?
  362.             curvatureAggregate (bucketSensitivitySettings) : linearAggregate (bucketSensitivitySettings);
  363.     }
  364. }
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