RiskMeasureSensitivity.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>RiskMeasureSensitivity</i> holds the Risk Class Bucket Sensitivities for a single Risk Measure. The
  80.  * 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/product/README.md">ISDA SIMM Risk Factor Sensitivities</a></li>
  114.  *  </ul>
  115.  * <br><br>
  116.  * 
  117.  * @author Lakshmi Krishnamurthy
  118.  */

  120. public class RiskMeasureSensitivity
  121. {
  122.     private java.util.Map<java.lang.String, org.drip.simm.product.BucketSensitivity> _bucketSensitivityMap =
  123.         null;

  125.     private static final double PositionPrincipalComponentCovariance (
  126.         final org.drip.simm.margin.BucketAggregate bucketAggregate,
  127.         final org.drip.simm.foundation.MarginEstimationSettings marginEstimationSettings)
  128.         throws java.lang.Exception
  129.     {
  130.         java.lang.String positionPrincipalComponentScheme =
  131.             marginEstimationSettings.positionPrincipalComponentScheme();

  133.         if (positionPrincipalComponentScheme.equalsIgnoreCase
  134.             (org.drip.simm.foundation.MarginEstimationSettings.POSITION_PRINCIPAL_COMPONENT_COVARIANCE_ESTIMATOR_FRTB))
  135.         {
  136.             return bucketAggregate.positionPrincipalComponentCovarianceFRTB();
  137.         }

  139.         if (positionPrincipalComponentScheme.equalsIgnoreCase
  140.             (org.drip.simm.foundation.MarginEstimationSettings.POSITION_PRINCIPAL_COMPONENT_COVARIANCE_ESTIMATOR_ISDA))
  141.         {
  142.             return bucketAggregate.positionPrincipalComponentCovarianceISDA();
  143.         }

  145.         throw new java.lang.Exception
  146.             ("RiskMeasureSensitivity::PositionPrincipalComponentCovariance => Invalid Inputs");
  147.     }

  149.     /**
  150.      * RiskMeasureSensitivity Constructor
  151.      * 
  152.      * @param bucketSensitivityMap The Risk Class Bucket Sensitivity Map
  153.      * 
  154.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  155.      */

  157.     public RiskMeasureSensitivity (
  158.         final java.util.Map<java.lang.String, org.drip.simm.product.BucketSensitivity>
  159.             bucketSensitivityMap)
  160.         throws java.lang.Exception
  161.     {
  162.         if (null == (_bucketSensitivityMap = bucketSensitivityMap) || 0 == _bucketSensitivityMap.size())
  163.         {
  164.             throw new java.lang.Exception ("RiskMeasureSensitivity Constructor => Invalid Inputs");
  165.         }
  166.     }

  168.     /**
  169.      * Retrieve the Risk Class Bucket Sensitivity Map
  170.      * 
  171.      * @return The Risk Class Bucket Sensitivity Map
  172.      */

  174.     public java.util.Map<java.lang.String, org.drip.simm.product.BucketSensitivity> bucketSensitivityMap()
  175.     {
  176.         return _bucketSensitivityMap;
  177.     }

  179.     /**
  180.      * Generate the Linear Risk Measure Aggregate
  181.      * 
  182.      * @param riskMeasureSensitivitySettings The Risk Measure Sensitivity Settings
  183.      * @param marginEstimationSettings Margin Estimation Settings
  184.      * 
  185.      * @return The Linear Risk Measure Aggregate
  186.      */

  188.     public org.drip.simm.margin.RiskMeasureAggregate linearAggregate (
  189.         final org.drip.simm.parameters.RiskMeasureSensitivitySettings riskMeasureSensitivitySettings,
  190.         final org.drip.simm.foundation.MarginEstimationSettings marginEstimationSettings)
  191.     {
  192.         if (null == _bucketSensitivityMap ||
  193.             null == riskMeasureSensitivitySettings ||
  194.             null == marginEstimationSettings)
  195.         {
  196.             return null;
  197.         }

  199.         double coreSBAVariance = 0.;

  201.         java.util.Map<java.lang.String, org.drip.simm.margin.BucketAggregate> bucketAggregateMap = new
  202.             java.util.TreeMap<java.lang.String, org.drip.simm.margin.BucketAggregate>();

  204.         java.util.Map<java.lang.String, org.drip.simm.parameters.BucketSensitivitySettings>
  205.             bucketSensitivitySettingsMap = riskMeasureSensitivitySettings.bucketSettingsMap();

  207.         org.drip.measure.stochastic.LabelCorrelation crossBucketCorrelation =
  208.             riskMeasureSensitivitySettings.crossBucketCorrelation();

  210.         for (java.util.Map.Entry<java.lang.String, org.drip.simm.product.BucketSensitivity>
  211.             bucketSensitivityEntry : _bucketSensitivityMap.entrySet())
  212.         {
  213.             java.lang.String bucketIndex = bucketSensitivityEntry.getKey();

  215.             org.drip.simm.product.BucketSensitivity bucketSensitivity = bucketSensitivityEntry.getValue();

  217.             org.drip.simm.margin.BucketAggregate bucketAggregate = bucketSensitivity.aggregate
  218.                 (bucketSensitivitySettingsMap.get (bucketIndex));

  220.             if (null == bucketAggregate)
  221.             {
  222.                 return null;
  223.             }

  225.             bucketAggregateMap.put (
  226.                 "" + bucketIndex,
  227.                 bucketAggregate
  228.             );
  229.         }

  231.         try
  232.         {
  233.             for (java.util.Map.Entry<java.lang.String, org.drip.simm.margin.BucketAggregate>
  234.                 bucketAggregateMapOuterEntry : bucketAggregateMap.entrySet())
  235.             {
  236.                 java.lang.String outerKey = bucketAggregateMapOuterEntry.getKey();

  238.                 org.drip.simm.margin.BucketAggregate bucketAggregateOuter =
  239.                     bucketAggregateMapOuterEntry.getValue();

  241.                 double weightedSensitivityVarianceOuter = bucketAggregateOuter.sensitivityMarginVariance();

  243.                 double positionPrincipalComponentCovarianceOuter = PositionPrincipalComponentCovariance (
  244.                     bucketAggregateOuter,
  245.                     marginEstimationSettings
  246.                 );

  248.                 for (java.util.Map.Entry<java.lang.String, org.drip.simm.margin.BucketAggregate>
  249.                     bucketAggregateMapInnerEntry : bucketAggregateMap.entrySet())
  250.                 {
  251.                     java.lang.String innerKey = bucketAggregateMapInnerEntry.getKey();

  253.                     if (!"-1".equalsIgnoreCase (outerKey) && !"-1".equalsIgnoreCase (innerKey))
  254.                     {
  255.                         coreSBAVariance = coreSBAVariance + (outerKey.equalsIgnoreCase (innerKey) ?
  256.                             weightedSensitivityVarianceOuter : crossBucketCorrelation.entry (
  257.                                 "" + outerKey,
  258.                                 "" + innerKey
  259.                             ) * positionPrincipalComponentCovarianceOuter *
  260.                             PositionPrincipalComponentCovariance (
  261.                                 bucketAggregateMapInnerEntry.getValue(),
  262.                                 marginEstimationSettings
  263.                             )
  264.                         );
  265.                     }
  266.                 }
  267.             }

  269.             return new org.drip.simm.margin.RiskMeasureAggregate (
  270.                 bucketAggregateMap,
  271.                 coreSBAVariance,
  272.                 bucketAggregateMap.containsKey ("-1") ?
  273.                     bucketAggregateMap.get ("-1").sensitivityMarginVariance() : 0.
  274.             );
  275.         }
  276.         catch (java.lang.Exception e)
  277.         {
  278.             e.printStackTrace();
  279.         }

  281.         return null;
  282.     }

  284.     /**
  285.      * Generate the Curvature Risk Measure Aggregate
  286.      * 
  287.      * @param riskMeasureSensitivitySettings The Risk Measure Sensitivity Settings
  288.      * @param marginEstimationSettings Margin Estimation Settings
  289.      * 
  290.      * @return The Curvature Risk Measure Aggregate
  291.      */

  293.     public org.drip.simm.margin.RiskMeasureAggregate curvatureAggregate (
  294.         final org.drip.simm.parameters.RiskMeasureSensitivitySettings riskMeasureSensitivitySettings,
  295.         final org.drip.simm.foundation.MarginEstimationSettings marginEstimationSettings)
  296.     {
  297.         if (null == _bucketSensitivityMap ||
  298.             null == riskMeasureSensitivitySettings ||
  299.             null == marginEstimationSettings)
  300.         {
  301.             return null;
  302.         }

  304.         double coreSBAVariance = 0.;
  305.         double cumulativeRiskFactorSensitivityMarginCore = 0.;
  306.         double cumulativeRiskFactorSensitivityMarginResidual = 0.;
  307.         double cumulativeRiskFactorSensitivityMarginCorePositive = 0.;
  308.         double cumulativeRiskFactorSensitivityMarginResidualPositive = 0.;

  310.         java.util.Map<java.lang.String, org.drip.simm.margin.BucketAggregate> bucketAggregateMap = new
  311.             java.util.TreeMap<java.lang.String, org.drip.simm.margin.BucketAggregate>();

  313.         java.util.Map<java.lang.String, org.drip.simm.parameters.BucketSensitivitySettings>
  314.             bucketSensitivitySettingsMap = riskMeasureSensitivitySettings.bucketSettingsMap();

  316.         org.drip.measure.stochastic.LabelCorrelation crossBucketCorrelation =
  317.             riskMeasureSensitivitySettings.crossBucketCorrelation();

  319.         org.drip.simm.foundation.CurvatureEstimator curvatureEstimator =
  320.             marginEstimationSettings.curvatureEstimator();

  322.         boolean isCorrelatorQuadratric = curvatureEstimator.isCorrelatorQuadratric();

  324.         for (java.util.Map.Entry<java.lang.String, org.drip.simm.product.BucketSensitivity>
  325.             bucketSensitivityEntry : _bucketSensitivityMap.entrySet())
  326.         {
  327.             java.lang.String bucketIndex = bucketSensitivityEntry.getKey();

  329.             org.drip.simm.product.BucketSensitivity bucketSensitivity = bucketSensitivityEntry.getValue();

  331.             org.drip.simm.margin.BucketAggregate bucketAggregate = bucketSensitivity.aggregate
  332.                 (bucketSensitivitySettingsMap.get (bucketIndex));

  334.             if (null == bucketAggregate)
  335.             {
  336.                 return null;
  337.             }

  339.             double bucketCumulativeRiskFactorSensitivityMargin =
  340.                 bucketAggregate.cumulativeSensitivityMargin();

  342.             if (!"-1".equalsIgnoreCase (bucketIndex))
  343.             {
  344.                 cumulativeRiskFactorSensitivityMarginCore = cumulativeRiskFactorSensitivityMarginCore +
  345.                     bucketCumulativeRiskFactorSensitivityMargin;

  347.                 cumulativeRiskFactorSensitivityMarginCorePositive =
  348.                     cumulativeRiskFactorSensitivityMarginCorePositive +
  349.                     java.lang.Math.max (
  350.                         bucketCumulativeRiskFactorSensitivityMargin,
  351.                         0.
  352.                     );
  353.             }
  354.             else
  355.             {
  356.                 cumulativeRiskFactorSensitivityMarginResidual = cumulativeRiskFactorSensitivityMarginResidual
  357.                     + bucketCumulativeRiskFactorSensitivityMargin;

  359.                 cumulativeRiskFactorSensitivityMarginResidualPositive =
  360.                     cumulativeRiskFactorSensitivityMarginResidualPositive +
  361.                     java.lang.Math.max (
  362.                         bucketCumulativeRiskFactorSensitivityMargin,
  363.                         0.
  364.                     );
  365.             }

  367.             bucketAggregateMap.put (
  368.                 bucketIndex,
  369.                 bucketAggregate
  370.             );
  371.         }

  373.         try
  374.         {
  375.             for (java.util.Map.Entry<java.lang.String, org.drip.simm.margin.BucketAggregate>
  376.                 bucketAggregateMapOuterEntry : bucketAggregateMap.entrySet())
  377.             {
  378.                 java.lang.String outerKey = bucketAggregateMapOuterEntry.getKey();

  380.                 org.drip.simm.margin.BucketAggregate bucketAggregateOuter =
  381.                     bucketAggregateMapOuterEntry.getValue();

  383.                 double weightedSensitivityVarianceOuter = bucketAggregateOuter.sensitivityMarginVariance();

  385.                 double positionPrincipalComponentCovarianceOuter = PositionPrincipalComponentCovariance (
  386.                     bucketAggregateOuter,
  387.                     marginEstimationSettings
  388.                 );

  390.                 for (java.util.Map.Entry<java.lang.String, org.drip.simm.margin.BucketAggregate>
  391.                     bucketAggregateMapInnerEntry : bucketAggregateMap.entrySet())
  392.                 {
  393.                     java.lang.String innerKey = bucketAggregateMapInnerEntry.getKey();

  395.                     if (!"-1".equalsIgnoreCase (outerKey) && !"-1".equalsIgnoreCase (innerKey))
  396.                     {
  397.                         if (outerKey.equalsIgnoreCase (innerKey))
  398.                         {
  399.                             coreSBAVariance = coreSBAVariance + weightedSensitivityVarianceOuter;
  400.                         }
  401.                         else
  402.                         {
  403.                             double correlation = crossBucketCorrelation.entry (
  404.                                 "" + outerKey,
  405.                                 "" + innerKey
  406.                             );

  408.                             double curvatureCorrelation = isCorrelatorQuadratric ? correlation * correlation
  409.                                 : correlation;

  411.                             org.drip.simm.margin.BucketAggregate bucketAggregateInner =
  412.                                 bucketAggregateMapInnerEntry.getValue();

  414.                             coreSBAVariance = coreSBAVariance + curvatureCorrelation *
  415.                                 positionPrincipalComponentCovarianceOuter *
  416.                                 curvatureEstimator.varianceModulator (
  417.                                     outerKey,
  418.                                     weightedSensitivityVarianceOuter,
  419.                                     innerKey,
  420.                                     bucketAggregateInner.sensitivityMarginVariance()
  421.                                 ) * PositionPrincipalComponentCovariance (
  422.                                     bucketAggregateInner,
  423.                                     marginEstimationSettings
  424.                                 );
  425.                         }
  426.                     }
  427.                 }
  428.             }

  430.             double coreSBAMargin = curvatureEstimator.margin (
  431.                 cumulativeRiskFactorSensitivityMarginCore,
  432.                 cumulativeRiskFactorSensitivityMarginCorePositive,
  433.                 coreSBAVariance
  434.             );

  436.             double residualSBAMargin = !bucketAggregateMap.containsKey ("-1") ? 0. :
  437.                 curvatureEstimator.margin (
  438.                     cumulativeRiskFactorSensitivityMarginResidual,
  439.                     cumulativeRiskFactorSensitivityMarginResidualPositive,
  440.                     bucketAggregateMap.get ("-1").sensitivityMarginVariance()
  441.                 );

  443.             return new org.drip.simm.margin.RiskMeasureAggregate (
  444.                 bucketAggregateMap,
  445.                 coreSBAMargin * coreSBAMargin,
  446.                 residualSBAMargin * residualSBAMargin
  447.             );
  448.         }
  449.         catch (java.lang.Exception e)
  450.         {
  451.             e.printStackTrace();
  452.         }

  454.         return null;
  455.     }
  456. }
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