RiskMeasureSensitivityCR.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>RiskMeasureSensitivityCR</i> holds the Risk Class Bucket Sensitivities for the CR 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 RiskMeasureSensitivityCR
  121. {
  122.     private java.util.Map<java.lang.String, org.drip.simm.product.BucketSensitivityCR> _bucketSensitivityMap
  123.         = null;

  125.     private static final double PositionPrincipalComponentCovariance (
  126.         final org.drip.simm.margin.BucketAggregateCR 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.             ("RiskMeasureSensitivityCR::PositionPrincipalComponentCovariance => Invalid Inputs");
  147.     }

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

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

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

  174.     public java.util.Map<java.lang.String, org.drip.simm.product.BucketSensitivityCR> 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.RiskMeasureAggregateCR linearAggregate (
  189.         final org.drip.simm.parameters.RiskMeasureSensitivitySettingsCR riskMeasureSensitivitySettings,
  190.         final org.drip.simm.foundation.MarginEstimationSettings marginEstimationSettings)
  191.     {
  192.         if (null == riskMeasureSensitivitySettings || null == marginEstimationSettings)
  193.         {
  194.             return null;
  195.         }

  197.         double coreSBAVariance = 0.;

  199.         java.util.Map<java.lang.String, org.drip.simm.margin.BucketAggregateCR> bucketAggregateMap = new
  200.             java.util.TreeMap<java.lang.String, org.drip.simm.margin.BucketAggregateCR>();

  202.         java.util.Map<java.lang.String, org.drip.simm.parameters.BucketSensitivitySettingsCR>
  203.             bucketSensitivitySettingsMap = riskMeasureSensitivitySettings.bucketSensitivitySettingsMap();

  205.         org.drip.measure.stochastic.LabelCorrelation crossBucketCorrelation =
  206.             riskMeasureSensitivitySettings.crossBucketCorrelation();

  208.         for (java.util.Map.Entry<java.lang.String, org.drip.simm.product.BucketSensitivityCR>
  209.             bucketSensitivityMapEntry : _bucketSensitivityMap.entrySet())
  210.         {
  211.             java.lang.String bucketIndex = bucketSensitivityMapEntry.getKey();

  213.             org.drip.simm.product.BucketSensitivityCR bucketSensitivity =
  214.                 bucketSensitivityMapEntry.getValue();

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

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

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

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

  237.                 org.drip.simm.margin.BucketAggregateCR bucketAggregateOuter =
  238.                     bucketAggregateMapOuterEntry.getValue();

  240.                 double weightedSensitivityVarianceOuter = bucketAggregateOuter.sensitivityMarginVariance();

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

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

  252.                     coreSBAVariance = coreSBAVariance + (outerKey.equalsIgnoreCase (innerKey) ?
  253.                         weightedSensitivityVarianceOuter : crossBucketCorrelation.entry (
  254.                             outerKey,
  255.                             innerKey
  256.                         ) * positionPrincipalComponentCovarianceOuter *
  257.                         PositionPrincipalComponentCovariance (
  258.                             bucketAggregateMapInnerEntry.getValue(),
  259.                             marginEstimationSettings
  260.                         )
  261.                     );
  262.                 }
  263.             }

  265.             return new org.drip.simm.margin.RiskMeasureAggregateCR (
  266.                 bucketAggregateMap,
  267.                 coreSBAVariance,
  268.                 0.
  269.             );
  270.         }
  271.         catch (java.lang.Exception e)
  272.         {
  273.             e.printStackTrace();
  274.         }

  276.         return null;
  277.     }

  279.     /**
  280.      * Generate the Curvature Risk Measure Aggregate
  281.      * 
  282.      * @param riskMeasureSensitivitySettings The Risk Measure Sensitivity Settings
  283.      * @param marginEstimationSettings Margin Estimation Settings
  284.      * 
  285.      * @return The Curvature Risk Measure Aggregate
  286.      */

  288.     public org.drip.simm.margin.RiskMeasureAggregateCR curvatureAggregate (
  289.         final org.drip.simm.parameters.RiskMeasureSensitivitySettingsCR riskMeasureSensitivitySettings,
  290.         final org.drip.simm.foundation.MarginEstimationSettings marginEstimationSettings)
  291.     {
  292.         if (null == riskMeasureSensitivitySettings || null == marginEstimationSettings)
  293.         {
  294.             return null;
  295.         }

  297.         double coreSBAVariance = 0.;
  298.         double cumulativeRiskFactorSensitivityMarginCore = 0.;
  299.         double cumulativeRiskFactorSensitivityMarginCorePositive = 0.;

  301.         java.util.Map<java.lang.String, org.drip.simm.margin.BucketAggregateCR> bucketAggregateMap = new
  302.             java.util.TreeMap<java.lang.String, org.drip.simm.margin.BucketAggregateCR>();

  304.         java.util.Map<java.lang.String, org.drip.simm.parameters.BucketSensitivitySettingsCR>
  305.             bucketSensitivitySettingsMap = riskMeasureSensitivitySettings.bucketSensitivitySettingsMap();

  307.         org.drip.measure.stochastic.LabelCorrelation crossBucketCorrelation =
  308.             riskMeasureSensitivitySettings.crossBucketCorrelation();

  310.         org.drip.simm.foundation.CurvatureEstimator curvatureEstimator =
  311.             marginEstimationSettings.curvatureEstimator();

  313.         boolean isCorrelatorQuadratric = curvatureEstimator.isCorrelatorQuadratric();

  315.         for (java.util.Map.Entry<java.lang.String, org.drip.simm.product.BucketSensitivityCR>
  316.             bucketSensitivityMapEntry : _bucketSensitivityMap.entrySet())
  317.         {
  318.             java.lang.String bucketIndex = bucketSensitivityMapEntry.getKey();

  320.             org.drip.simm.product.BucketSensitivityCR bucketSensitivity =
  321.                 bucketSensitivityMapEntry.getValue();

  323.             org.drip.simm.margin.BucketAggregateCR bucketAggregate = bucketSensitivity.aggregate
  324.                 (bucketSensitivitySettingsMap.get (bucketIndex));

  326.             if (null == bucketAggregate)
  327.             {
  328.                 return null;
  329.             }

  331.             double bucketCumulativeRiskFactorSensitivityMargin =
  332.                 bucketAggregate.cumulativeSensitivityMargin();

  334.             cumulativeRiskFactorSensitivityMarginCore = cumulativeRiskFactorSensitivityMarginCore +
  335.                 bucketCumulativeRiskFactorSensitivityMargin;

  337.             cumulativeRiskFactorSensitivityMarginCorePositive =
  338.                 cumulativeRiskFactorSensitivityMarginCorePositive +
  339.                 java.lang.Math.max (
  340.                     bucketCumulativeRiskFactorSensitivityMargin,
  341.                     0.
  342.                 );

  344.             bucketAggregateMap.put (
  345.                 bucketIndex,
  346.                 bucketAggregate
  347.             );
  348.         }

  350.         try
  351.         {
  352.             for (java.util.Map.Entry<java.lang.String, org.drip.simm.margin.BucketAggregateCR>
  353.                 bucketAggregateMapOuterEntry : bucketAggregateMap.entrySet())
  354.             {
  355.                 java.lang.String outerKey = bucketAggregateMapOuterEntry.getKey();

  357.                 org.drip.simm.margin.BucketAggregateCR bucketAggregateOuter =
  358.                     bucketAggregateMapOuterEntry.getValue();

  360.                 double weightedSensitivityVarianceOuter = bucketAggregateOuter.sensitivityMarginVariance();

  362.                 double positionPrincipalComponentCovarianceOuter = PositionPrincipalComponentCovariance (
  363.                     bucketAggregateOuter,
  364.                     marginEstimationSettings
  365.                 );

  367.                 for (java.util.Map.Entry<java.lang.String, org.drip.simm.margin.BucketAggregateCR>
  368.                     bucketAggregateMapInnerEntry : bucketAggregateMap.entrySet())
  369.                 {
  370.                     java.lang.String innerKey = bucketAggregateMapInnerEntry.getKey();

  372.                     if (outerKey.equalsIgnoreCase (innerKey))
  373.                     {
  374.                         coreSBAVariance = coreSBAVariance + weightedSensitivityVarianceOuter;
  375.                     }
  376.                     else
  377.                     {
  378.                         double correlation = crossBucketCorrelation.entry (
  379.                             "" + outerKey,
  380.                             "" + innerKey
  381.                         );

  383.                         double curvatureCorrelation = isCorrelatorQuadratric ? correlation * correlation
  384.                             : correlation;

  386.                         org.drip.simm.margin.BucketAggregateCR bucketAggregateInner =
  387.                             bucketAggregateMapInnerEntry.getValue();

  389.                         coreSBAVariance = coreSBAVariance + curvatureCorrelation *
  390.                             positionPrincipalComponentCovarianceOuter *
  391.                             curvatureEstimator.varianceModulator (
  392.                                 outerKey,
  393.                                 weightedSensitivityVarianceOuter,
  394.                                 innerKey,
  395.                                 bucketAggregateInner.sensitivityMarginVariance()
  396.                             ) * PositionPrincipalComponentCovariance (
  397.                                 bucketAggregateInner,
  398.                                 marginEstimationSettings
  399.                             );
  400.                     }
  401.                 }
  402.             }

  404.             double coreSBAMargin = curvatureEstimator.margin (
  405.                 cumulativeRiskFactorSensitivityMarginCore,
  406.                 cumulativeRiskFactorSensitivityMarginCorePositive,
  407.                 coreSBAVariance
  408.             );

  410.             return new org.drip.simm.margin.RiskMeasureAggregateCR (
  411.                 bucketAggregateMap,
  412.                 coreSBAMargin * coreSBAMargin,
  413.                 0.
  414.             );
  415.         }
  416.         catch (java.lang.Exception e)
  417.         {
  418.             e.printStackTrace();
  419.         }

  421.         return null;
  422.     }
  423. }
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