ScenarioLocalVolatilityBuilder.java

  1. package org.drip.state.creator;

  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.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  12.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  13.  * Copyright (C) 2015 Lakshmi Krishnamurthy
  14.  * 
  15.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  16.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  17.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  18.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  19.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  20.  *      and computational support.
  21.  *  
  22.  *      https://lakshmidrip.github.io/DROP/
  23.  *  
  24.  *  DROP is composed of three modules:
  25.  *  
  26.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  27.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  28.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  29.  * 
  30.  *  DROP Product Core implements libraries for the following:
  31.  *  - Fixed Income Analytics
  32.  *  - Loan Analytics
  33.  *  - Transaction Cost Analytics
  34.  * 
  35.  *  DROP Portfolio Core implements libraries for the following:
  36.  *  - Asset Allocation Analytics
  37.  *  - Asset Liability Management Analytics
  38.  *  - Capital Estimation Analytics
  39.  *  - Exposure Analytics
  40.  *  - Margin Analytics
  41.  *  - XVA Analytics
  42.  * 
  43.  *  DROP Computational Core implements libraries for the following:
  44.  *  - Algorithm Support
  45.  *  - Computation Support
  46.  *  - Function Analysis
  47.  *  - Model Validation
  48.  *  - Numerical Analysis
  49.  *  - Numerical Optimizer
  50.  *  - Spline Builder
  51.  *  - Statistical Learning
  52.  * 
  53.  *  Documentation for DROP is Spread Over:
  54.  * 
  55.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  56.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  57.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  58.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  59.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  60.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  61.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  62.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  63.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  64.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  65.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  66.  * 
  67.  *  Licensed under the Apache License, Version 2.0 (the "License");
  68.  *      you may not use this file except in compliance with the License.
  69.  *   
  70.  *  You may obtain a copy of the License at
  71.  *      http://www.apache.org/licenses/LICENSE-2.0
  72.  *  
  73.  *  Unless required by applicable law or agreed to in writing, software
  74.  *      distributed under the License is distributed on an "AS IS" BASIS,
  75.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  76.  *  
  77.  *  See the License for the specific language governing permissions and
  78.  *      limitations under the License.
  79.  */

  81. /**
  82.  * <i>ScenarioLocalVolatilityBuilder</i> implements the construction of the Local Volatility surface using
  83.  * the input option instruments, their Call Prices, and a wide variety of custom build schemes.
  84.  *
  85.  *  <br><br>
  86.  *  <ul>
  87.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
  88.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics</a></li>
  89.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/state/README.md">Latent State Inference and Creation Utilities</a></li>
  90.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/state/creator/README.md">Scenario State Curve/Surface Builders</a></li>
  91.  *  </ul>
  92.  * <br><br>
  93.  * 
  94.  * @author Lakshmi Krishnamurthy
  95.  */

  97. public class ScenarioLocalVolatilityBuilder {

  99.     /**
  100.      * Create a Volatility Curve from the Calibration Instruments
  101.      * 
  102.      * @param strName Volatility Curve name
  103.      * @param dtSpot Spot Date
  104.      * @param lslUnderlying Underlying Latent State Label
  105.      * @param aFRACapFloor Array of the FRA Cap Floor Instruments
  106.      * @param adblCalibQuote Input Calibration Quotes
  107.      * @param astrCalibMeasure Input Calibration Measures
  108.      * @param dc Base Discount Curve
  109.      * @param fc Forward Curve
  110.      * @param lsfc Latent State Fixings Container
  111.      * 
  112.      * @return The Calibrated Volatility Curve
  113.      */

  115.     public static final org.drip.state.volatility.VolatilityCurve NonlinearBuild (
  116.         final java.lang.String strName,
  117.         final org.drip.analytics.date.JulianDate dtSpot,
  118.         final org.drip.state.identifier.LatentStateLabel lslUnderlying,
  119.         final org.drip.product.fra.FRAStandardCapFloor[] aFRACapFloor,
  120.         final double[] adblCalibQuote,
  121.         final java.lang.String[] astrCalibMeasure,
  122.         final org.drip.state.discount.MergedDiscountForwardCurve dc,
  123.         final org.drip.state.forward.ForwardCurve fc,
  124.         final org.drip.param.market.LatentStateFixingsContainer lsfc)
  125.     {
  126.         return null == dtSpot ? null : org.drip.state.boot.VolatilityCurveScenario.Standard (strName,
  127.             org.drip.param.valuation.ValuationParams.Spot (dtSpot.julian()), lslUnderlying, aFRACapFloor,
  128.                 adblCalibQuote, astrCalibMeasure, false, dc, fc, lsfc, null);
  129.     }

  131.     /**
  132.      * Build an Instance of the Volatility Surface using custom wire span and surface splines
  133.      * 
  134.      * @param strName Name of the Volatility Surface
  135.      * @param dtStart Start/Epoch Julian Date
  136.      * @param strCurrency Currency
  137.      * @param dblRiskFreeRate Risk Free Discounting Rate
  138.      * @param adblStrike Array of Strikes
  139.      * @param adblMaturity Array of Maturities
  140.      * @param aadblCallPrice Double Array of the Call Prices
  141.      * @param scbcWireSpan The Wire Span Segment Customizer
  142.      * @param scbcSurface The Surface Segment Customizer
  143.      * 
  144.      * @return Instance of the Market Node Surface
  145.      */

  147.     public static final org.drip.analytics.definition.MarketSurface CustomSplineWireSurface (
  148.         final java.lang.String strName,
  149.         final org.drip.analytics.date.JulianDate dtStart,
  150.         final java.lang.String strCurrency,
  151.         final double dblRiskFreeRate,
  152.         final double[] adblStrike,
  153.         final double[] adblMaturity,
  154.         final double[][] aadblCallPrice,
  155.         final org.drip.spline.params.SegmentCustomBuilderControl scbcWireSpan,
  156.         final org.drip.spline.params.SegmentCustomBuilderControl scbcSurface)
  157.     {
  158.         if (!org.drip.numerical.common.NumberUtil.IsValid (dblRiskFreeRate)) return null;

  160.         org.drip.analytics.definition.MarketSurface msCallPrice =
  161.             org.drip.state.creator.ScenarioMarketSurfaceBuilder.CustomSplineWireSurface (strName +
  162.                 "_CALL_PRICE_SURFACE", dtStart, strCurrency, adblStrike, adblMaturity, aadblCallPrice,
  163.                     scbcWireSpan, scbcSurface);

  165.         if (null == msCallPrice) return null;

  167.         int iNumStrike = adblStrike.length;
  168.         int iNumMaturity = adblMaturity.length;
  169.         double[][] aadblLocalVolatility = new double[iNumStrike][iNumMaturity];
  170.         org.drip.analytics.definition.NodeStructure[] aTSMaturityAnchor = new
  171.             org.drip.analytics.definition.NodeStructure[iNumMaturity];

  173.         for (int j = 0; j < iNumMaturity; ++j) {
  174.             if (null == (aTSMaturityAnchor[j] = msCallPrice.yAnchorTermStructure (adblMaturity[j])))
  175.                 return null;
  176.         }

  178.         for (int i = 0; i < iNumStrike; ++i) {
  179.             org.drip.analytics.definition.NodeStructure tsStrikeAnchor = msCallPrice.xAnchorTermStructure
  180.                 (adblStrike[i]);

  182.             if (null == tsStrikeAnchor) return null;

  184.             for (int j = 0; j < iNumMaturity; ++j) {
  185.                 try {
  186.                     aadblLocalVolatility[i][j] = java.lang.Math.sqrt ((tsStrikeAnchor.nodeDerivative ((int)
  187.                         adblMaturity[j], 1) + dblRiskFreeRate * adblStrike[i] *
  188.                             aTSMaturityAnchor[j].nodeDerivative ((int) adblStrike[i], 1)) / (adblStrike[i] *
  189.                                 adblStrike[i] * aTSMaturityAnchor[j].nodeDerivative ((int) adblStrike[i],
  190.                                     2)));
  191.                 } catch (java.lang.Exception e) {
  192.                     e.printStackTrace();

  194.                     return null;
  195.                 }
  196.             }
  197.         }

  199.         return org.drip.state.creator.ScenarioMarketSurfaceBuilder.CustomSplineWireSurface (strName, dtStart,
  200.             strCurrency, adblStrike, adblMaturity, aadblLocalVolatility, scbcWireSpan, scbcSurface);
  201.     }

  203.     /**
  204.      * Construct a Scenario Market Surface off of cubic polynomial wire spline and cubic polynomial surface
  205.      *  Spline.
  206.      * 
  207.      * @param strName Name of the Volatility Surface
  208.      * @param dtStart Start/Epoch Julian Date
  209.      * @param strCurrency Currency
  210.      * @param dblRiskFreeRate Risk Free Discounting Rate
  211.      * @param adblStrike Array of Strikes
  212.      * @param astrTenor Array of Maturity Tenors
  213.      * @param aadblNode Double Array of the Surface Nodes
  214.      * 
  215.      * @return Instance of the Market Node Surface
  216.      */

  218.     public static final org.drip.analytics.definition.MarketSurface CubicPolynomialWireSurface (
  219.         final java.lang.String strName,
  220.         final org.drip.analytics.date.JulianDate dtStart,
  221.         final java.lang.String strCurrency,
  222.         final double dblRiskFreeRate,
  223.         final double[] adblStrike,
  224.         final java.lang.String[] astrTenor,
  225.         final double[][] aadblNode)
  226.     {
  227.         if (null == astrTenor) return null;

  229.         int iNumTenor = astrTenor.length;
  230.         double[] adblMaturity = new double[iNumTenor];
  231.         org.drip.spline.params.SegmentCustomBuilderControl scbcSurface = null;
  232.         org.drip.spline.params.SegmentCustomBuilderControl scbcWireSpan = null;

  234.         if (0 == iNumTenor) return null;

  236.         for (int i = 0; i < iNumTenor; ++i)
  237.             adblMaturity[i] = dtStart.addTenor (astrTenor[i]).julian();

  239.         try {
  240.             scbcWireSpan = new org.drip.spline.params.SegmentCustomBuilderControl
  241.                 (org.drip.spline.stretch.MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL, new
  242.                     org.drip.spline.basis.PolynomialFunctionSetParams (4),
  243.                         org.drip.spline.params.SegmentInelasticDesignControl.Create (2, 2), null, null);

  245.             scbcSurface = new org.drip.spline.params.SegmentCustomBuilderControl
  246.                 (org.drip.spline.stretch.MultiSegmentSequenceBuilder.BASIS_SPLINE_POLYNOMIAL, new
  247.                     org.drip.spline.basis.PolynomialFunctionSetParams (4),
  248.                         org.drip.spline.params.SegmentInelasticDesignControl.Create (2, 2), null, null);
  249.         } catch (java.lang.Exception e) {
  250.             e.printStackTrace();

  252.             return null;
  253.         }

  255.         return CustomSplineWireSurface (strName, dtStart, strCurrency, dblRiskFreeRate, adblStrike,
  256.             adblMaturity, aadblNode, scbcWireSpan, scbcSurface);
  257.     }
  258. }
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