DerivedForwardState.java

package org.drip.template.state;

import org.drip.analytics.date.*;
import org.drip.numerical.common.FormatUtil;
import org.drip.service.env.EnvManager;
import org.drip.service.template.LatentMarketStateBuilder;
import org.drip.state.discount.*;
import org.drip.state.forward.ForwardCurve;
import org.drip.state.identifier.ForwardLabel;

/*
 * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
 */

/*!
 * Copyright (C) 2020 Lakshmi Krishnamurthy
 * Copyright (C) 2019 Lakshmi Krishnamurthy
 * Copyright (C) 2018 Lakshmi Krishnamurthy
 * Copyright (C) 2017 Lakshmi Krishnamurthy
 * Copyright (C) 2016 Lakshmi Krishnamurthy
 * Copyright (C) 2015 Lakshmi Krishnamurthy
 * 
 *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
 *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
 *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
 *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
 *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
 *      and computational support.
 *  
 *      https://lakshmidrip.github.io/DROP/
 *  
 *  DROP is composed of three modules:
 *  
 *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
 *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
 *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
 * 
 *  DROP Product Core implements libraries for the following:
 *  - Fixed Income Analytics
 *  - Loan Analytics
 *  - Transaction Cost Analytics
 * 
 *  DROP Portfolio Core implements libraries for the following:
 *  - Asset Allocation Analytics
 *  - Asset Liability Management Analytics
 *  - Capital Estimation Analytics
 *  - Exposure Analytics
 *  - Margin Analytics
 *  - XVA Analytics
 * 
 *  DROP Computational Core implements libraries for the following:
 *  - Algorithm Support
 *  - Computation Support
 *  - Function Analysis
 *  - Model Validation
 *  - Numerical Analysis
 *  - Numerical Optimizer
 *  - Spline Builder
 *  - Statistical Learning
 * 
 *  Documentation for DROP is Spread Over:
 * 
 *  - Main                     => https://lakshmidrip.github.io/DROP/
 *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
 *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
 *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
 *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
 *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
 *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
 *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
 *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
 *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
 *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
 * 
 *  Licensed under the Apache License, Version 2.0 (the "License");
 *      you may not use this file except in compliance with the License.
 *   
 *  You may obtain a copy of the License at
 *      http://www.apache.org/licenses/LICENSE-2.0
 *  
 *  Unless required by applicable law or agreed to in writing, software
 *      distributed under the License is distributed on an "AS IS" BASIS,
 *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
 *  
 *  See the License for the specific language governing permissions and
 *      limitations under the License.
 */

/**
 * <i>DerivedForwardState</i> sets up the Calibration of the Derived Forward Latent State and examine the
 * Emitted Metrics.
 *
 *  <br><br>
 *  <ul>
 *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
 *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics</a></li>
 *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/template/README.md">Pricing/Risk Templates for Fixed Income Component Products</a></li>
 *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/template/state/README.md">Standard Latent State Construction Template</a></li>
 *  </ul>
 * <br><br>
 * 
 * @author Lakshmi Krishnamurthy
 */

public class DerivedForwardState {

    private static final MergedDiscountForwardCurve OvernightCurve (
        final JulianDate dtSpot,
        final String strCurrency)
        throws Exception
    {
        String[] astrDepositMaturityTenor = new String[] {
            "1D",
            // "2D",
            "3D"
        };

        double[] adblDepositQuote = new double[] {
            0.0004,     // 1D
            // 0.0004,      // 2D
            0.0004      // 3D
        };

        String[] astrShortEndOISMaturityTenor = new String[] {
            "1W",
            "2W",
            "3W",
            "1M"
        };

        double[] adblShortEndOISQuote = new double[] {
            0.00070,    //   1W
            0.00069,    //   2W
            0.00078,    //   3W
            0.00074     //   1M
        };

        String[] astrOISFuturesEffectiveTenor = new String[] {
            "1M",
            "2M",
            "3M",
            "4M",
            "5M"
        };

        String[] astrOISFuturesMaturityTenor = new String[] {
            "1M",
            "1M",
            "1M",
            "1M",
            "1M"
        };

        double[] adblOISFuturesQuote = new double[] {
             0.00046,    //   1M x 1M
             0.00016,    //   2M x 1M
            -0.00007,    //   3M x 1M
            -0.00013,    //   4M x 1M
            -0.00014     //   5M x 1M
        };

        String[] astrLongEndOISMaturityTenor = new String[] {
            "15M",
            "18M",
            "21M",
            "02Y",
            "03Y",
            "04Y",
            "05Y",
            "06Y",
            "07Y",
            "08Y",
            "09Y",
            "10Y",
            "11Y",
            "12Y",
            "15Y",
            "20Y",
            "25Y",
            "30Y"
        };

        double[] adblLongEndOISQuote = new double[] {
            0.00002,    //  15M
            0.00008,    //  18M
            0.00021,    //  21M
            0.00036,    //   2Y
            0.00127,    //   3Y
            0.00274,    //   4Y
            0.00456,    //   5Y
            0.00647,    //   6Y
            0.00827,    //   7Y
            0.00996,    //   8Y
            0.01147,    //   9Y
            0.01280,    //  10Y
            0.01404,    //  11Y
            0.01516,    //  12Y
            0.01764,    //  15Y
            0.01939,    //  20Y
            0.02003,    //  25Y
            0.02038     //  30Y
        };

        return LatentMarketStateBuilder.SmoothOvernightCurve (
            dtSpot,
            strCurrency,
            astrDepositMaturityTenor,
            adblDepositQuote,
            "Rate",
            astrShortEndOISMaturityTenor,
            adblShortEndOISQuote,
            "SwapRate",
            astrOISFuturesEffectiveTenor,
            astrOISFuturesMaturityTenor,
            adblOISFuturesQuote,
            "SwapRate",
            astrLongEndOISMaturityTenor,
            adblLongEndOISQuote,
            "SwapRate"
        );
    }

    private static final ForwardCurve Reference (
        final JulianDate dtSpot,
        final MergedDiscountForwardCurve dcOvernight,
        final String strReferenceForwardTenor)
        throws Exception
    {
        ForwardLabel forwardLabel = ForwardLabel.Create (
            dcOvernight.currency(),
            strReferenceForwardTenor
        );

        String[] astrDepositMaturityTenor = new String[] {
            "1D",
            "1W",
            "2W",
            "3W",
            "1M",
            "2M",
            "3M",
            "4M",
            "5M"
        };

        double[] adblDepositQuote = new double[] {
            0.003565,   // 1D
            0.003858,   // 1W
            0.003840,   // 2W
            0.003922,   // 3W
            0.003869,   // 1M
            0.003698,   // 2M
            0.003527,   // 3M
            0.003342,   // 4M
            0.003225    // 5M
        };

        String[] astrFRAMaturityTenor = new String[] {
            "00D",
            "01M",
            "02M",
            "03M",
            "04M",
            "05M",
            "06M",
            "07M",
            "08M",
            "09M",
            "10M",
            "11M",
            "12M",
            "13M",
            "14M",
            "15M",
            "16M",
            "17M",
            "18M"
        };

        double[] adblFRAQuote = new double[] {
            0.003120,   //  0D
            0.002930,   //  1M
            0.002720,   //  2M
            0.002600,   //  3M
            0.002560,   //  4M
            0.002520,   //  5M
            0.002480,   //  6M
            0.002540,   //  7M
            0.002610,   //  8M
            0.002670,   //  9M
            0.002790,   // 10M
            0.002910,   // 11M
            0.003030,   // 12M
            0.003180,   // 13M
            0.003350,   // 14M
            0.003520,   // 15M
            0.003710,   // 16M
            0.003890,   // 17M
            0.004090    // 18M
        };

        String[] astrFixFloatMaturityTenor = new String[] {
            "03Y",
            "04Y",
            "05Y",
            "06Y",
            "07Y",
            "08Y",
            "09Y",
            "10Y",
            "12Y",
            "15Y",
            "20Y",
            "25Y",
            "30Y",
            "35Y",
            "40Y",
            "50Y",
            "60Y"
        };

        double[] adblFixFloatQuote = new double[] {
            0.004240,   //  3Y
            0.005760,   //  4Y          
            0.007620,   //  5Y
            0.009540,   //  6Y
            0.011350,   //  7Y
            0.013030,   //  8Y
            0.014520,   //  9Y
            0.015840,   // 10Y
            0.018090,   // 12Y
            0.020370,   // 15Y
            0.021870,   // 20Y
            0.022340,   // 25Y
            0.022560,   // 30Y
            0.022950,   // 35Y
            0.023480,   // 40Y
            0.024210,   // 50Y
            0.024630    // 60Y
        };

        return LatentMarketStateBuilder.SmoothForwardCurve (
            dtSpot,
            forwardLabel,
            astrDepositMaturityTenor,
            adblDepositQuote,
            "ForwardRate",
            astrFRAMaturityTenor,
            adblFRAQuote,
            "ParForwardRate",
            astrFixFloatMaturityTenor,
            adblFixFloatQuote,
            "SwapRate",
            null,
            null,
            "DerivedParBasisSpread",
            null,
            null,
            "DerivedParBasisSpread",
            dcOvernight,
            null
        );
    }

    public static final void main (
        final String[] astrArgs)
        throws Exception
    {
        /*
         * Initialize the Credit Analytics Library
         */

        EnvManager.InitEnv ("");

        String strCurrency = "EUR";
        String strDerivedForwardTenor = "3M";
        String strReferenceForwardTenor = "6M";

        JulianDate dtSpot = DateUtil.CreateFromYMD (
            2017,
            DateUtil.DECEMBER,
            21
        );

        MergedDiscountForwardCurve dcOvernight = OvernightCurve (
            dtSpot,
            strCurrency
        );

        ForwardCurve fcReference = Reference (
            dtSpot,
            dcOvernight,
            strReferenceForwardTenor
        );

        ForwardLabel forwardLabel = ForwardLabel.Create (
            strCurrency,
            strDerivedForwardTenor
        );

        String[] astrDepositMaturityTenor = new String[] {
            "2W",
            "3W",
            "1M",
            "2M"
        };

        double[] adblDepositQuote = new double[] {
            0.001865,   // 2W
            0.001969,   // 3W
            0.001951,   // 1M
            0.001874    // 2M
        };

        String[] astrFRAMaturityTenor = new String[] {
            "00D",
            "01M",
            "03M",
            "06M",
            "09M",
            "12M",
            "15M",
            "18M",
            "21M"
        };

        double[] adblFRAQuote = new double[] {
            0.001790,   //  0D
            0.001775,   //  1M
            0.001274,   //  3M
            0.001222,   //  6M
            0.001269,   //  9M
            0.001565,   // 12M
            0.001961,   // 15M
            0.002556,   // 18M
            0.003101    // 21M
        };

        String[] astrFixFloatMaturityTenor = new String[] {
            "03Y",
            "04Y",
            "05Y",
            "06Y",
            "07Y",
            "08Y",
            "09Y",
            "10Y",
            "12Y",
            "15Y",
            "20Y",
            "25Y",
            "30Y"
        };

        double[] adblFixFloatQuote = new double[] {
            0.002850,   //  3Y
            0.004370,   //  4Y
            0.006230,   //  5Y
            0.008170,   //  6Y
            0.010000,   //  7Y
            0.011710,   //  8Y
            0.013240,   //  9Y
            0.014590,   // 10Y
            0.016920,   // 12Y
            0.019330,   // 15Y
            0.020990,   // 20Y
            0.021560,   // 25Y
            0.021860    // 30Y
        };

        String[] astrSyntheticFloatFloatMaturityTenor = new String[] {
            "35Y",
            "40Y",
            "50Y",
            "60Y"
        };

        double[] adblSyntheticFloatFloatQuote = new double[] {
            0.00065,    // 35Y
            0.00060,    // 40Y
            0.00054,    // 50Y
            0.00050     // 60Y
        };

        ForwardCurve fcDerived = LatentMarketStateBuilder.SmoothForwardCurve (
            dtSpot,
            forwardLabel,
            astrDepositMaturityTenor,
            adblDepositQuote,
            "ForwardRate",
            astrFRAMaturityTenor,
            adblFRAQuote,
            "ParForwardRate",
            astrFixFloatMaturityTenor,
            adblFixFloatQuote,
            "SwapRate",
            null,
            null,
            "DerivedParBasisSpread",
            astrSyntheticFloatFloatMaturityTenor,
            adblSyntheticFloatFloatQuote,
            "DerivedParBasisSpread",
            dcOvernight,
            fcReference
        );

        String strLatentStateLabel = fcDerived.label().fullyQualifiedName();

        System.out.println ("\n\n\t||-------------------------------------------------------------------------||");

        for (int i = 0; i < adblDepositQuote.length; ++i)
            System.out.println (
                "\t||  " + strLatentStateLabel +
                " |  DEPOSIT  | " + astrDepositMaturityTenor[i] + "  | " +
                FormatUtil.FormatDouble (adblDepositQuote[i], 1, 4, 100.) +
                "% | Forward Rate | " +
                FormatUtil.FormatDouble (fcDerived.forward (astrDepositMaturityTenor[i]), 1, 4, 100.) +
                "%  ||"
            );

        System.out.println ("\t||-------------------------------------------------------------------------||");

        System.out.println ("\n\n\t||--------------------------------------------------------------------------||");

        for (int i = 0; i < adblFRAQuote.length; ++i)
            System.out.println (
                "\t||  " + strLatentStateLabel +
                " |  FRA  | " + astrFRAMaturityTenor[i] + "  | " +
                FormatUtil.FormatDouble (adblFRAQuote[i], 1, 4, 100.) +
                "% | Par Forward Rate | " +
                FormatUtil.FormatDouble (fcDerived.forward (dtSpot.addTenor (astrFRAMaturityTenor[i]).addTenor (strDerivedForwardTenor)), 1, 4, 100.) +
                "%  ||"
            );

        System.out.println ("\t||--------------------------------------------------------------------------||");

        System.out.println ("\n\n\t||-------------------------------------------------------------------------||");

        for (int i = 0; i < adblFixFloatQuote.length; ++i)
            System.out.println (
                "\t||  " + strLatentStateLabel +
                " |  FIX FLOAT  | " + astrFixFloatMaturityTenor[i] + "  | " +
                FormatUtil.FormatDouble (adblFixFloatQuote[i], 1, 4, 100.) +
                "% | Swap Rate | " +
                FormatUtil.FormatDouble (fcDerived.forward (astrFixFloatMaturityTenor[i]), 1, 4, 100.) +
                "%  ||"
            );

        System.out.println ("\t||-------------------------------------------------------------------------||");

        System.out.println ("\n\n\t||----------------------------------------------------------------------------------------------------||");

        for (int i = 0; i < adblSyntheticFloatFloatQuote.length; ++i)
            System.out.println (
                "\t||  " + strLatentStateLabel +
                " |  SYNTHETIC FLOAT FLOAT  | " + astrSyntheticFloatFloatMaturityTenor[i] + "  | " +
                FormatUtil.FormatDouble (adblSyntheticFloatFloatQuote[i], 1, 2, 10000.) +
                " bp | Derived Par Basis Spread | " +
                FormatUtil.FormatDouble (fcDerived.forward (astrSyntheticFloatFloatMaturityTenor[i]), 1, 4, 100.) +
                "%  ||"
            );

        System.out.println ("\t||----------------------------------------------------------------------------------------------------||\n");
    }
}