ForwardVolatilityState.java

  1. package org.drip.template.state;

  3. import org.drip.analytics.date.*;
  4. import org.drip.numerical.common.FormatUtil;
  5. import org.drip.service.env.EnvManager;
  6. import org.drip.service.template.LatentMarketStateBuilder;
  7. import org.drip.state.discount.MergedDiscountForwardCurve;
  8. import org.drip.state.identifier.ForwardLabel;
  9. import org.drip.state.volatility.VolatilityCurve;

  11. /*
  12.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  13.  */

  15. /*!
  16.  * Copyright (C) 2020 Lakshmi Krishnamurthy
  17.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  18.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  19.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  20.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  21.  * Copyright (C) 2015 Lakshmi Krishnamurthy
  22.  * 
  23.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  24.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  25.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  26.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  27.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  28.  *      and computational support.
  29.  *  
  30.  *      https://lakshmidrip.github.io/DROP/
  31.  *  
  32.  *  DROP is composed of three modules:
  33.  *  
  34.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  35.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  36.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  37.  * 
  38.  *  DROP Product Core implements libraries for the following:
  39.  *  - Fixed Income Analytics
  40.  *  - Loan Analytics
  41.  *  - Transaction Cost Analytics
  42.  * 
  43.  *  DROP Portfolio Core implements libraries for the following:
  44.  *  - Asset Allocation Analytics
  45.  *  - Asset Liability Management Analytics
  46.  *  - Capital Estimation Analytics
  47.  *  - Exposure Analytics
  48.  *  - Margin Analytics
  49.  *  - XVA Analytics
  50.  * 
  51.  *  DROP Computational Core implements libraries for the following:
  52.  *  - Algorithm Support
  53.  *  - Computation Support
  54.  *  - Function Analysis
  55.  *  - Model Validation
  56.  *  - Numerical Analysis
  57.  *  - Numerical Optimizer
  58.  *  - Spline Builder
  59.  *  - Statistical Learning
  60.  * 
  61.  *  Documentation for DROP is Spread Over:
  62.  * 
  63.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  64.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  65.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  66.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  67.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  68.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  69.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  70.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  71.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  72.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  73.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  74.  * 
  75.  *  Licensed under the Apache License, Version 2.0 (the "License");
  76.  *      you may not use this file except in compliance with the License.
  77.  *   
  78.  *  You may obtain a copy of the License at
  79.  *      http://www.apache.org/licenses/LICENSE-2.0
  80.  *  
  81.  *  Unless required by applicable law or agreed to in writing, software
  82.  *      distributed under the License is distributed on an "AS IS" BASIS,
  83.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  84.  *  
  85.  *  See the License for the specific language governing permissions and
  86.  *      limitations under the License.
  87.  */

  89. /**
  90.  * <i>ForwardVolatilityState</i> sets up the Calibration and the Construction of the Volatility Latent State
  91.  * for the Forward Latent State and examine the Emitted Metrics.
  92.  *
  93.  *  <br><br>
  94.  *  <ul>
  95.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
  96.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics</a></li>
  97.  *      <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>
  98.  *      <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>
  99.  *  </ul>
  100.  * <br><br>
  101.  * 
  102.  * @author Lakshmi Krishnamurthy
  103.  */

  105. public class ForwardVolatilityState {

  107.     public static final void main (
  108.         final String[] astrArgs)
  109.         throws Exception
  110.     {
  111.         EnvManager.InitEnv ("");

  113.         String strFRATenor = "3M";
  114.         String strCurrency = "GBP";

  116.         JulianDate dtSpot = DateUtil.CreateFromYMD (
  117.             2017,
  118.             DateUtil.DECEMBER,
  119.             19
  120.         );

  122.         ForwardLabel forwardLabel = ForwardLabel.Create (
  123.             strCurrency,
  124.             strFRATenor
  125.         );

  127.         MergedDiscountForwardCurve dcFunding = LatentMarketStateBuilder.SmoothFundingCurve (
  128.             dtSpot,
  129.             strCurrency,
  130.             new String[] {
  131.                  "30D",
  132.                  "60D",
  133.                  "91D",
  134.                 "182D",
  135.                 "273D"
  136.             },
  137.             new double[] {
  138.                 0.0668750,  //  30D
  139.                 0.0675000,  //  60D
  140.                 0.0678125,  //  91D
  141.                 0.0712500,  // 182D
  142.                 0.0750000   // 273D
  143.             },
  144.             "ForwardRate",
  145.             null,
  146.             "ForwardRate",
  147.             new String[] {
  148.                 "2Y",
  149.                 "3Y",
  150.                 "4Y",
  151.                 "5Y",
  152.                 "7Y",
  153.                 "10Y"
  154.             },
  155.             new double[] {
  156.                 0.08265,    //  2Y
  157.                 0.08550,    //  3Y
  158.                 0.08655,    //  4Y
  159.                 0.08770,    //  5Y
  160.                 0.08910,    //  7Y
  161.                 0.08920     // 10Y
  162.             },
  163.             "SwapRate"
  164.         );

  166.         String[] astrMaturityTenor = new String[] {
  167.             "01Y",
  168.             "02Y",
  169.             "03Y",
  170.             "04Y",
  171.             "05Y",
  172.             "07Y",
  173.             "10Y"
  174.         };

  176.         double[] adblStrike = new double[] {
  177.             0.0788, //  "1Y",
  178.             0.0839, //  "2Y",
  179.             0.0864, //  "3Y",
  180.             0.0869, //  "4Y",
  181.             0.0879, //  "5Y",
  182.             0.0890, //  "7Y",
  183.             0.0889  // "10Y"
  184.         };

  186.         double[] adblPrice = new double[] {
  187.             0.0017, //  "1Y",
  188.             0.0132, //  "2Y",
  189.             0.0234, //  "3Y",
  190.             0.0343, //  "4Y",
  191.             0.0491, //  "5Y",
  192.             0.0868, //  "7Y"
  193.             0.1175  // "10Y"
  194.         };

  196.         VolatilityCurve vcForward = LatentMarketStateBuilder.ForwardRateVolatilityCurve (
  197.             dtSpot,
  198.             forwardLabel,
  199.             true,
  200.             astrMaturityTenor,
  201.             adblStrike,
  202.             adblPrice,
  203.             "Price",
  204.             dcFunding,
  205.             dcFunding.nativeForwardCurve (strFRATenor)
  206.         );

  208.         String strLatentStateLabel = vcForward.label().fullyQualifiedName();

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

  212.         for (int i = 0; i < astrMaturityTenor.length; ++i)
  213.             System.out.println (
  214.                 "\t||  " + strLatentStateLabel + " |  CAP PRICE  | " +
  215.                 astrMaturityTenor[i] + " | " + FormatUtil.FormatDouble (adblPrice[i], 1, 4, 1.) +
  216.                 " | Forward Implied Vol | " +
  217.                 FormatUtil.FormatDouble (vcForward.impliedVol (astrMaturityTenor[i]), 2, 2, 100.) +
  218.                 "% ||"
  219.             );

  221.         System.out.println ("\t||-----------------------------------------------------------------------------||\n");
  222.     }
  223. }
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