SurvivalRecoveryState.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.credit.CreditCurve;
  8. import org.drip.state.discount.MergedDiscountForwardCurve;

  10. /*
  11.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  12.  */

  14. /*!
  15.  * Copyright (C) 2020 Lakshmi Krishnamurthy
  16.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  17.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  18.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  19.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  20.  * Copyright (C) 2015 Lakshmi Krishnamurthy
  21.  * 
  22.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  23.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  24.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  25.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  26.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  27.  *      and computational support.
  28.  *  
  29.  *      https://lakshmidrip.github.io/DROP/
  30.  *  
  31.  *  DROP is composed of three modules:
  32.  *  
  33.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  34.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  35.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  36.  * 
  37.  *  DROP Product Core implements libraries for the following:
  38.  *  - Fixed Income Analytics
  39.  *  - Loan Analytics
  40.  *  - Transaction Cost Analytics
  41.  * 
  42.  *  DROP Portfolio Core implements libraries for the following:
  43.  *  - Asset Allocation Analytics
  44.  *  - Asset Liability Management Analytics
  45.  *  - Capital Estimation Analytics
  46.  *  - Exposure Analytics
  47.  *  - Margin Analytics
  48.  *  - XVA Analytics
  49.  * 
  50.  *  DROP Computational Core implements libraries for the following:
  51.  *  - Algorithm Support
  52.  *  - Computation Support
  53.  *  - Function Analysis
  54.  *  - Model Validation
  55.  *  - Numerical Analysis
  56.  *  - Numerical Optimizer
  57.  *  - Spline Builder
  58.  *  - Statistical Learning
  59.  * 
  60.  *  Documentation for DROP is Spread Over:
  61.  * 
  62.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  63.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  64.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  65.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  66.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  67.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  68.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  69.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  70.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  71.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  72.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  73.  * 
  74.  *  Licensed under the Apache License, Version 2.0 (the "License");
  75.  *      you may not use this file except in compliance with the License.
  76.  *   
  77.  *  You may obtain a copy of the License at
  78.  *      http://www.apache.org/licenses/LICENSE-2.0
  79.  *  
  80.  *  Unless required by applicable law or agreed to in writing, software
  81.  *      distributed under the License is distributed on an "AS IS" BASIS,
  82.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  83.  *  
  84.  *  See the License for the specific language governing permissions and
  85.  *      limitations under the License.
  86.  */

  88. /**
  89.  * <i>SurvivalRecoveryState</i> sets up the Calibration and the Construction of the Survival and the Recovery
  90.  * Latent States and examine the Emitted Metrics.
  91.  *
  92.  *  <br><br>
  93.  *  <ul>
  94.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
  95.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/FixedIncomeAnalyticsLibrary.md">Fixed Income Analytics</a></li>
  96.  *      <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>
  97.  *      <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>
  98.  *  </ul>
  99.  * <br><br>
  100.  * 
  101.  * @author Lakshmi Krishnamurthy
  102.  */

  104. public class SurvivalRecoveryState {

  106.     private static final MergedDiscountForwardCurve OvernightCurve (
  107.         final JulianDate dtSpot,
  108.         final String strCurrency)
  109.         throws Exception
  110.     {
  111.         EnvManager.InitEnv ("");

  113.         String[] astrDepositMaturityTenor = new String[] {
  114.             "1D",
  115.             // "2D",
  116.             "3D"
  117.         };

  119.         double[] adblDepositQuote = new double[] {
  120.             0.0004,     // 1D
  121.             // 0.0004,      // 2D
  122.             0.0004      // 3D
  123.         };

  125.         String[] astrShortEndOISMaturityTenor = new String[] {
  126.             "1W",
  127.             "2W",
  128.             "3W",
  129.             "1M"
  130.         };

  132.         double[] adblShortEndOISQuote = new double[] {
  133.             0.00070,    //   1W
  134.             0.00069,    //   2W
  135.             0.00078,    //   3W
  136.             0.00074     //   1M
  137.         };

  139.         String[] astrOISFuturesEffectiveTenor = new String[] {
  140.             "1M",
  141.             "2M",
  142.             "3M",
  143.             "4M",
  144.             "5M"
  145.         };

  147.         String[] astrOISFuturesMaturityTenor = new String[] {
  148.             "1M",
  149.             "1M",
  150.             "1M",
  151.             "1M",
  152.             "1M"
  153.         };

  155.         double[] adblOISFuturesQuote = new double[] {
  156.              0.00046,    //   1M x 1M
  157.              0.00016,    //   2M x 1M
  158.             -0.00007,    //   3M x 1M
  159.             -0.00013,    //   4M x 1M
  160.             -0.00014     //   5M x 1M
  161.         };

  163.         String[] astrLongEndOISMaturityTenor = new String[] {
  164.             "15M",
  165.             "18M",
  166.             "21M",
  167.             "02Y",
  168.             "03Y",
  169.             "04Y",
  170.             "05Y",
  171.             "06Y",
  172.             "07Y",
  173.             "08Y",
  174.             "09Y",
  175.             "10Y",
  176.             "11Y",
  177.             "12Y",
  178.             "15Y",
  179.             "20Y",
  180.             "25Y",
  181.             "30Y"
  182.         };

  184.         double[] adblLongEndOISQuote = new double[] {
  185.             0.00002,    //  15M
  186.             0.00008,    //  18M
  187.             0.00021,    //  21M
  188.             0.00036,    //   2Y
  189.             0.00127,    //   3Y
  190.             0.00274,    //   4Y
  191.             0.00456,    //   5Y
  192.             0.00647,    //   6Y
  193.             0.00827,    //   7Y
  194.             0.00996,    //   8Y
  195.             0.01147,    //   9Y
  196.             0.01280,    //  10Y
  197.             0.01404,    //  11Y
  198.             0.01516,    //  12Y
  199.             0.01764,    //  15Y
  200.             0.01939,    //  20Y
  201.             0.02003,    //  25Y
  202.             0.02038     //  30Y
  203.         };

  205.         return LatentMarketStateBuilder.SmoothOvernightCurve (
  206.             dtSpot,
  207.             strCurrency,
  208.             astrDepositMaturityTenor,
  209.             adblDepositQuote,
  210.             "Rate",
  211.             astrShortEndOISMaturityTenor,
  212.             adblShortEndOISQuote,
  213.             "SwapRate",
  214.             astrOISFuturesEffectiveTenor,
  215.             astrOISFuturesMaturityTenor,
  216.             adblOISFuturesQuote,
  217.             "SwapRate",
  218.             astrLongEndOISMaturityTenor,
  219.             adblLongEndOISQuote,
  220.             "SwapRate"
  221.         );
  222.     }

  224.     public static final void main (
  225.         final String[] astrArgs)
  226.         throws Exception
  227.     {
  228.         /*
  229.          * Initialize the Credit Analytics Library
  230.          */

  232.         EnvManager.InitEnv ("");

  234.         String strCurrency = "EUR";

  236.         JulianDate dtSpot = DateUtil.CreateFromYMD (
  237.             2017,
  238.             DateUtil.DECEMBER,
  239.             21
  240.         );

  242.         /* JulianDate dtSpot = DateUtil.Today().addBusDays (
  243.             2,
  244.             strCurrency
  245.         ); */

  247.         MergedDiscountForwardCurve dcOvernight = OvernightCurve (
  248.             dtSpot,
  249.             strCurrency
  250.         );

  252.         String[] astrCDSMaturityTenor = new String[] {
  253.             "06M",
  254.             "01Y",
  255.             "02Y",
  256.             "03Y",
  257.             "04Y",
  258.             "05Y",
  259.             "07Y",
  260.             "10Y"
  261.         };

  263.         double[] adblCDSParSpread = new double[] {
  264.              60.,   //  6M
  265.              68.,   //  1Y
  266.              88.,   //  2Y
  267.             102.,   //  3Y
  268.             121.,   //  4Y
  269.             138.,   //  5Y
  270.             168.,   //  7Y
  271.             188.    // 10Y
  272.         };

  274.         CreditCurve cc = LatentMarketStateBuilder.CreditCurve (
  275.             dtSpot,
  276.             "QTX",
  277.             astrCDSMaturityTenor,
  278.             adblCDSParSpread,
  279.             adblCDSParSpread,
  280.             "FairPremium",
  281.             dcOvernight
  282.         );

  284.         String strLatentStateLabel = cc.label().fullyQualifiedName();

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

  288.         for (int i = 0; i < adblCDSParSpread.length; ++i)
  289.             System.out.println (
  290.                 "\t||  " + strLatentStateLabel +
  291.                 " |  CDS  | " + astrCDSMaturityTenor[i] + "  | " +
  292.                 FormatUtil.FormatDouble (adblCDSParSpread[i], 3, 1, 1.) +
  293.                 " | Fair Premium | " +
  294.                 FormatUtil.FormatDouble (cc.survival (astrCDSMaturityTenor[i]), 1, 6, 1.) +
  295.                 "  ||"
  296.             );

  298.         System.out.println ("\t||----------------------------------------------------------||\n");
  299.     }
  300. }
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