EvolutionTrajectoryVertex.java

  1. package org.drip.xva.derivative;

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

  79. /**
  80.  * <i>EvolutionTrajectoryVertex</i> holds the Evolution Snapshot of the Trade-able Prices, the Cash Account,
  81.  * the Replication Portfolio, and the corresponding Derivative Value, as laid out in Burgard and Kjaer
  82.  * (2014). The References are:
  83.  *
  84.  *  <br><br>
  85.  *  <ul>
  86.  *      <li>
  87.  *          Burgard, C., and M. Kjaer (2014): PDE Representations of Derivatives with Bilateral Counter-party
  88.  *              Risk and Funding Costs <i>Journal of Credit Risk</i> <b>7 (3)</b> 1-19
  89.  *      </li>
  90.  *      <li>
  91.  *          Cesari, G., J. Aquilina, N. Charpillon, X. Filipovic, G. Lee, and L. Manda (2009): <i>Modeling,
  92.  *              Pricing, and Hedging Counter-party Credit Exposure - A Technical Guide</i> <b>Springer
  93.  *              Finance</b> New York
  94.  *      </li>
  95.  *      <li>
  96.  *          Gregory, J. (2009): Being Two-faced over Counter-party Credit Risk <i>Risk</i> <b>20 (2)</b>
  97.  *              86-90
  98.  *      </li>
  99.  *      <li>
  100.  *          Li, B., and Y. Tang (2007): <i>Quantitative Analysis, Derivatives Modeling, and Trading
  101.  *              Strategies in the Presence of Counter-party Credit Risk for the Fixed Income Market</i>
  102.  *              <b>World Scientific Publishing</b> Singapore
  103.  *      </li>
  104.  *      <li>
  105.  *          Piterbarg, V. (2010): Funding Beyond Discounting: Collateral Agreements and Derivatives Pricing
  106.  *              <i>Risk</i> <b>21 (2)</b> 97-102
  107.  *      </li>
  108.  *  </ul>
  109.  *
  110.  *  <br><br>
  111.  *  <ul>
  112.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
  113.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/XVAAnalyticsLibrary.md">XVA Analytics Library</a></li>
  114.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/xva/README.md">Valuation Adjustments that account for Collateral, CC Credit/Debt and Funding Overhead</a></li>
  115.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/xva/derivative/README.md">Burgard Kjaer Dynamic Portfolio Replication</a></li>
  116.  *  </ul>
  117.  * <br><br>
  118.  * 
  119.  * @author Lakshmi Krishnamurthy
  120.  */

  122. public class EvolutionTrajectoryVertex
  123. {
  124.     private double _time = java.lang.Double.NaN;
  125.     private double _collateral = java.lang.Double.NaN;
  126.     private double _hedgeError = java.lang.Double.NaN;
  127.     private double _clientGainOnDealerDefault = java.lang.Double.NaN;
  128.     private double _dealerGainOnClientDefault = java.lang.Double.NaN;
  129.     private org.drip.xva.derivative.PositionGreekVertex _positionGreekVertex = null;
  130.     private org.drip.xva.derivative.ReplicationPortfolioVertex _replicationPortfolioVertex = null;

  132.     /**
  133.      * EvolutionTrajectoryVertex Constructor
  134.      * 
  135.      * @param time The Evolution Trajectory Edge Time
  136.      * @param replicationPortfolioVertex The Replication Portfolio Vertex
  137.      * @param positionGreekVertex The Position Greek Vertex
  138.      * @param clientGainOnDealerDefault Client Gain On Dealer Default
  139.      * @param dealerGainOnClientDefault Dealer Gain On Default of Client
  140.      * @param collateral The Vertex Collateral
  141.      * @param hedgeError The Vertex Hedge Error
  142.      * 
  143.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  144.      */

  146.     public EvolutionTrajectoryVertex (
  147.         final double time,
  148.         final org.drip.xva.derivative.ReplicationPortfolioVertex replicationPortfolioVertex,
  149.         final org.drip.xva.derivative.PositionGreekVertex positionGreekVertex,
  150.         final double clientGainOnDealerDefault,
  151.         final double dealerGainOnClientDefault,
  152.         final double collateral,
  153.         final double hedgeError)
  154.         throws java.lang.Exception
  155.     {
  156.         if (!org.drip.numerical.common.NumberUtil.IsValid (_time = time) ||
  157.             null == (_replicationPortfolioVertex = replicationPortfolioVertex) ||
  158.             null == (_positionGreekVertex = positionGreekVertex) ||
  159.             !org.drip.numerical.common.NumberUtil.IsValid (_clientGainOnDealerDefault =
  160.                 clientGainOnDealerDefault) ||
  161.             !org.drip.numerical.common.NumberUtil.IsValid (_dealerGainOnClientDefault =
  162.                 dealerGainOnClientDefault) ||
  163.             !org.drip.numerical.common.NumberUtil.IsValid (_collateral = collateral) ||
  164.             !org.drip.numerical.common.NumberUtil.IsValid (_hedgeError = hedgeError))
  165.         {
  166.             throw new java.lang.Exception ("EvolutionTrajectoryVertex Constructor => Invalid Inputs");
  167.         }
  168.     }

  170.     /**
  171.      * Retrieve the Time Instant
  172.      * 
  173.      * @return The Time Instant
  174.      */

  176.     public double time()
  177.     {
  178.         return _time;
  179.     }

  181.     /**
  182.      * Retrieve the Collateral
  183.      * 
  184.      * @return The Collateral
  185.      */

  187.     public double collateral()
  188.     {
  189.         return _collateral;
  190.     }

  192.     /**
  193.      * Retrieve the Hedge Error
  194.      * 
  195.      * @return The Hedge Error
  196.      */

  198.     public double hedgeError()
  199.     {
  200.         return _hedgeError;
  201.     }

  203.     /**
  204.      * Retrieve the Replication Portfolio Vertex
  205.      * 
  206.      * @return The Replication Portfolio Vertex
  207.      */

  209.     public org.drip.xva.derivative.ReplicationPortfolioVertex replicationPortfolioVertex()
  210.     {
  211.         return _replicationPortfolioVertex;
  212.     }

  214.     /**
  215.      * Retrieve the Position Greek Vertex
  216.      * 
  217.      * @return The Position Greek Vertex
  218.      */

  220.     public org.drip.xva.derivative.PositionGreekVertex positionGreekVertex()
  221.     {
  222.         return _positionGreekVertex;
  223.     }

  225.     /**
  226.      * Retrieve the Client Gain On Dealer Default
  227.      * 
  228.      * @return The Client Gain On Dealer Default
  229.      */

  231.     public double gainOnDealerDefault()
  232.     {
  233.         return _clientGainOnDealerDefault;
  234.     }

  236.     /**
  237.      * Retrieve the Dealer Gain On Individual Client Default
  238.      * 
  239.      * @return The Dealer Gain On Individual Client Default
  240.      */

  242.     public double gainOnClientDefault()
  243.     {
  244.         return _dealerGainOnClientDefault;
  245.     }

  247.     /**
  248.      * Indicate whether Replication Portfolio satisfies the Funding Constraint implied by the Vertex
  249.      *  Numeraire
  250.      * 
  251.      * @param marketVertex The Market Vertex
  252.      * 
  253.      * @return The Funding Constraint Verification Mismatch
  254.      * 
  255.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  256.      */

  258.     public double verifyFundingConstraint (
  259.         final org.drip.exposure.universe.MarketVertex marketVertex)
  260.         throws java.lang.Exception
  261.     {
  262.         if (null == marketVertex)
  263.         {
  264.             throw new java.lang.Exception
  265.                 ("EvolutionTrajectoryVertex::verifyFundingConstraint => Invalid Inputs");
  266.         }

  268.         org.drip.exposure.universe.MarketVertexEntity dealerMarketVertex = marketVertex.dealer();

  270.         double fundingConstraint = _positionGreekVertex.derivativeXVAValue() +
  271.             dealerMarketVertex.seniorFundingReplicator() *
  272.                 _replicationPortfolioVertex.dealerSeniorNumeraireHoldings();

  274.         double dealerSubordinateFundingMarketVertex = dealerMarketVertex.subordinateFundingReplicator();

  276.         if (org.drip.numerical.common.NumberUtil.IsValid (dealerSubordinateFundingMarketVertex))
  277.         {
  278.             fundingConstraint += dealerSubordinateFundingMarketVertex *
  279.                 _replicationPortfolioVertex.dealerSubordinateNumeraireHoldings();
  280.         }

  282.         return fundingConstraint;
  283.     }
  284. }
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