net.finmath.montecarlo.interestrate.modelplugins.LIBORCovarianceModelFromVolatilityAndCorrelation Maven / Gradle / Ivy

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finmath lib is a Mathematical Finance Library in Java. It provides algorithms and methodologies related to mathematical finance.

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/*
 * (c) Copyright Christian P. Fries, Germany. Contact: [email protected].
 *
 * Created on 15.12.2007
 */
package net.finmath.montecarlo.interestrate.modelplugins;

import java.util.Arrays;

import net.finmath.stochastic.RandomVariableInterface;
import net.finmath.time.TimeDiscretizationInterface;

/**
 * A covariance model build from a volatility model implementing
 * LIBORVolatilityModel and a correlation model
 * implementing LIBORCorrelationModel.
 * 
 * 
 * The model parameters are given by the concatenation of the
 * parameters of the LIBORVolatilityModel and
 * the parameters of the LIBORCorrelationModel,
 * in this ordering
 * 
 * 
 * @author Christian Fries
 */
public class LIBORCovarianceModelFromVolatilityAndCorrelation extends AbstractLIBORCovarianceModelParametric {

	private static final long serialVersionUID = -2194221041462041686L;

	private LIBORVolatilityModel	volatilityModel;
	private LIBORCorrelationModel	correlationModel;

	public LIBORCovarianceModelFromVolatilityAndCorrelation(TimeDiscretizationInterface timeDiscretization, TimeDiscretizationInterface liborPeriodDiscretization, LIBORVolatilityModel volatilityModel, LIBORCorrelationModel correlationModel) {
		super(timeDiscretization, liborPeriodDiscretization, correlationModel.getNumberOfFactors());

		this.volatilityModel = volatilityModel;
		this.correlationModel = correlationModel;
	}

	@Override
	public RandomVariableInterface[] getFactorLoading(int timeIndex, int component, RandomVariableInterface[] realizationAtTimeIndex) {
		RandomVariableInterface[] factorLoading = new RandomVariableInterface[correlationModel.getNumberOfFactors()];

		RandomVariableInterface volatility	= volatilityModel.getVolatility(timeIndex, component);
		for (int factorIndex = 0; factorIndex < factorLoading.length; factorIndex++) {
			factorLoading[factorIndex] = volatility.mult(correlationModel.getFactorLoading(timeIndex, factorIndex, component));
		}

		return factorLoading;
	}

	@Override
	public RandomVariableInterface getFactorLoadingPseudoInverse(int timeIndex, int component, int factor, RandomVariableInterface[] realizationAtTimeIndex) {
		// Note that we assume that the correlation model getFactorLoading gives orthonormal vectors
		RandomVariableInterface factorLoadingPseudoInverse = volatilityModel.getVolatility(timeIndex, component).invert()
				.mult(correlationModel.getFactorLoading(timeIndex, factor, component));

		// @todo numberOfComponents should be stored as a member?!
		int numberOfComponents = getLiborPeriodDiscretization().getNumberOfTimeSteps();

		double factorWeight = 0.0;
		for(int componentIndex=0; componentIndex