net.finmath.montecarlo.interestrate.models.covariance.LIBORCovarianceModelBH 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 16.09.2007
 */
package net.finmath.montecarlo.interestrate.models.covariance;

import net.finmath.montecarlo.RandomVariableFromDoubleArray;
import net.finmath.stochastic.RandomVariable;
import net.finmath.time.TimeDiscretization;

/**
 * A five parameter covariance model corresponding.
 *
 * The model is provided for analysis / illustration. It has some bad properties.
 * Use in production in not recommended.
 *
 * @author Christian Fries
 * @since
 * @version 1.0
 */
public class LIBORCovarianceModelBH extends AbstractLIBORCovarianceModelParametric {

	private static final long serialVersionUID = 2094266336585778694L;

	private double[] parameter = new double[5]; // sigma1,alpha1,sigma2,alpha2,rho

	/**
	 * Create model.
	 *
	 * @param timeDiscretization The simulation time discretization.
	 * @param liborPeriodDiscretization The fixed forward rate discretization.
	 * @param numberOfFactors The number of factors.
	 * @param parameter Vector of size 5.
	 */
	public LIBORCovarianceModelBH(TimeDiscretization timeDiscretization, TimeDiscretization liborPeriodDiscretization, int numberOfFactors, double[] parameter) {
		super(timeDiscretization, liborPeriodDiscretization, numberOfFactors);
		this.parameter = parameter;
	}

	/**
	 * Create model with default parameter.
	 *
	 * @param timeDiscretization The simulation time discretization.
	 * @param liborPeriodDiscretization The fixed forward rate discretization.
	 * @param numberOfFactors The number of factors.
	 */
	public LIBORCovarianceModelBH(TimeDiscretization timeDiscretization, TimeDiscretization liborPeriodDiscretization, int numberOfFactors) {
		super(timeDiscretization, liborPeriodDiscretization, numberOfFactors);
		parameter[0] =  0.4690;		// sigma1
		parameter[1] =  0.0452;		// alpha1
		parameter[2] =  0.3500;		// sigma2
		parameter[3] =  0.0100;		// alpha2
		parameter[4] = -0.8918;		// rho
	}

	@Override
	public Object clone() {
		LIBORCovarianceModelBH model = new LIBORCovarianceModelBH(this.getTimeDiscretization(), this.getLiborPeriodDiscretization(), this.getNumberOfFactors(), this.getParameterAsDouble());
		return model;
	}

	@Override
	public double[] getParameterAsDouble() {
		return parameter;
	}

	@Override
	public RandomVariable[] getFactorLoading(int timeIndex, int component, RandomVariable[] realizationAtTimeIndex) {
		double timeToMaturity = getLiborPeriodDiscretization().getTime(component) - getTimeDiscretization().getTime(timeIndex);

		double s1 = timeToMaturity <= 0 ? 0 : parameter[0] * Math.exp(-parameter[1] * timeToMaturity);
		double s2 = timeToMaturity <= 0 ? 0 : parameter[2] * Math.exp(-parameter[3] * timeToMaturity);
		double rho = parameter[4];

		RandomVariable[] factorLoading = new RandomVariable[2];
		factorLoading[0] = new RandomVariableFromDoubleArray(getTimeDiscretization().getTime(timeIndex), Math.sqrt(1-rho*rho) * s1);
		factorLoading[1] = new RandomVariableFromDoubleArray(getTimeDiscretization().getTime(timeIndex), rho * s1 + s2);

		return factorLoading;
	}

	@Override
	public RandomVariableFromDoubleArray getFactorLoadingPseudoInverse(int timeIndex, int component, int factor, RandomVariable[] realizationAtTimeIndex) {
		throw new UnsupportedOperationException();
	}

	@Override
	public AbstractLIBORCovarianceModelParametric getCloneWithModifiedParameters(double[] parameters) {
		LIBORCovarianceModelBH model = new LIBORCovarianceModelBH(this.getTimeDiscretization(), this.getLiborPeriodDiscretization(), this.getNumberOfFactors(), parameters);
		return model;
	}

}