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finmath lib is a Mathematical Finance Library in Java.
It provides algorithms and methodologies related to mathematical finance.
package net.finmath.modelling.productfactory;
import java.time.LocalDate;
import java.util.Arrays;
import java.util.function.DoubleFunction;
import net.finmath.exception.CalculationException;
import net.finmath.modelling.DescribedProduct;
import net.finmath.modelling.InterestRateProductDescriptor;
import net.finmath.modelling.ProductDescriptor;
import net.finmath.modelling.ProductFactory;
import net.finmath.modelling.descriptor.InterestRateSwapLegProductDescriptor;
import net.finmath.modelling.descriptor.InterestRateSwapProductDescriptor;
import net.finmath.modelling.descriptor.InterestRateSwaptionProductDescriptor;
import net.finmath.montecarlo.RandomVariableFromDoubleArray;
import net.finmath.montecarlo.interestrate.TermStructureMonteCarloSimulationModel;
import net.finmath.montecarlo.interestrate.products.AbstractLIBORMonteCarloProduct;
import net.finmath.montecarlo.interestrate.products.SwapLeg;
import net.finmath.montecarlo.interestrate.products.TermStructureMonteCarloProduct;
import net.finmath.montecarlo.interestrate.products.components.NotionalFromConstant;
import net.finmath.montecarlo.interestrate.products.components.Option;
import net.finmath.montecarlo.interestrate.products.indices.AbstractIndex;
import net.finmath.montecarlo.interestrate.products.indices.LIBORIndex;
import net.finmath.stochastic.RandomVariable;
import net.finmath.time.FloatingpointDate;
import net.finmath.time.Schedule;
/**
* Product factory of interest rate derivatives for use with a Monte-Carlo method based model.
*
* @author Christian Fries
* @author Roland Bachl
*/
public class InterestRateMonteCarloProductFactory implements ProductFactory {
private final LocalDate referenceDate;
// private static final boolean couponFlow = true;
// private static final boolean isNotionalAccruing = false;
/**
* Initialize the factory with the given referenceDate.
*
* @param referenceDate To be used when converting absolute dates to relative dates in double.
*/
public InterestRateMonteCarloProductFactory(final LocalDate referenceDate) {
super();
this.referenceDate = referenceDate;
}
@Override
public DescribedProduct getProductFromDescriptor(final ProductDescriptor descriptor) {
if(descriptor instanceof InterestRateSwapLegProductDescriptor) {
final InterestRateSwapLegProductDescriptor swapLeg = (InterestRateSwapLegProductDescriptor) descriptor;
final DescribedProduct product = new SwapLegMonteCarlo(swapLeg, referenceDate);
return product;
}
else if(descriptor instanceof InterestRateSwapProductDescriptor){
final InterestRateSwapProductDescriptor swap = (InterestRateSwapProductDescriptor) descriptor;
final DescribedProduct product = new SwapMonteCarlo(swap, referenceDate);
return product;
}
else if(descriptor instanceof InterestRateSwaptionProductDescriptor) {
final InterestRateSwaptionProductDescriptor swaption = (InterestRateSwaptionProductDescriptor) descriptor;
final DescribedProduct product = new SwaptionPhysicalMonteCarlo(swaption, referenceDate);
return product;
}
else {
final String name = descriptor.name();
throw new IllegalArgumentException("Unsupported product type " + name);
}
}
/**
* Construct a Libor index for a given curve and schedule.
*
* @param forwardCurveName
* @param schedule
* @return The Libor index or null, if forwardCurveName is null.
*/
private static AbstractIndex constructLiborIndex(final String forwardCurveName, final Schedule schedule) {
if(forwardCurveName != null) {
//determine average fixing offset and period length
double fixingOffset = 0;
double periodLength = 0;
for(int i = 0; i < schedule.getNumberOfPeriods(); i++) {
fixingOffset *= ((double) i) / (i+1);
fixingOffset += (schedule.getPeriodStart(i) - schedule.getFixing(i)) / (i+1);
periodLength *= ((double) i) / (i+1);
periodLength += schedule.getPeriodLength(i) / (i+1);
}
return new LIBORIndex(forwardCurveName, fixingOffset, periodLength);
} else {
return null;
}
}
/**
* Monte-Carlo method based implementation of a interest rate swap leg from a product descriptor.
*
* @author Christian Fries
* @author Roland Bachl
*/
public static class SwapLegMonteCarlo extends SwapLeg implements DescribedProduct {
private static final boolean couponFlow = true;
private final InterestRateSwapLegProductDescriptor descriptor;
/**
* Create product from descriptor.
*
* @param descriptor The descriptor of the product.
* @param referenceDate The reference date of the data for the valuation, used to convert absolute date to relative dates in double representation.
*/
public SwapLegMonteCarlo(final InterestRateSwapLegProductDescriptor descriptor, final LocalDate referenceDate) {
super(descriptor.getLegScheduleDescriptor().getSchedule(referenceDate),
Arrays.stream(descriptor.getNotionals()).mapToObj(new DoubleFunction() {
@Override
public NotionalFromConstant apply(final double x) {
return new NotionalFromConstant(x);
}
}).toArray(NotionalFromConstant[]::new),
constructLiborIndex(descriptor.getForwardCurveName(), descriptor.getLegScheduleDescriptor().getSchedule(referenceDate)),
descriptor.getSpreads(),
couponFlow,
descriptor.isNotionalExchanged());
this.descriptor = descriptor;
}
@Override
public InterestRateSwapLegProductDescriptor getDescriptor() {
return descriptor;
}
}
/**
* Monte-Carlo method based implementation of a interest rate swap from a product descriptor.
*
* @author Christian Fries
* @author Roland Bachl
*/
public static class SwapMonteCarlo extends AbstractLIBORMonteCarloProduct implements DescribedProduct {
private final TermStructureMonteCarloProduct legReceiver;
private final TermStructureMonteCarloProduct legPayer;
/**
* Create product from descriptor.
*
* @param descriptor The descriptor of the product.
* @param referenceDate The reference date of the data for the valuation, used to convert absolute date to relative dates in double representation.
*/
public SwapMonteCarlo(final InterestRateSwapProductDescriptor descriptor, final LocalDate referenceDate) {
final InterestRateMonteCarloProductFactory factory = new InterestRateMonteCarloProductFactory(referenceDate);
InterestRateProductDescriptor legDescriptor = descriptor.getLegReceiver();
legReceiver = (TermStructureMonteCarloProduct) factory.getProductFromDescriptor(legDescriptor);
legDescriptor = descriptor.getLegPayer();
legPayer = (TermStructureMonteCarloProduct) factory.getProductFromDescriptor(legDescriptor);
}
@Override
public RandomVariable getValue(final double evaluationTime, final TermStructureMonteCarloSimulationModel model) throws CalculationException {
RandomVariable value = new RandomVariableFromDoubleArray(0);
if(legPayer != null) {
value = value.add(legReceiver.getValue(evaluationTime, model));
}
if(legPayer != null) {
value = value.sub(legPayer.getValue(evaluationTime, model));
}
return value;
}
@SuppressWarnings("unchecked")
@Override
public InterestRateSwapProductDescriptor getDescriptor() {
if(!(legReceiver instanceof DescribedProduct) || !(legPayer instanceof DescribedProduct)) {
throw new RuntimeException("One or both of the legs of this swap do not support extraction of a descriptor.");
}
final InterestRateProductDescriptor receiverDescriptor = ((DescribedProduct) legReceiver).getDescriptor();
final InterestRateProductDescriptor payerDescriptor = ((DescribedProduct) legPayer).getDescriptor();
return new InterestRateSwapProductDescriptor(receiverDescriptor, payerDescriptor);
}
}
/**
* Monte-Carlo method based implementation of a physically settled interest rate swaption from a product descriptor.
*
* @author Christian Fries
* @author Roland Bachl
*
*/
public static class SwaptionPhysicalMonteCarlo extends AbstractLIBORMonteCarloProduct
implements DescribedProduct {
private final InterestRateSwaptionProductDescriptor descriptor;
private final Option swaption;
/**
* Create product from descriptor.
*
* @param descriptor The descriptor of the product.
* @param referenceDate The reference date of the data for the valuation, used to convert absolute date to relative dates in double representation.
*/
public SwaptionPhysicalMonteCarlo(final InterestRateSwaptionProductDescriptor descriptor, final LocalDate referenceDate) {
super();
this.descriptor = descriptor;
final double excercise = FloatingpointDate.getFloatingPointDateFromDate(referenceDate, descriptor.getExcerciseDate());
final AbstractLIBORMonteCarloProduct swap = (AbstractLIBORMonteCarloProduct)
new InterestRateMonteCarloProductFactory(referenceDate).getProductFromDescriptor(descriptor.getUnderlyingSwap());
swaption = new Option(excercise, descriptor.getStrikeRate(), swap);
}
@Override
public InterestRateSwaptionProductDescriptor getDescriptor() {
return descriptor;
}
@Override
public RandomVariable getValue(final double evaluationTime, final TermStructureMonteCarloSimulationModel model)
throws CalculationException {
return swaption.getValue(evaluationTime, model);
}
}
}