Module net.finmath.lib
Package net.finmath.montecarlo.interestrate.models

Class LIBORMarketModelStandard

java.lang.Object
net.finmath.montecarlo.model.AbstractProcessModel
net.finmath.montecarlo.interestrate.models.LIBORMarketModelStandard
All Implemented Interfaces:
IndependentModelParameterProvider, LIBORMarketModel, LIBORModel, TermStructureModel, ProcessModel
public class LIBORMarketModelStandard extends AbstractProcessModel implements LIBORMarketModel
Implements a basic LIBOR market model with some drift approximation methods.
The class implements different measure(drift) / numeraire pairs (terminal and spot).
The class specifies a LIBOR market model in its log-normal formulation, that is Lj = exp(Yj) where
dYj = μj dt + λ1,j dW1 + ... + λm,j dWm
see ProcessModel for details on the implemented interface.
The model uses an AbstractLIBORCovarianceModel for the specification of (λ1,j,...,λm,j) as a covariance model, which may have the ability to calibrate to swaptions.
Version:
1.1
Author:
Christian Fries
See Also:
AbstractLIBORCovarianceModel

  • Constructor Details

    • LIBORMarketModelStandard

      public LIBORMarketModelStandard​(TimeDiscretization liborPeriodDiscretization, ForwardCurve forwardRateCurve, LIBORCovarianceModel covarianceModel)
      Creates a LIBOR Market Model for given covariance.
      Parameters:
      liborPeriodDiscretization - The discretization of the interest rate curve into forward rates (tenor structure).
      forwardRateCurve - The initial values for the forward rates.
      covarianceModel - The covariance model to use.

    • LIBORMarketModelStandard

      public LIBORMarketModelStandard​(TimeDiscretization liborPeriodDiscretization, ForwardCurve forwardRateCurve, DiscountCurve discountCurve, LIBORCovarianceModel covarianceModel)
      Creates a LIBOR Market Model for given covariance.
      Parameters:
      liborPeriodDiscretization - The discretization of the interest rate curve into forward rates (tenor structure).
      forwardRateCurve - The initial values for the forward rates.
      discountCurve - The discount curve to use. This will create an LMM model with a deterministic zero-spread discounting adjustment.
      covarianceModel - The covariance model to use.

    • LIBORMarketModelStandard

      public LIBORMarketModelStandard​(TimeDiscretization liborPeriodDiscretization, ForwardCurve forwardRateCurve, LIBORCovarianceModel covarianceModel, SwaptionMarketData swaptionMarketData) throws CalculationException
      Creates a LIBOR Market Model using a given covariance model and calibrating this model to given swaption volatility data.
      Parameters:
      liborPeriodDiscretization - The discretization of the interest rate curve into forward rates (tenor structure).
      forwardRateCurve - The initial values for the forward rates.
      covarianceModel - The covariance model to use.
      swaptionMarketData - The set of swaption values to calibrate to.
      Throws:
      CalculationException - Thrown if the valuation fails, specific cause may be available via the cause() method.

    • LIBORMarketModelStandard

      public LIBORMarketModelStandard​(TimeDiscretization liborPeriodDiscretization, ForwardCurve forwardRateCurve, DiscountCurve discountCurve, LIBORCovarianceModel covarianceModel, SwaptionMarketData swaptionMarketData) throws CalculationException
      Creates a LIBOR Market Model for given covariance.
      Parameters:
      liborPeriodDiscretization - The discretization of the interest rate curve into forward rates (tenor structure).
      forwardRateCurve - The initial values for the forward rates.
      discountCurve - The discount curve to use. This will create an LMM model with a deterministic zero-spread discounting adjustment.
      covarianceModel - The covariance model to use.
      swaptionMarketData - The set of swaption values to calibrate to.
      Throws:
      CalculationException - Thrown if the valuation fails, specific cause may be available via the cause() method.

    • LIBORMarketModelStandard

      public LIBORMarketModelStandard​(TimeDiscretization liborPeriodDiscretization, ForwardCurve forwardRateCurve, DiscountCurve discountCurve, LIBORCovarianceModel covarianceModel, CalibrationProduct[] calibrationProducts) throws CalculationException
      Creates a LIBOR Market Model for given covariance.
      Parameters:
      liborPeriodDiscretization - The discretization of the interest rate curve into forward rates (tenor structure).
      forwardRateCurve - The initial values for the forward rates.
      discountCurve - The discount curve to use. This will create an LMM model with a deterministic zero-spread discounting adjustment.
      covarianceModel - The covariance model to use.
      calibrationProducts - The vector of calibration items (a union of a product, target value and weight) for the objective function sum weight(i) * (modelValue(i)-targetValue(i).
      Throws:
      CalculationException - Thrown if the valuation fails, specific cause may be available via the cause() method.

  • Method Details

    • getNumeraire

      public RandomVariable getNumeraire​(MonteCarloProcess process, double time) throws CalculationException
      Return the numeraire at a given time. The numeraire is provided for interpolated points. If requested on points which are not part of the tenor discretization, the numeraire uses a linear interpolation of the reciprocal value. See ISBN 0470047224 for details.
      Specified by:
      getNumeraire in interface ProcessModel
      Parameters:
      time - Time time t for which the numeraire should be returned N(t).
      process - The discretization process generating this model. The process provides call backs for TimeDiscretization and allows calls to getProcessValue for timeIndices less or equal the given one.
      Returns:
      The numeraire at the specified time as RandomVariableFromDoubleArray
      Throws:
      CalculationException - Thrown if the valuation fails, specific cause may be available via the cause() method.

    • getInitialState

      public RandomVariable[] getInitialState​(MonteCarloProcess process)
      Description copied from interface: ProcessModel
      Returns the initial value of the state variable of the process Y, not to be confused with the initial value of the model X (which is the state space transform applied to this state value.
      Specified by:
      getInitialState in interface ProcessModel
      Parameters:
      process - The discretization process generating this model. The process provides call backs for TimeDiscretization and allows calls to getProcessValue for timeIndices less or equal the given one.
      Returns:
      The initial value of the state variable of the process Y(t=0).

    • getDrift

      public RandomVariable[] getDrift​(MonteCarloProcess process, int timeIndex, RandomVariable[] realizationAtTimeIndex, RandomVariable[] realizationPredictor)
      Return the complete vector of the drift for the time index timeIndex, given that current state is realizationAtTimeIndex. Note: The random variable returned is a defensive copy and may be modified. The drift will be zero for rates being already fixed.
      Specified by:
      getDrift in interface ProcessModel
      Parameters:
      process - The discretization process generating this model. The process provides call backs for TimeDiscretization and allows calls to getProcessValue for timeIndices less or equal the given one.
      timeIndex - Time index i for which the drift should be returned μ(ti).
      realizationAtTimeIndex - Time current forward rate vector at time index i which should be used in the calculation.
      realizationPredictor - The given realization at timeIndex+1 or null if no predictor is available.
      Returns:
      The drift vector μ(ti) as RandomVariableFromDoubleArray[]
      See Also:
      The calculation of the drift is consistent with the calculation of the numeraire in getNumeraire.

    • getFactorLoading

      public RandomVariable[] getFactorLoading​(MonteCarloProcess process, int timeIndex, int componentIndex, RandomVariable[] realizationAtTimeIndex)
      Description copied from interface: ProcessModel
      This method has to be implemented to return the factor loadings, i.e. the coefficient vector
      λj = (λ1,j, ..., λm,j) such that X = f(Y) and
      dYj = μj dt + λ1,j dW1 + ... + λm,j dWm
      in an m-factor model. Here j denotes index of the component of the resulting process.
      Specified by:
      getFactorLoading in interface ProcessModel
      Parameters:
      process - The discretization process generating this model. The process provides call backs for TimeDiscretization and allows calls to getProcessValue for timeIndices less or equal the given one.
      timeIndex - The time index (related to the model times discretization).
      componentIndex - The index j of the driven component.
      realizationAtTimeIndex - The realization of X at the time corresponding to timeIndex (in order to implement local and stochastic volatlity models).
      Returns:
      The factor loading for given factor and component.

    • applyStateSpaceTransform

      public RandomVariable applyStateSpaceTransform​(MonteCarloProcess process, int timeIndex, int componentIndex, RandomVariable randomVariable)
      Description copied from interface: ProcessModel
      Applies the state space transform fi to the given state random variable such that Yi → fi(Yi) =: Xi.
      Specified by:
      applyStateSpaceTransform in interface ProcessModel
      Parameters:
      process - The discretization process generating this model. The process provides call backs for TimeDiscretization and allows calls to getProcessValue for timeIndices less or equal the given one.
      timeIndex - The time index (related to the model times discretization).
      componentIndex - The component index i.
      randomVariable - The state random variable Yi.
      Returns:
      New random variable holding the result of the state space transformation.

    • applyStateSpaceTransformInverse

      public RandomVariable applyStateSpaceTransformInverse​(MonteCarloProcess process, int timeIndex, int componentIndex, RandomVariable randomVariable)
      Description copied from interface: ProcessModel
      Applies the inverse state space transform f-1i to the given random variable such that Xi → f-1i(Xi) =: Yi.
      Specified by:
      applyStateSpaceTransformInverse in interface ProcessModel
      Parameters:
      process - The discretization process generating this model. The process provides call backs for TimeDiscretization and allows calls to getProcessValue for timeIndices less or equal the given one.
      timeIndex - The time index (related to the model times discretization).
      componentIndex - The component index i.
      randomVariable - The state random variable Xi.
      Returns:
      New random variable holding the result of the state space transformation.

    • getRandomVariableForConstant

      public RandomVariable getRandomVariableForConstant​(double value)
      Description copied from interface: ProcessModel
      Return a random variable initialized with a constant using the models random variable factory.
      Specified by:
      getRandomVariableForConstant in interface ProcessModel
      Parameters:
      value - The constant value.
      Returns:
      A new random variable initialized with a constant value.

    • getDriftApproximationMethod

      public LIBORMarketModelStandard.Driftapproximation getDriftApproximationMethod()
      Returns:
      Returns the driftApproximationMethod.

    • getForwardRate

      public RandomVariable getForwardRate​(MonteCarloProcess process, double time, double periodStart, double periodEnd) throws CalculationException
      Description copied from interface: TermStructureModel
      Returns the time \( t \) forward rate on the models forward curve. Note: It is guaranteed that the random variable returned by this method is \( \mathcal{F}_{t} ) \)-measurable.
      Specified by:
      getForwardRate in interface TermStructureModel
      Parameters:
      process - The discretization process generating this model. The process provides call backs for TimeDiscretization and allows calls to getProcessValue for timeIndices less or equal the given one.
      time - The evaluation time.
      periodStart - The period start of the forward rate.
      periodEnd - The period end of the forward rate.
      Returns:
      The forward rate.
      Throws:
      CalculationException - Thrown if model fails to calculate the random variable.

    • getLIBOR

      public RandomVariable getLIBOR​(MonteCarloProcess process, int timeIndex, int liborIndex) throws CalculationException
      Description copied from interface: LIBORModel
      Return the forward rate at a given timeIndex and for a given liborIndex.
      Specified by:
      getLIBOR in interface LIBORModel
      Parameters:
      process - The discretization process generating this model. The process provides call backs for TimeDiscretization and allows calls to getProcessValue for timeIndices less or equal the given one.
      timeIndex - The time index (associated with Process.getTimeDiscretization().
      liborIndex - The forward rate index (associated with LIBORModel.getLiborPeriodDiscretization().
      Returns:
      The forward rate.
      Throws:
      CalculationException - Thrown if calculation failed.

    • getNumberOfComponents

      public int getNumberOfComponents()
      This method is just a synonym to getNumberOfLibors
      Specified by:
      getNumberOfComponents in interface ProcessModel
      Returns:
      The number of components

    • getNumberOfFactors

      public int getNumberOfFactors()
      Description copied from interface: ProcessModel
      Returns the number of factors m, i.e., the number of independent Brownian drivers.
      Specified by:
      getNumberOfFactors in interface ProcessModel
      Returns:
      The number of factors.

    • getNumberOfLibors

      public int getNumberOfLibors()
      Description copied from interface: LIBORModel
      Get the number of LIBORs in the LIBOR discretization.
      Specified by:
      getNumberOfLibors in interface LIBORModel
      Returns:
      The number of LIBORs in the LIBOR discretization

    • getLiborPeriod

      public double getLiborPeriod​(int timeIndex)
      Description copied from interface: LIBORModel
      The period start corresponding to a given forward rate discretization index.
      Specified by:
      getLiborPeriod in interface LIBORModel
      Parameters:
      timeIndex - The index corresponding to a given time (interpretation is start of period)
      Returns:
      The period start corresponding to a given forward rate discretization index.

    • getLiborPeriodIndex

      public int getLiborPeriodIndex​(double time)
      Description copied from interface: LIBORModel
      Same as java.util.Arrays.binarySearch(liborPeriodDiscretization,time). Will return a negative value if the time is not found, but then -index-1 corresponds to the index of the smallest time greater than the given one.
      Specified by:
      getLiborPeriodIndex in interface LIBORModel
      Parameters:
      time - The period start.
      Returns:
      The index corresponding to a given time (interpretation is start of period)

    • getLiborPeriodDiscretization

      public TimeDiscretization getLiborPeriodDiscretization()
      Description copied from interface: LIBORModel
      The tenor time discretization of the forward rate curve.
      Specified by:
      getLiborPeriodDiscretization in interface LIBORModel
      Returns:
      The tenor time discretization of the forward rate curve.

    • getDriftEuler

      protected RandomVariable getDriftEuler​(MonteCarloProcess process, int timeIndex, int componentIndex, RandomVariable[] liborVectorStart)

    • getMeasure

      public LIBORMarketModelStandard.Measure getMeasure()
      Returns:
      Returns the measure.

    • getIntegratedLIBORCovariance

      public double[][][] getIntegratedLIBORCovariance​(TimeDiscretization simulationTimeDiscretization)
      Description copied from interface: LIBORMarketModel
      Returns the integrated instantaneous log-forward rate covariance, i.e., \( \int_{0}^{t_i} \mathrm{d} \log(L_{j}) \mathrm{d} \log(L_{k}) \mathrm{d}t \). The array returned has the parametrization [i][j][k], i.e., integratedLIBORCovariance[timeIndex][componentIndex1][componentIndex2].
      Specified by:
      getIntegratedLIBORCovariance in interface LIBORMarketModel
      Parameters:
      simulationTimeDiscretization - The timeDiscretization used for the integration.
      Returns:
      The integrated instantaneous log-LIBOR covariance.

    • clone

      public Object clone()
      Overrides:
      clone in class Object

    • setDriftApproximationMethod

      public void setDriftApproximationMethod​(LIBORMarketModelStandard.Driftapproximation driftApproximationMethod)
      Parameters:
      driftApproximationMethod - The driftApproximationMethod to set.

    • setMeasure

      public void setMeasure​(LIBORMarketModelStandard.Measure measure)
      Parameters:
      measure - The measure to set.

    • getAnalyticModel

      public AnalyticModel getAnalyticModel()
      Description copied from interface: TermStructureModel
      Return the associated analytic model, a collection of market date object like discount curve, forward curve and volatility surfaces.
      Specified by:
      getAnalyticModel in interface TermStructureModel
      Returns:
      The associated analytic model.

    • getDiscountCurve

      public DiscountCurve getDiscountCurve()
      Description copied from interface: TermStructureModel
      Return the discount curve associated the forwards.
      Specified by:
      getDiscountCurve in interface TermStructureModel
      Returns:
      the discount curve associated the forwards.

    • getForwardRateCurve

      public ForwardCurve getForwardRateCurve()
      Description copied from interface: TermStructureModel
      Return the initial forward rate curve.
      Specified by:
      getForwardRateCurve in interface TermStructureModel
      Returns:
      the forward rate curve

    • getSwaptionMarketData

      public SwaptionMarketData getSwaptionMarketData()
      Return the swaption market data used for calibration (if any, may be null).
      Returns:
      The swaption market data used for calibration (if any, may be null).

    • getCovarianceModel

      public LIBORCovarianceModel getCovarianceModel()
      Description copied from interface: LIBORMarketModel
      Return the forward rate (LIBOR) covariance model.
      Specified by:
      getCovarianceModel in interface LIBORMarketModel
      Returns:
      The covariance model.

    • getCloneWithModifiedCovarianceModel

      public LIBORMarketModelStandard getCloneWithModifiedCovarianceModel​(LIBORCovarianceModel covarianceModel)
      Description copied from interface: LIBORMarketModel
      Create a new object implementing LIBORMarketModel, using the new covariance model.
      Specified by:
      getCloneWithModifiedCovarianceModel in interface LIBORMarketModel
      Parameters:
      covarianceModel - A covariance model
      Returns:
      A new LIBORMarketModelStandard using the specified covariance model.

    • getCloneWithModifiedData

      public LIBORMarketModelStandard getCloneWithModifiedData​(Map<String,​Object> dataModified) throws CalculationException
      Description copied from interface: LIBORModel
      Create a new object implementing LIBORModel, using the new data.
      Specified by:
      getCloneWithModifiedData in interface LIBORModel
      Specified by:
      getCloneWithModifiedData in interface ProcessModel
      Specified by:
      getCloneWithModifiedData in interface TermStructureModel
      Parameters:
      dataModified - A map with values to be used in constructions (keys are identical to parameter names of the constructors).
      Returns:
      A new object implementing LIBORModel, using the new data.
      Throws:
      CalculationException - Thrown if the valuation fails, specific cause may be available via the cause() method.

    • getModelParameters

      public Map<String,​RandomVariable> getModelParameters()
      Description copied from interface: IndependentModelParameterProvider
      Returns a map of independent model parameters of this model.
      Specified by:
      getModelParameters in interface IndependentModelParameterProvider
      Returns:
      Map of independent model parameters of this model.