net.finmath.montecarlo.interestrate

Class LIBORMarketModelStandard

java.lang.Object

net.finmath.montecarlo.model.AbstractModel

net.finmath.montecarlo.interestrate.LIBORMarketModelStandard

All Implemented Interfaces:

LIBORMarketModelInterface, AbstractModelInterface

public class LIBORMarketModelStandard
extends AbstractModel
implements LIBORMarketModelInterface

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 L_j = exp(Y_j) where
dY_j = μ_j dt + λ_1,j dW₁ + ... + λ_m,j dW_m
see AbstractModelInterface for details on the implemented interface.
The model uses an AbstractLIBORCovarianceModel for the specification of (λ_1,j,...,λ_m,j) as a covariance model, which may have the ability to calibrate to swaptions.

See Also:

AbstractLIBORCovarianceModel

Nested Class Summary

Nested Classes

Modifier and Type	Class and Description
static class	LIBORMarketModelStandard.CalibrationItem
static class	LIBORMarketModelStandard.Driftapproximation
static class	LIBORMarketModelStandard.Measure

Constructor Summary

Constructors

Constructor and Description
LIBORMarketModelStandard(TimeDiscretizationInterface liborPeriodDiscretization, ForwardCurveInterface forwardRateCurve, AbstractLIBORCovarianceModel covarianceModel) Creates a LIBOR Market Model for given covariance.
LIBORMarketModelStandard(TimeDiscretizationInterface liborPeriodDiscretization, ForwardCurveInterface forwardRateCurve, AbstractLIBORCovarianceModel covarianceModel, AbstractSwaptionMarketData swaptionMarketData) Creates a LIBOR Market Model using a given covariance model and calibrating this model to given swaption volatility data.
LIBORMarketModelStandard(TimeDiscretizationInterface liborPeriodDiscretization, ForwardCurveInterface forwardRateCurve, DiscountCurveInterface discountCurve, AbstractLIBORCovarianceModel covarianceModel) Creates a LIBOR Market Model for given covariance.
LIBORMarketModelStandard(TimeDiscretizationInterface liborPeriodDiscretization, ForwardCurveInterface forwardRateCurve, DiscountCurveInterface discountCurve, AbstractLIBORCovarianceModel covarianceModel, AbstractSwaptionMarketData swaptionMarketData) Creates a LIBOR Market Model for given covariance.
LIBORMarketModelStandard(TimeDiscretizationInterface liborPeriodDiscretization, ForwardCurveInterface forwardRateCurve, DiscountCurveInterface discountCurve, AbstractLIBORCovarianceModel covarianceModel, LIBORMarketModelStandard.CalibrationItem[] calibrationItems) Creates a LIBOR Market Model for given covariance.

Method Summary

Modifier and Type	Method and Description
RandomVariableInterface	applyStateSpaceTransform(int componentIndex, RandomVariableInterface randomVariable) Applied the state space transform fi to the given state random variable such that Yi → fi(Yi) =: Xi.
java.lang.Object	clone()
AnalyticModelInterface	getAnalyticModel() Return the associated analytic model, a collection of market date object like discount curve, forward curve and volatility surfaces.
LIBORMarketModelStandard	getCloneWithModifiedCovarianceModel(AbstractLIBORCovarianceModel covarianceModel) Create a new object implementing LIBORMarketModelInterface, using the new covariance model.
LIBORMarketModel	getCloneWithModifiedData(java.util.Map<java.lang.String,java.lang.Object> dataModified) Create a new object implementing LIBORMarketModelInterface, using the new data.
AbstractLIBORCovarianceModel	getCovarianceModel() Return the covariance model.
DiscountCurveInterface	getDiscountCurve() Return the discount curve associated the forwards.
RandomVariableInterface[]	getDrift(int timeIndex, RandomVariableInterface[] realizationAtTimeIndex, RandomVariableInterface[] realizationPredictor) Return the complete vector of the drift for the time index timeIndex, given that current state is realizationAtTimeIndex.
LIBORMarketModelStandard.Driftapproximation	getDriftApproximationMethod()
RandomVariableInterface[]	getFactorLoading(int timeIndex, int componentIndex, RandomVariableInterface[] realizationAtTimeIndex) This method has to be implemented to return the factor loadings, i.e.
ForwardCurveInterface	getForwardRateCurve() Return the initial forward rate curve.
RandomVariableInterface[]	getInitialState() 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.
double[][][]	getIntegratedLIBORCovariance() Returns the integrated instantaneous log-forward rate covariance, i.e., \int_0^t_i d log(L_j) d log(L_k) dt.
RandomVariableInterface	getLIBOR(int timeIndex, int liborIndex)
double	getLiborPeriod(int timeIndex) The period start corresponding to a given forward rate discretization index.
TimeDiscretizationInterface	getLiborPeriodDiscretization() The tenor time discretization of the forward rate curve.
int	getLiborPeriodIndex(double time) Same as java.util.Arrays.binarySearch(liborPeriodDiscretization,time).
LIBORMarketModelStandard.Measure	getMeasure()
int	getNumberOfComponents() This method is just a synonym to getNumberOfLibors
int	getNumberOfLibors() Get the number of LIBORs in the LIBOR discretization.
RandomVariableInterface	getNumeraire(double time) Return the numeraire at a given time.
AbstractSwaptionMarketData	getSwaptionMarketData() Return the swaption market data used for calibration (if any, may be null).
void	setDriftApproximationMethod(LIBORMarketModelStandard.Driftapproximation driftApproximationMethod)
void	setMeasure(LIBORMarketModelStandard.Measure measure)

Methods inherited from class net.finmath.montecarlo.model.AbstractModel

getInitialValue, getMonteCarloWeights, getNumberOfFactors, getProcess, getProcessValue, getTime, getTimeDiscretization, getTimeIndex, setProcess

Methods inherited from class java.lang.Object

equals, getClass, hashCode, notify, notifyAll, toString, wait, wait, wait

Methods inherited from interface net.finmath.montecarlo.model.AbstractModelInterface

getNumberOfFactors, getProcess, getTimeDiscretization, setProcess

Constructor Detail

LIBORMarketModelStandard

public LIBORMarketModelStandard(TimeDiscretizationInterface liborPeriodDiscretization,
                                ForwardCurveInterface forwardRateCurve,
                                AbstractLIBORCovarianceModel 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(TimeDiscretizationInterface liborPeriodDiscretization,
                                ForwardCurveInterface forwardRateCurve,
                                DiscountCurveInterface discountCurve,
                                AbstractLIBORCovarianceModel 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(TimeDiscretizationInterface liborPeriodDiscretization,
                                ForwardCurveInterface forwardRateCurve,
                                AbstractLIBORCovarianceModel covarianceModel,
                                AbstractSwaptionMarketData 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(TimeDiscretizationInterface liborPeriodDiscretization,
                                ForwardCurveInterface forwardRateCurve,
                                DiscountCurveInterface discountCurve,
                                AbstractLIBORCovarianceModel covarianceModel,
                                AbstractSwaptionMarketData 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(TimeDiscretizationInterface liborPeriodDiscretization,
                                ForwardCurveInterface forwardRateCurve,
                                DiscountCurveInterface discountCurve,
                                AbstractLIBORCovarianceModel covarianceModel,
                                LIBORMarketModelStandard.CalibrationItem[] calibrationItems)
                         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.

calibrationItems - 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 Detail

getNumeraire

public RandomVariableInterface getNumeraire(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 AbstractModelInterface

Parameters:

time - Time time t for which the numeraire should be returned N(t).

Returns:

The numeraire at the specified time as RandomVariable

Throws:

CalculationException - Thrown if the valuation fails, specific cause may be available via the cause() method.

getInitialState

public RandomVariableInterface[] getInitialState()

Description copied from interface: AbstractModelInterface

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 AbstractModelInterface

Returns:

The initial value of the state variable of the process Y(t=0).

getDrift

public RandomVariableInterface[] getDrift(int timeIndex,
                                          RandomVariableInterface[] realizationAtTimeIndex,
                                          RandomVariableInterface[] 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 AbstractModelInterface

Parameters:

timeIndex - Time index i for which the drift should be returned μ(t_i).

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 of no predictor is available.

Returns:

The drift vector μ(t_i) as RandomVariable[]

See Also:

The calculation of the drift is consistent with the calculation of the numeraire in getNumeraire.

getFactorLoading

public RandomVariableInterface[] getFactorLoading(int timeIndex,
                                                  int componentIndex,
                                                  RandomVariableInterface[] realizationAtTimeIndex)

Description copied from interface: AbstractModelInterface

This method has to be implemented to return the factor loadings, i.e. the coefficient vector
λ_j = (λ_1,j, ..., λ_m,j) such that X = f(Y) and
dY_j = μ_j dt + λ_1,j dW₁ + ... + λ_m,j dW_m
in an m-factor model. Here j denotes index of the component of the resulting process.

Specified by:

getFactorLoading in interface AbstractModelInterface

Parameters:

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 RandomVariableInterface applyStateSpaceTransform(int componentIndex,
                                                        RandomVariableInterface randomVariable)

Description copied from interface: AbstractModelInterface

Applied the state space transform f_i to the given state random variable such that Y_i → f_i(Y_i) =: X_i.

Specified by:

applyStateSpaceTransform in interface AbstractModelInterface

Parameters:

componentIndex - The component index i.

randomVariable - The state random variable Y_i.

Returns:

New random variable holding the result of the state space transformation.

getDriftApproximationMethod

public LIBORMarketModelStandard.Driftapproximation getDriftApproximationMethod()

Returns:

Returns the driftApproximationMethod.

getLIBOR

public RandomVariableInterface getLIBOR(int timeIndex,
                                        int liborIndex)
                                 throws CalculationException

Specified by:

getLIBOR in interface LIBORMarketModelInterface

Throws:

CalculationException

getNumberOfComponents

public int getNumberOfComponents()

This method is just a synonym to getNumberOfLibors

Specified by:

getNumberOfComponents in interface AbstractModelInterface

Returns:

The number of components

getNumberOfLibors

public int getNumberOfLibors()

Description copied from interface: LIBORMarketModelInterface

Get the number of LIBORs in the LIBOR discretization.

Specified by:

getNumberOfLibors in interface LIBORMarketModelInterface

Returns:

The number of LIBORs in the LIBOR discretization

getLiborPeriod

public double getLiborPeriod(int timeIndex)

Description copied from interface: LIBORMarketModelInterface

The period start corresponding to a given forward rate discretization index.

Specified by:

getLiborPeriod in interface LIBORMarketModelInterface

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: LIBORMarketModelInterface

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 LIBORMarketModelInterface

Parameters:

time - The period start.

Returns:

The index corresponding to a given time (interpretation is start of period)

getLiborPeriodDiscretization

public TimeDiscretizationInterface getLiborPeriodDiscretization()

Description copied from interface: LIBORMarketModelInterface

The tenor time discretization of the forward rate curve.

Specified by:

getLiborPeriodDiscretization in interface LIBORMarketModelInterface

Returns:

The tenor time discretization of the forward rate curve.

getMeasure

public LIBORMarketModelStandard.Measure getMeasure()

Returns:

Returns the measure.

getIntegratedLIBORCovariance

public double[][][] getIntegratedLIBORCovariance()

Description copied from interface: LIBORMarketModelInterface

Returns the integrated instantaneous log-forward rate covariance, i.e., \int_0^t_i d log(L_j) d log(L_k) dt. The array returned has the parametrization [i][j][k], i.e., integratedLIBORCovariance[timeIndex][componentIndex1][componentIndex2].

Specified by:

getIntegratedLIBORCovariance in interface LIBORMarketModelInterface

Returns:

The integrated instantaneous log-LIBOR covariance.

clone

public java.lang.Object clone()

Overrides:

clone in class java.lang.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 AnalyticModelInterface getAnalyticModel()

Description copied from interface: LIBORMarketModelInterface

Return the associated analytic model, a collection of market date object like discount curve, forward curve and volatility surfaces.

Specified by:

getAnalyticModel in interface LIBORMarketModelInterface

Returns:

The associated analytic model.

getDiscountCurve

public DiscountCurveInterface getDiscountCurve()

Description copied from interface: LIBORMarketModelInterface

Return the discount curve associated the forwards.

Specified by:

getDiscountCurve in interface LIBORMarketModelInterface

Returns:

the discount curve associated the forwards.

getForwardRateCurve

public ForwardCurveInterface getForwardRateCurve()

Description copied from interface: LIBORMarketModelInterface

Return the initial forward rate curve.

Specified by:

getForwardRateCurve in interface LIBORMarketModelInterface

Returns:

the forward rate curve

getSwaptionMarketData

public AbstractSwaptionMarketData 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 AbstractLIBORCovarianceModel getCovarianceModel()

Description copied from interface: LIBORMarketModelInterface

Return the covariance model.

Specified by:

getCovarianceModel in interface LIBORMarketModelInterface

Returns:

The covariance model.

getCloneWithModifiedCovarianceModel

public LIBORMarketModelStandard getCloneWithModifiedCovarianceModel(AbstractLIBORCovarianceModel covarianceModel)

Description copied from interface: LIBORMarketModelInterface

Create a new object implementing LIBORMarketModelInterface, using the new covariance model.

Specified by:

getCloneWithModifiedCovarianceModel in interface LIBORMarketModelInterface

Parameters:

covarianceModel - A covariance model

Returns:

A new LIBORMarketModelStandard using the specified covariance model.

getCloneWithModifiedData

public LIBORMarketModel getCloneWithModifiedData(java.util.Map<java.lang.String,java.lang.Object> dataModified)
                                          throws CalculationException

Description copied from interface: LIBORMarketModelInterface

Create a new object implementing LIBORMarketModelInterface, using the new data.

Specified by:

getCloneWithModifiedData in interface LIBORMarketModelInterface

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 LIBORMarketModelInterface, using the new data.

Throws:

CalculationException - Thrown if the valuation fails, specific cause may be available via the cause() method.