Module net.finmath.lib

Package net.finmath.montecarlo.interestrate.models

Class HullWhiteModelWithConstantCoeff

java.lang.Object

net.finmath.montecarlo.model.AbstractProcessModel

net.finmath.montecarlo.interestrate.models.HullWhiteModelWithConstantCoeff

All Implemented Interfaces:

IndependentModelParameterProvider, LIBORModel, TermStructureModel, ProcessModel

public class HullWhiteModelWithConstantCoeff
extends AbstractProcessModel
implements LIBORModel

Implements a Hull-White model with constant coefficients. A more general implementation of the Hull-White model can be found in HullWhiteModel. For details and documentation please see HullWhiteModel for real applications.

Version:

1.0

Author:

Christian Fries

Constructor Summary

Constructors

Constructor	Description
HullWhiteModelWithConstantCoeff(TimeDiscretization liborPeriodDiscretization, AnalyticModel analyticModel, ForwardCurve forwardRateCurve, DiscountCurve discountCurve, double meanReversion, double volatility, Map<String,?> properties)	Creates a Hull-White model which implements LIBORMarketModel.

Method Summary

Modifier and Type	Method	Description
RandomVariable	applyStateSpaceTransform(MonteCarloProcess process, int timeIndex, int componentIndex, RandomVariable randomVariable)	Applies the state space transform fi to the given state random variable such that Yi → fi(Yi) =: Xi.
RandomVariable	applyStateSpaceTransformInverse(MonteCarloProcess process, int timeIndex, int componentIndex, RandomVariable randomVariable)	Applies the inverse state space transform f-1i to the given random variable such that Xi → f-1i(Xi) =: Yi.
AnalyticModel	getAnalyticModel()	Return the associated analytic model, a collection of market date object like discount curve, forward curve and volatility surfaces.
LIBORMarketModel	getCloneWithModifiedData(Map<String,Object> dataModified)	Create a new object implementing LIBORModel, using the new data.
DiscountCurve	getDiscountCurve()	Return the discount curve associated the forwards.
RandomVariable[]	getDrift(MonteCarloProcess process, int timeIndex, RandomVariable[] realizationAtTimeIndex, RandomVariable[] realizationPredictor)	This method has to be implemented to return the drift, i.e.
RandomVariable[]	getFactorLoading(MonteCarloProcess process, int timeIndex, int componentIndex, RandomVariable[] realizationAtTimeIndex)	This method has to be implemented to return the factor loadings, i.e.
RandomVariable	getForwardRate(MonteCarloProcess process, double time, double periodStart, double periodEnd)	Returns the time \( t \) forward rate on the models forward curve.
ForwardCurve	getForwardRateCurve()	Return the initial forward rate curve.
RandomVariable[]	getInitialState(MonteCarloProcess process)	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	getIntegratedBondSquaredVolatility(double time, double maturity)
RandomVariable	getLIBOR(MonteCarloProcess process, int timeIndex, int liborIndex)	Return the forward rate at a given timeIndex and for a given liborIndex.
double	getLiborPeriod(int timeIndex)	The period start corresponding to a given forward rate discretization index.
TimeDiscretization	getLiborPeriodDiscretization()	The tenor time discretization of the forward rate curve.
int	getLiborPeriodIndex(double time)	Same as java.util.Arrays.binarySearch(liborPeriodDiscretization,time).
Map<String,RandomVariable>	getModelParameters()	Returns a map of independent model parameters of this model.
int	getNumberOfComponents()	Returns the number of components
int	getNumberOfFactors()	Returns the number of factors m, i.e., the number of independent Brownian drivers.
int	getNumberOfLibors()	Get the number of LIBORs in the LIBOR discretization.
RandomVariable	getNumeraire(MonteCarloProcess process, double time)	Return the numeraire at a given time index.
RandomVariable	getRandomVariableForConstant(double value)	Return a random variable initialized with a constant using the models random variable factory.
double	getShortRateConditionalVariance(double time, double maturity)	Calculates the variance \( \mathop{Var}(r(t) \vert r(s) ) \), that is \( \int_{s}^{t} \sigma^{2}(\tau) \exp(-2 \cdot a \cdot (t-\tau)) \ \mathrm{d}\tau \) where \( a \) is the meanReversion and \( \sigma \) is the short rate instantaneous volatility.

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

getInitialValue, getReferenceDate

Methods inherited from class java.lang.Object

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

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

getReferenceDate

Methods inherited from interface net.finmath.montecarlo.interestrate.TermStructureModel

getForwardDiscountBond, getLIBOR

Constructor Details

HullWhiteModelWithConstantCoeff

public HullWhiteModelWithConstantCoeff(TimeDiscretization liborPeriodDiscretization,
 AnalyticModel analyticModel,
 ForwardCurve forwardRateCurve,
 DiscountCurve discountCurve,
 double meanReversion,
 double volatility,
 Map<String,?> properties)

Creates a Hull-White model which implements LIBORMarketModel.

Parameters:

liborPeriodDiscretization - The forward rate discretization to be used in the getLIBOR method.

analyticModel - The analytic model to be used (currently not used, may be null).

forwardRateCurve - The forward curve to be used (currently not used, - the model uses disocuntCurve only.

discountCurve - The disocuntCurve (currently also used to determine the forward curve).

meanReversion - The mean reversion speed parameter a.

volatility - The short rate volatility \( \sigma \).

properties - A map specifying model properties (currently not used, may be null).

Method Details

getNumberOfComponents

public int getNumberOfComponents()

Description copied from interface: ProcessModel

Returns the number of components

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.

applyStateSpaceTransform

public RandomVariable applyStateSpaceTransform(MonteCarloProcess process,
 int timeIndex,
 int componentIndex,
 RandomVariable randomVariable)

Description copied from interface: ProcessModel

Applies 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 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 Y_i.

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^-1_i to the given random variable such that X_i → f^-1_i(X_i) =: Y_i.

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 X_i.

Returns:

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

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).

getNumeraire

public RandomVariable getNumeraire(MonteCarloProcess process,
 double time)
                            throws CalculationException

Description copied from interface: ProcessModel

Return the numeraire at a given time index. Note: The random variable returned is a defensive copy and may be modified.

Specified by:

getNumeraire 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.

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

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.

getDrift

public RandomVariable[] getDrift(MonteCarloProcess process,
 int timeIndex,
 RandomVariable[] realizationAtTimeIndex,
 RandomVariable[] realizationPredictor)

Description copied from interface: ProcessModel

This method has to be implemented to return the drift, i.e. the coefficient vector
μ = (μ₁, ..., μ_n) 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. Since the model is provided only on a time discretization, the method may also (should try to) return the drift as \( \frac{1}{t_{i+1}-t_{i}} \int_{t_{i}}^{t_{i+1}} \mu(\tau) \mathrm{d}\tau \).

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 - The time index (related to the model times discretization).

realizationAtTimeIndex - The given realization at timeIndex

realizationPredictor - The given realization at timeIndex+1 or null if no predictor is available.

Returns:

The drift or average drift from timeIndex to timeIndex+1, i.e. \( \frac{1}{t_{i+1}-t_{i}} \int_{t_{i}}^{t_{i+1}} \mu(\tau) \mathrm{d}\tau \) (or a suitable approximation).

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
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 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.

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.

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.

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.

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)

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

getCloneWithModifiedData

public LIBORMarketModel getCloneWithModifiedData(Map<String,Object> dataModified)

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.

getShortRateConditionalVariance

public double getShortRateConditionalVariance(double time,
 double maturity)

Calculates the variance \( \mathop{Var}(r(t) \vert r(s) ) \), that is \( \int_{s}^{t} \sigma^{2}(\tau) \exp(-2 \cdot a \cdot (t-\tau)) \ \mathrm{d}\tau \) where \( a \) is the meanReversion and \( \sigma \) is the short rate instantaneous volatility.

Parameters:

time - The parameter s in \( \int_{s}^{t} \sigma^{2}(\tau) \exp(-2 \cdot a \cdot (t-\tau)) \ \mathrm{d}\tau \)

maturity - The parameter t in \( \int_{s}^{t} \sigma^{2}(\tau) \exp(-2 \cdot a \cdot (t-\tau)) \ \mathrm{d}\tau \)

Returns:

The integrated square volatility.

getIntegratedBondSquaredVolatility

public double getIntegratedBondSquaredVolatility(double time,
 double maturity)

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.