public class ScenarioGeneratorTest {
// ----------------------------------------------------------------------------------------------------------------------------------------
// TODO :
// ----------------------------------------------------------------------------------------------------------------------------------------
// Flag to control if any test results are output to the console
private static final boolean outputResults = false;
// ----------------------------------------------------------------------------------------------------------------------------------------
private static final int numberOfSimulations = 12;
private static final int defaultSimulationSeed = 987654321;
private static final int recoveryRateSimulationSeed = 987654321;
private static final double simulationTimeHorizon = 1.0;
private static final double homogeneousDefaultCorrelation = 0.5;
private static final double homogeneousRecoveryCorrelation = 0.0;
private static final double homogeneousDefaultProbability = 0.5;
// Create a pool construction object
private static final UnderlyingPoolDummyPool pool = new UnderlyingPoolDummyPool();
// Build the underlying pool
private static final UnderlyingPool obligorUniverse = pool.constructPool();
// Extract the number of obligors in the simulation universe from the UnderlyingPool
private static final int numberOfObligors = obligorUniverse.getNumberOfObligors();
// ----------------------------------------------------------------------------------------------------------------------------------------
private static final SimulationMethods simMethods = new SimulationMethods();
private static final SimulationEngine simulationEngine = new SimulationEngine();
private static final RecoveryRateModel[] recoveryRateModels =
simMethods.constructRecoveryRateModels(numberOfObligors);
private static final double[] defaultCorrelationVector =
simMethods.constructCorrelationVector(numberOfObligors, homogeneousDefaultCorrelation);
private static final double[] recoveryCorrelationVector =
simMethods.constructCorrelationVector(numberOfObligors, homogeneousRecoveryCorrelation);
private static final double[] defaultProbabilityVector =
simMethods.constructCorrelationVector(numberOfObligors, homogeneousDefaultProbability);
private static final ScenarioGenerator scenarioGenerator =
new ScenarioGenerator(
obligorUniverse,
recoveryRateModels,
numberOfSimulations,
defaultSimulationSeed,
recoveryRateSimulationSeed,
simulationTimeHorizon,
defaultCorrelationVector,
recoveryCorrelationVector,
defaultProbabilityVector);
// ----------------------------------------------------------------------------------------------------------------------------------------
@Test
public void testCreditPortfolioLossModelScenarioGenerator() {
simulationEngine.runSimulation(scenarioGenerator, outputResults);
}
// ----------------------------------------------------------------------------------------------------------------------------------------
}
public double getRecRate01IndexCreditDefaultSwap(
final ZonedDateTime valuationDate,
final IndexCreditDefaultSwapDefinition indexCDS,
final ISDADateCurve[] yieldCurves,
final ZonedDateTime[] marketTenors,
final double[][] marketSpreads,
final double recoveryRateBump,
final RecoveryRateBumpType recoveryRateBumpType) {
// ------------------------------------------------------------------------------------------------------------------------------------------
ArgumentChecker.notNull(valuationDate, "Valuation date");
ArgumentChecker.notNull(indexCDS, "Index CDS");
ArgumentChecker.notNull(yieldCurves, "YieldCurve");
ArgumentChecker.notNull(marketTenors, "Market tenors");
ArgumentChecker.notNull(marketSpreads, "Market spreads");
ArgumentChecker.notNull(recoveryRateBumpType, "Recovery rate bump type");
// ------------------------------------------------------------------------------------------------------------------------------------------
int numberOfObligors = indexCDS.getUnderlyingPool().getNumberOfObligors();
double[] breakevenSpreads = new double[numberOfObligors];
for (int i = 0; i < numberOfObligors; i++) {
breakevenSpreads[i] = marketSpreads[i][0];
}
// Calibrate the hazard rate term structures of each of the obligors in the pool underlying the
// index to the unbumped credit spreads
final HazardRateCurve[] hazardRateCurves =
calibrateHazardRateCurves.getCalibratedHazardRateCurves(
valuationDate, indexCDS, marketTenors, marketSpreads, yieldCurves);
// Calculate the unbumped value of the index
final double presentValue =
indexPresentValue.getIntrinsicPresentValueIndexCreditDefaultSwap(
valuationDate, indexCDS, breakevenSpreads, yieldCurves, hazardRateCurves);
// Extract out the underlying pool from the index CDS
UnderlyingPool modifiedPool = indexCDS.getUnderlyingPool();
double[] recoveryRates = modifiedPool.getRecoveryRates();
// final double recoveryRate = modifiedPool.getRecoveryRates()[i];
final double[] bumpedRecoveryRates =
recoveryRateBumper.getBumpedRecoveryRate(
recoveryRates, recoveryRateBump, recoveryRateBumpType);
// Modify the temp pool object to have the bumped recovery rate vector
modifiedPool = modifiedPool.withRecoveryRates(bumpedRecoveryRates);
// Construct a temporary index CDS
IndexCreditDefaultSwapDefinition tempIndex = indexCDS;
// Modify the temporary index to have the modified underlying pool
tempIndex = tempIndex.withUnderlyingPool(modifiedPool);
// Calibrate the hazard rate term structures of each of the obligors in the pool underlying the
// index to the bumped recovery rates
final HazardRateCurve[] bumpedHazardRateCurves =
calibrateHazardRateCurves.getCalibratedHazardRateCurves(
valuationDate, tempIndex, marketTenors, marketSpreads, yieldCurves);
// Calculate the bumped value of the index
final double bumpedPresentValue =
indexPresentValue.getIntrinsicPresentValueIndexCreditDefaultSwap(
valuationDate, tempIndex, breakevenSpreads, yieldCurves, bumpedHazardRateCurves);
final double recRate01 = (bumpedPresentValue - presentValue) / recoveryRateBump;
return recRate01;
}
