DRIP Fixed Income

As of 2.63 Drip is being transitioned. Please email [email protected] for any other details while in transition.

v2.63 1 February 2017

DRIP Fixed Income is a collection of Java libraries for Instrument/Trading Conventions, Treasury Futures/Options, Funding/Forward/Overnight Curves, Multi-Curve Construction/Valuation, Collateral Valuation and XVA Metric Generation, Calibration and Hedge Attributions, Statistical Curve Construction, Bond RV Metrics, Stochastic Evolution and Option Pricing, Interest Rate Dynamics and Option Pricing, LMM Extensions/Calibrations/Greeks, Algorithmic Differentiation, and Asset Backed Models and Analytics.

DRIP Fixed Income is composed of the following main libraries:

• Instrument/Trading Conventions Library
• Treasury Futures/Options Library
• Funding/Forward/Overnight Curve Library
• Multi-Curve Construction/Valuation Library
• Collateral and XVA Metrics Library
• Position Horizon Analyzer Library
• Statistical Curve Construction Library
• Bond RV Metrics Library
• Stochastic Evolution and Option Pricing Library
• Interest Dynamics and Option Pricing Library
• LMM Extensions, Calibration, and Greeks Library
• Algorithmic Differentiation Library
• Asset Backed Model Library

For Installation, Documentation and Samples, and the associated supporting Numerical Libraries please check out [DRIP] (https://github.com/lakshmiDRIP/DRIP).

##Features

###Instrument/Trading Conventions Library

####Associations and Exchanges

• Associations
• Exchanges

####Date Conventions

• Day Count Conventions
• Business Day Conventions

####Overnight and IBOR-like Indexes

• IBOR Indexes - Introduction
• Main IBOR Indices
• Other IBOR Indices
• Overnight Index Definitions
• Overnight Index Committees and Meeting Dates

####Over the Counter Instruments

• Forward Rate Agreement
• Interest Rate Swaps
• Vanilla IRS
• Interest Rate Swaps (Basis Swaps: IBORfor IBOR)
• Cross Currency Swaps (IBOR for IBOR)
• Constant Maturity Swaps
• Swap Indexes
• Overnight Indexed Swaps
• Swap Option
• Forex and Forward Swaps

####Exchange Traded Instruments

• Overnight Futures
• Short-Term Interest Rate Futures (STIR Futures)
• Currency Specific Futures
• Interest Rate Futures Option - Premium
• Interest Rate Futures Option - Margin
• Bank Bill Futures - AUD Style
• Deliverable Swap (IRS) Futures (PV Quoted)
• Bond Futures (non AUD/NZD)
• Country Specific Bond Futures - USD
• Country Specific Bond Futures - Germany
• Country Specific Bond Futures - Spain
• Country Specific Bond Futures - UK
• Country Specific Bond Futures - Japan
• Options on Bond Futures (non AUD/NZD) - Premium
• Options on Bond Futures (non AUD/NZD) - Margin
• AUD-NZD Bond Futures

###Treasury Futures/Options Library ####Treasury Futures Trading and Hedging

• Contract Detail Specifications

####Identification of the CTD in the Basket

• The Conversion Factor
• Old vs. Active Treasury
• Market Parameters Influencing the CTD Calculation
• Impact of Yield Curve Changes

####Valuation of Treasury Futures Contract

• Futures Contract and Mark-To-Market
• Role of the Clearing Corporation
• Delivery Options for the Underlying
• Implied Basis for the Futures
• Net Basis For Treasury Futures

###Funding/Forward/Overnight Curve Library

####Curve Builder Features

• Discount Curves

####Curve Construction Methodology

• Approach
• State Span Design Components
• Curve Calibration From Instruments/Quotes
• Calibration Considerations

####Curve Construction Formulation

• Segment Linear Discount Curve Calibration
• Curve Jacobian

####Stream Based Calibration

• Latent State Formulation Metric (LSFM)
• Stream Inference Setup
• Coupon Period Based Calibration Specification
• Stream Based Calibration Specification
• Calibration of Multi-Stream Components

####Spaning Splines

• Setup and Formulation
• Challenges with the Spanning Spline Approach

####Monotone Descreasing Splines

• Exponential Rational Basis Spline
• Exponential Mixture Basis Set

####Hagan-West (2006) Smoothness Preserving Spanning Spline

• Monotone/Convexity Preserving Estimator
• Positivity Preserving
• Ameliorating Estimator
• Harmonic Spline Extension to the Framework above
• Minimal Quadratic Estimator

####Extrapolation in Curve Construction

####Multi-Pass Curve Construction

• Bear-Sterns Multi-Pass Curve Building Techniques

####Transition Spline (Or Stitching Spline)

• Stretch Modeling using Transition Splines
• Stretch Partition/Isolation in Transition Splines
• Knot Insertion vs. Transition Splines
• Overlapping Stretches

####Penalizing Exact/Closeness of Fit and Curvature Penalty

####Index/Tenor Basis Swaps

• Component Layout and Motivation
• Formulation

####Multi-Stretch Merged Curve Construction

• Merge Stretch Calibration

####Latent State Manifest Measure Sensitivity

• Float-Float Manifest Measure Sensitivities
• Multi-reset Floating Period

####OIS Valuation and Curve Construction

• Base Framework and Environment Setup
• OIS Valuation Extensions and Approximations
• OIS-FX Basis Swap Valuation and Approximations
• Arithmetic Accrual Convexity Correction
• Composed Period Latent State Loadings

####Spline Based Credit Curve Calibration

###Multi-Curve Construction/Valuation Library

####Correlated Multi-Curve Build-out

• Standard FRA Setup
• Standard FRA Options
• No arbitrage and Counter-party Risk Based Standard FRA Formulation
• Market FRA Setup
• Futures
• Multi-Curve Swap Valuation

####Cross Currency Basis Swap

• Product Details and Valuation
• Building the CCS Discount Curve
• Custom CCBS Based Curve Construction SKU
• Mark-To-Market Cross-Currency Swap Valuation
• Mark-To-Market Cross-Currency Swap - Valuation Formulation
• Absolute/Relative MTM Application
• Per-Trade Risk Isolation Components

###Collateral and XVA Metrics Library

####Collateral Agreements and Derivatives Valuation

• Two Collateralized Assets
• Setup pf the Collateral Curve Dynamics
• Collateralized Black-Scholes Formulation
• Collateralization and Funding Derivative Valuation
• Collateral PDE Formulation
• Formward Contract Valuation
• European Style Options
• Cross-Currency Model
• Collateral Choice Model

####CVA and Funding Adjustments PDE

• Counterparty Risk and Funding Costs
• Notation, Symbology, and Key PDE's
• Model Setup and the Derivation of the Bilateral Risky PDE
• Using VHat (T, S) and Mark-To-Market at Default
• Using V (T, S) and Mark-To-Market at Default
• Funding and Default Payoff Examples
• Counter-party Funding and PDE Extensions
• Balance Sheet and Funding Cost Management
• Unified Framework for Bilateral Counterpart Risk and Funding Adjustments
• Simple Model for the Impact of Derivative Asset on Balance Sheet and Funding
• Balance Sheet Management to Mitigate Funding Costs
• Funding Strategies and Costs Impact
• Generalized Semi-replication and Pricing PDE
• Semi-replication
• Examples of Different Bond Portfolios
• The Perfect Replication - FCA Vanishes
• Semi-replication with no Shortfall at own Default
• Set-offs
• Semi-replication with a Single Bond
• Burgard and Kjaer (2013) Case Study

####Accounting for OTC Derivatives: Funding Adjustments and Re-hypothecation Option

• Status of Currenct FCA/FBA Accounting
• Comaprison between FCA/FBA and FVA/FDA
• OTC vs. Repo Markets
• Modus Operandi of Funding Desks
• MTM and the Asset Liability Symmetry
• Rigorous Framework for Funding Costs
• Funding Set VM RHO Computation
• Shortcomings of Traditional CVA Systems
• Addressing the Shortcomings of FCA/FBA Accounting
• Valuation Adjustment Estimation Framework Setup
• OTC Bookds Funding Set Decomposition
• Inconsistent Booking under the FCA/FBA
• Improvements Offered by the FVA/FDA Accounting
• CET1 Deductions
• "Going Concern" or Defaulable Banks
• Cash Flow Streams Categorization
• Accounting Rules
• Contra-Asset and Contra-Liability Accounting for Credit Risk
• Contra-Asset and Contra-Liability Accounting for Funding
• Accounting Cash Flow Setup Framework
• Cash Flows related to VM Funding
• Cash Flows at Counter-party Default
• Cash Flows at Bank Default
• CVA and DVA
• FVA and FDA
• FCA and FBA
• CA and CL Adjustments
• Own Credit Sensitivities
• Triggers and Close-out Adjustments
• Collateral Triggers and Close-outs
• Incorporating ISDA 1992 Close-outs
• VM Re-hypothecability across Funding Sets
• Trade and Portfolio FTP Estimation
• FTP for FCA/FBA Accounting
• FTP for FVA/FDA Accounting
• Exit Prices and Fair Valuation
• FVA/FDA Accounting
• FCA/FBA Accounting
• Liquidity Spreads, Asset Liability Symmetry, and Alternative Allocations for Excess Collateral
• Working Capital Management and Operations
• Equity Gain and Debt Gain
• Liquidity Based Analysis and Treatment
• Problems with Gain Accounting
• Albanese and Andersen (2014) Case Study
• Case Study Setting and Purpose
• Scenario Estimation of the XVA Metrics
• Product and Scenario Threshold Type Scenarios
• XVA Error Metrics and Incrementals
• Estimation ofthe FCA/FBA - FVA/FDA Mismatch
• Traditional Challenges with Derivative Accounting
• Problems with FCA/FBA Accounting
• FVA/FDA vs. FCA/FBA Enhancement
• Trading Staff Point of View
• Challenges with the XVA Metric Estimation
• Shortfalls of the FVA/FDA Scheme
• Alternate Specialized Value Metrics

###Position Horizon Analyzer Library

####Convexity Corrections Associated with Margining

####Hedging Considerations

####Product Curve Effect Attribution

• Market Value Change Explain Components
• Coupon Accrual Intrinsic
• Market Parameters Intrinsic
• Market Parameters Extrinsic
• Market Value Change Effects Formulation

###Statistical Curve Construction Library

####Inference Based Curve Construction

• Curve Smoothing in Finance
• Bayesian Curve Calibration
• Sequential Curve Estimation

###Bond RV Metrics Library

• The Bond RV Measure Set
• Asset Swap Spread
• Bond Basis
• Convexity
• Credit Basis
• Discount Margin
• Duration
• DV01
• G Spread
• I Spread
• Macaulay Duration
• Modified Duration
• Option Adjusted Spread
• Par Asset Swap Spread
• Par Spread
• Par Equivalent CDS Spread (PECS)
• Price
• Spread Over Treasury Benchmark
• Yield
• Yield Basis
• Yield Spread
• Yield01
• Zero Discount Margin (ZDM)
• Z Spread
• Relative Value Cross-Metric Grid
• Basic Measures

###Stochastic Evolution and Option Pricing Library

####Stochastic Calculus

• Single-Factor Stochastic Calculus
• Multi-Factor Stochastic Calculus
• Risk Neutral Pricing Framework

####Black Scholes Methodology

• The Replication Technique
• Capital Asset Pricing Model
• Multi-numeraire Formulation
• First Order Log-normal Black Scholes Greeks
• Second Order Log-normal Black Scholes Greeks
• Third Order Log-normal Black Scholes Greeks
• Time-Dependent Black Scholes
• Local Volatility Models
• Black Normal Model Specification and Dynamics
• Options on Forward
• The Black76 Model

####Stochastic Volatility Models: The Heston Model

• Model Specification and Dynamics
• Price Estimation Through Characteristic Functions
• Fourier Inversion in Characteristic Function

####Dynamical Latent State Calibration

• Fokker-Planck Equations
• Volatility Observations vs. Calibrations

###Interest Rate Dynamics and Option Pricing Library

####HJM Model

• Formulation
• Hull-White from HJM
• G2++ - A 2-Factor HJM Model
• HJM to LMM
• HJM PCA

####Hull-White Model

• Short-Rate Formulation
• Hull-White Trinomial Tree
• Construction of the Symmetric Trinomial Tree
• Displacing the Nodes of the Trinomial Tree

####Market Model fo Interest Rate Dynamics

• Nomenclature and Notation
• The BGM Model
• LIBOR Rate Dynamics
• Relation to the HJM Dynamics
• Existence, Uniqueness, and Regularity of the LIBOR Dynamics Solution
• Upper/Lower Bounds for the LIBOR Rate
• Invariant Measure for the LIBOR Rate
• BGM Cap/Floor Pricing
• Payer Swap Option Pricing
• Payer Swap Option Pricing Simplification
• Mismatched Periods Cap/Swaption Pricing
• Approximate vs. Full Simulation Comparisons
• Typical Model Calibration Results

####The SABR Model

• Parameter Estimation

###LMM Extensions, Calibration, and Greeks Library

####LMM Calibration and Greeks Overview

• Robust LMM Calibration Approaches Overview
• Cross-Currency LIBOR Market Model
• LMM Based Greeks Calculation Approaches
• Major Extensions to LMM
• Hedging the Derivatives Cash Flow
• LMM Skew and its Calibration
• LMM Smile and its Calibration
• Cross-Currency Extensions to LMM
• LMM Monte-Carlo Methods and Greeks
• Numerical Methods for LMM Calibration

###Algorithmic Differentiation Library

• Algorithmic Differentiation in Finance
• Program Sequence Construction Modes
• Canonicalization - Program Statements Simplification by Decomposition
• Challenges of Automating the Differentiation
• Wengert Representation and Optimal Program Structure Synthesis
• Optimization using Pre-accumulation and Check-Pointing
• Algorithmic Differentiation Financial Application Space Customization
• Sensitivity Generation During Curve Construction
• Curve Jacobian
• Stochastic Entity Evolution - Sensitivity Formulation
• Sensitivities to Stochastic State Variates and Dynamical Parameters
• State Variate Evolution Constrained by Splines
• Formulation of the Evolution of the Stochastic Variate Self-Jacbian
• Correlated Stochastic Variates Evolution
• LMM Forward Rate Evolution
• Formulation of the Pay-off Function Stochastic Evolution
• Path Greeks
• Pay-off Sensitivity to the Correlation Matrix
• Algorithmic Differentiation in Pay-off Sensitivities Calculation
• Bermudan Swap Option Sensitivities Formulation
• Bermudan Swap Option Sensitivites Greek Estimation
• LSM Methodology
• NTD Basket Sensitivities Product Formulation
• Basket Options

###Asset Backed Model Library

• Overview of the Credit Model Methodology
• Scope of the Model
• Data Model Construction Rules
• Loan Data Quality Rules
• Lending Club Loan Level Data
• Loan Credit Model Implementation
• Credit Model Selection Methodology
• Regressor Contribution Weights
• Empirical Analysis of Seasoning Effects
• Analysis of the Vintage/Cohort Effects
• Analysis of the Empirical Seasonality Effects
• CPR and CDR Curve Estimation
• Credit Model Enhancements

##Contact

[email protected]