Resolve QPR-12286 (JY Calibration for FMS)

Author: rolandlichters

Examples/Example_54/ExpectedOutput/npv.csv

@@ -1,3 +1,3 @@
 #TradeId,TradeType,Maturity,MaturityTime,NPV,NpvCurrency,NPV(Base),BaseCurrency,Notional,NotionalCurrency,Notional(Base),NettingSet,CounterParty
 BermSwp,ScriptedTrade,2036-03-03,20.073770,51640.311738,EUR,51640.311738,EUR,#N/A,#N/A,#N/A,CPTY_A,CPTY_A
-LPISwp,ScriptedTrade,2035-02-01,18.989303,62979.404029,GBP,78301.934721,EUR,#N/A,#N/A,#N/A,CPTY_B,CPTY_B
+LPISwp,ScriptedTrade,2035-02-01,18.989303,53833.516084,GBP,66930.904274,EUR,#N/A,#N/A,#N/A,CPTY_B,CPTY_B

Examples/Example_54/Input/pricingengine.xml

@@ -8,11 +8,17 @@
       <Parameter name="EnforceBaseCcy">false</Parameter>
       <Parameter name="GridCoarsening">3M(1W),1Y(1M),5Y(3M),10Y(1Y),50Y(5Y)</Parameter>
       <Parameter name="IrReversion_EUR">0.01</Parameter>
-      <Parameter name="IrReversion_GBP">0.01</Parameter>
+      <Parameter name="IrReversion_GBP">0.015</Parameter>
       <Parameter name="FullDynamicFx">true</Parameter>
       <Parameter name="FullDynamicIr">true</Parameter>
       <!-- DK or JY -->
       <Parameter name="InfModelType">JY</Parameter>
+      <!-- explicit overwrite of cam correlations -->
+      <Parameter name="Correlation_IR:GBP_INF:UKRPI:0">0.8</Parameter>
+      <Parameter name="Correlation_IR:GBP_INF:UKRPI:1">0.6</Parameter>
+      <Parameter name="Correlation_INF:UKRPI:0_INF:UKRPI:1">0.3</Parameter>
+      <!-- real to nominal rate vol ratio in jy model -->
+      <Parameter name="InfJyRealToNominalVolRatio">0.6</Parameter>
     </ModelParameters>
     <Engine>Generic</Engine>
     <EngineParameters>

Examples/Example_54/run.py

@@ -5,11 +5,9 @@
 sys.path.append('../')
 from ore_examples_helper import OreExample
 
-samples1=os.environ["OVERWRITE_SCENARIOGENERATOR_SAMPLES"]
-print("samples1 =", samples1)
-os.environ["OVERWRITE_SCENARIOGENERATOR_SAMPLES"]=""
-samples2=os.environ["OVERWRITE_SCENARIOGENERATOR_SAMPLES"]
-print("samples2 =", samples2)
+if "OVERWRITE_SCENARIOGENERATOR_SAMPLES" in os.environ:
+    backupSamples = os.environ["OVERWRITE_SCENARIOGENERATOR_SAMPLES"]
+    os.environ["OVERWRITE_SCENARIOGENERATOR_SAMPLES"] = ""
 
 oreex = OreExample(sys.argv[1] if len(sys.argv)>1 else False)
 
@@ -41,4 +39,5 @@
 oreex.decorate_plot(title="Example Scripting / AMC - DIM Evolution for LPI Swap (sticky date mpor mode)")
 oreex.save_plot_to_file()
 
-os.environ["OVERWRITE_SCENARIOGENERATOR_SAMPLES"]=samples1
+if "OVERWRITE_SCENARIOGENERATOR_SAMPLES" in os.environ:
+    os.environ["OVERWRITE_SCENARIOGENERATOR_SAMPLES"] = backupSamples

OREData/ored/model/crossassetmodelbuilder.cpp

@@ -162,6 +162,35 @@ void CrossAssetModelBuilder::resetModelParams(const CrossAssetModel::AssetType t
     }
 }
 
+void CrossAssetModelBuilder::copyModelParams(const CrossAssetModel::AssetType t0, const Size param0, const Size index0,
+                                             const Size i0, const CrossAssetModel::AssetType t1, const Size param1,
+                                             const Size index1, const Size i1, const Real mult) const {
+    auto mp0 = model_->MoveParameter(t0, param0, index0, i0);
+    auto mp1 = model_->MoveParameter(t1, param1, index1, i1);
+    auto s0 = 0, s1 = 0;
+    for (Size i = 0; i < mp0.size(); ++i)
+        if (mp0[i])
+            s0++;
+    for (Size i = 0; i < mp1.size(); ++i)
+        if (mp1[i])
+            s1++;
+    QL_REQUIRE(s0 == s1, "CrossAssetModelBuilder::copyModelParams(): source range size ("
+                             << s0 << ") does not match target range size (" << s1 << ") when copying (" << t0 << ", "
+                             << param0 << "," << index0 << "," << i0 << ") -> (" << t0 << ", " << param0 << ","
+                             << index0 << "," << i0 << ")");
+    std::vector<Real> sourceValues(s0);
+    for (Size idx0 = 0, count = 0; idx0 < mp0.size(); ++idx0) {
+        if (!mp0[idx0]) {
+            sourceValues[count++] = params_[idx0];
+        }
+    }
+    for (Size idx1 = 0, count = 0; idx1 < mp1.size(); ++idx1) {
+        if (!mp1[idx1]) {
+            model_->setParam(idx1, sourceValues[count++] * mult);
+        }
+    }
+}
+
 void CrossAssetModelBuilder::buildModel() const {
 
     LOG("Start building CrossAssetModel");
@@ -842,6 +871,15 @@ void CrossAssetModelBuilder::calibrateInflation(const InfJyData& data, Size mode
     // Calibration configuration.
     const auto& cc = data.calibrationConfiguration();
 
+    // if we link the real rate params to the nominal rate params, we copy them over now (ir calibration is done at this point)
+    if(data.linkRealRateParamsToNominalRateParams()) {
+        Size irIdx = model_->ccyIndex(model_->infjy(modelIdx)->currency());
+        copyModelParams(CrossAssetModel::AssetType::IR, 0, irIdx, Null<Size>(), CrossAssetModel::AssetType::INF, 0,
+                        modelIdx, Null<Size>(), data.linkedRealRateVolatilityScaling());
+        copyModelParams(CrossAssetModel::AssetType::IR, 1, irIdx, Null<Size>(), CrossAssetModel::AssetType::INF, 1,
+                        modelIdx, Null<Size>(), 1.0);
+    }
+
     if (data.calibrationType() == CalibrationType::BestFit) {
 
         // If calibration type is BestFit, do a global optimisation on the parameters that need to be calibrated.
@@ -937,6 +975,13 @@ void CrossAssetModelBuilder::calibrateInflation(const InfJyData& data, Size mode
     }
 
     // Log the calibration details.
+    TLOG("INF (JY) " << data.index() << " model parameters after calibration:");
+    TLOG("Real    rate vol times   : " << inflationParam->parameterTimes(0));
+    TLOG("Real    rate vol values  : " << inflationParam->parameterValues(0));
+    TLOG("Real    rate rev times   : " << inflationParam->parameterTimes(1));
+    TLOG("Real    rate rev values  : " << inflationParam->parameterValues(1));
+    TLOG("R/N conversion   times   : " << inflationParam->parameterTimes(2));
+    TLOG("R/N conversion   values  : " << inflationParam->parameterValues(2));
     DLOG("INF (JY) " << data.index() << " calibration errors:");
     inflationCalibrationErrors_[modelIdx] = getCalibrationError(allHelpers);
     if (data.calibrationType() == CalibrationType::Bootstrap) {

OREData/ored/model/crossassetmodelbuilder.hpp

@@ -111,6 +111,9 @@ class CrossAssetModelBuilder : public QuantExt::ModelBuilder {
     void performCalculations() const override;
     void buildModel() const;
     void resetModelParams(const CrossAssetModel::AssetType t, const Size param, const Size index, const Size i) const;
+    void copyModelParams(const CrossAssetModel::AssetType t0, const Size param0, const Size index0, const Size i0,
+                         const CrossAssetModel::AssetType t1, const Size param1, const Size index1, const Size i1,
+                         const Real mult) const;
 
     mutable std::vector<std::vector<boost::shared_ptr<BlackCalibrationHelper>>> swaptionBaskets_;
     mutable std::vector<std::vector<boost::shared_ptr<BlackCalibrationHelper>>> fxOptionBaskets_;

OREData/ored/model/inflation/infjydata.cpp

@@ -29,22 +29,18 @@ namespace data {
 
 InfJyData::InfJyData() {}
 
-InfJyData::InfJyData(CalibrationType calibrationType,
-    const vector<CalibrationBasket>& calibrationBaskets,
-    const std::string& currency,
-    const std::string& index,
-    const ReversionParameter& realRateReversion,
-    const VolatilityParameter& realRateVolatility,
-    const VolatilityParameter& indexVolatility,
-    const LgmReversionTransformation& reversionTransformation,
-    const CalibrationConfiguration& calibrationConfiguration,
-    const bool ignoreDuplicateCalibrationExpiryTimes)
+InfJyData::InfJyData(CalibrationType calibrationType, const vector<CalibrationBasket>& calibrationBaskets,
+                     const std::string& currency, const std::string& index, const ReversionParameter& realRateReversion,
+                     const VolatilityParameter& realRateVolatility, const VolatilityParameter& indexVolatility,
+                     const LgmReversionTransformation& reversionTransformation,
+                     const CalibrationConfiguration& calibrationConfiguration,
+                     const bool ignoreDuplicateCalibrationExpiryTimes, const bool linkRealToNominalRateParams,
+                     const Real linkedRealRateVolatilityScaling)
     : InflationModelData(calibrationType, calibrationBaskets, currency, index, ignoreDuplicateCalibrationExpiryTimes),
-      realRateReversion_(realRateReversion),
-      realRateVolatility_(realRateVolatility),
-      indexVolatility_(indexVolatility),
-      reversionTransformation_(reversionTransformation),
-      calibrationConfiguration_(calibrationConfiguration) {}
+      realRateReversion_(realRateReversion), realRateVolatility_(realRateVolatility), indexVolatility_(indexVolatility),
+      reversionTransformation_(reversionTransformation), calibrationConfiguration_(calibrationConfiguration),
+      linkRealToNominalRateParams_(linkRealToNominalRateParams),
+      linkedRealRateVolatilityScaling_(linkedRealRateVolatilityScaling) {}
 
 const ReversionParameter& InfJyData::realRateReversion() const {
     return realRateReversion_;
@@ -66,6 +62,10 @@ const CalibrationConfiguration& InfJyData::calibrationConfiguration() const {
     return calibrationConfiguration_;
 }
 
+bool InfJyData::linkRealRateParamsToNominalRateParams() const { return linkRealToNominalRateParams_; }
+
+Real InfJyData::linkedRealRateVolatilityScaling() const { return linkedRealRateVolatilityScaling_; }
+
 void InfJyData::fromXML(XMLNode* node) {
 
     // Check the node is not null and that name is LGM or DodgsonKainth. LGM is for backward compatibility.
@@ -88,9 +88,16 @@ void InfJyData::fromXML(XMLNode* node) {
     indexVolatility_.fromXML(XMLUtils::getChildNode(idxNode, "Volatility"));
 
     // Get the calibration configuration
-    XMLNode* ccNode = XMLUtils::getChildNode(node, "CalibrationConfiguration");
-    if (ccNode)
+    if (XMLNode* ccNode = XMLUtils::getChildNode(node, "CalibrationConfiguration"))
         calibrationConfiguration_.fromXML(ccNode);
+
+    // Get the link to nominal param fields
+    linkRealToNominalRateParams_ =
+        parseBool(XMLUtils::getChildValue(node, "LinkRealToNominalRateParams", false, "false"));
+    if (linkRealToNominalRateParams_) {
+        linkedRealRateVolatilityScaling_ =
+            parseReal(XMLUtils::getChildValue(node, "LinkedRealRateVolatilityScaling", false, "1.0"));
+    }
 }
 
 XMLNode* InfJyData::toXML(XMLDocument& doc) const {
@@ -110,6 +117,11 @@ XMLNode* InfJyData::toXML(XMLDocument& doc) const {
 
     XMLUtils::appendNode(node, calibrationConfiguration_.toXML(doc));
 
+    if (linkRealToNominalRateParams_) {
+        XMLUtils::addChild(doc, node, "LinkRealToNominalRateParams", linkRealToNominalRateParams_);
+        XMLUtils::addChild(doc, node, "LinkedRealRateVolatilityScaling", linkedRealRateVolatilityScaling_);
+    }
+
     return node;
 }
 

OREData/ored/model/inflation/infjydata.hpp

@@ -48,16 +48,18 @@ class InfJyData : public InflationModelData {
     InfJyData();
 
     //! Detailed constructor
-    InfJyData(CalibrationType calibrationType,
-        const std::vector<CalibrationBasket>& calibrationBaskets,
-        const std::string& currency,
-        const std::string& index,
-        const ReversionParameter& realRateReversion,
-        const VolatilityParameter& realRateVolatility,
-        const VolatilityParameter& indexVolatility,
-        const LgmReversionTransformation& reversionTransformation = LgmReversionTransformation(),
-        const CalibrationConfiguration& calibrationConfiguration = CalibrationConfiguration(),
-        const bool ignoreDuplicateCalibrationExpiryTimes = false);
+    /* Note: If linkRealRateToNominalRateParams == true, the realRateVolatility and realRateReversion should be set to
+       the nominal rate parameters and the calibrate flag in these new parameters should be set to false. Also, the
+       scaling linkRealRateVolatilityScaling should have been applied to the new parameters. All this is not automatic
+       neither cheked in this class (lack of info on the nominal parameters, but required to ensure a calibration of the
+       jy model as part of the cam to work consistently. */
+    InfJyData(CalibrationType calibrationType, const std::vector<CalibrationBasket>& calibrationBaskets,
+              const std::string& currency, const std::string& index, const ReversionParameter& realRateReversion,
+              const VolatilityParameter& realRateVolatility, const VolatilityParameter& indexVolatility,
+              const LgmReversionTransformation& reversionTransformation = LgmReversionTransformation(),
+              const CalibrationConfiguration& calibrationConfiguration = CalibrationConfiguration(),
+              const bool ignoreDuplicateCalibrationExpiryTimes = false, const bool linkRealToNominalRateParams = false,
+              const Real linkedRealRateVolatilityScaling = 1.0);
 
     //! \name Inspectors
     //@{
@@ -66,6 +68,8 @@ class InfJyData : public InflationModelData {
     const VolatilityParameter& indexVolatility() const;
     const LgmReversionTransformation& reversionTransformation() const;
     const CalibrationConfiguration& calibrationConfiguration() const;
+    bool linkRealRateParamsToNominalRateParams() const;
+    Real linkedRealRateVolatilityScaling() const;
     //@}
 
     //! \name Serialisation
@@ -80,6 +84,8 @@ class InfJyData : public InflationModelData {
     VolatilityParameter indexVolatility_;
     LgmReversionTransformation reversionTransformation_;
     CalibrationConfiguration calibrationConfiguration_;
+    bool linkRealToNominalRateParams_;
+    Real linkedRealRateVolatilityScaling_;
 };
 
 }

OREData/ored/model/lgmdata.cpp

@@ -17,6 +17,7 @@
 */
 
 #include <ored/model/lgmdata.hpp>
+#include <ored/model/modelparameter.hpp>
 #include <ored/utilities/correlationmatrix.hpp>
 #include <ored/utilities/log.hpp>
 #include <ored/utilities/parsers.hpp>
@@ -212,19 +213,22 @@ XMLNode* LgmData::toXML(XMLDocument& doc) const {
     return lgmNode;
 }
 
-LgmReversionTransformation::LgmReversionTransformation()
-    : horizon_(0.0), scaling_(1.0) {}
+ReversionParameter LgmData::reversionParameter() const {
+    return ReversionParameter(revType_, calibrateH_, hType_, hTimes_, hValues_);
+}
+
+VolatilityParameter LgmData::volatilityParameter() const {
+    return VolatilityParameter(volType_, calibrateA_, aType_, aTimes_, aValues_);
+}
+
+LgmReversionTransformation::LgmReversionTransformation() : horizon_(0.0), scaling_(1.0) {}
 
 LgmReversionTransformation::LgmReversionTransformation(Time horizon, Real scaling)
     : horizon_(horizon), scaling_(scaling) {}
 
-Time LgmReversionTransformation::horizon() const {
-    return horizon_;
-}
+Time LgmReversionTransformation::horizon() const { return horizon_; }
 
-Real LgmReversionTransformation::scaling() const {
-    return scaling_;
-}
+Real LgmReversionTransformation::scaling() const { return scaling_; }
 
 void LgmReversionTransformation::fromXML(XMLNode* node) {
     XMLUtils::checkNode(node, "ParameterTransformation");

OREData/ored/model/lgmdata.hpp

@@ -39,6 +39,9 @@ namespace ore {
 namespace data {
 using namespace QuantLib;
 
+class VolatilityParameter;
+class ReversionParameter;
+
 //! Linear Gauss Markov Model Parameters
 /*!
   This class contains the description of a Linear Gauss Markov interest rate model
@@ -114,6 +117,8 @@ class LgmData : public IrModelData {
     std::vector<std::string>& optionExpiries() const { return optionExpiries_; }
     std::vector<std::string>& optionTerms() const { return optionTerms_; }
     std::vector<std::string>& optionStrikes() const { return optionStrikes_; }
+    ReversionParameter reversionParameter() const;
+    VolatilityParameter volatilityParameter() const;
     //@}
 
     //! \name Operators

OREData/ored/model/modelparameter.cpp

@@ -56,6 +56,12 @@ const vector<Real>& ModelParameter::values() const {
     return values_;
 }
 
+void ModelParameter::mult(const Real f) {
+    std::transform(values_.begin(), values_.end(), values_.begin(), [&f](const Real v) { return f * v; });
+}
+
+void ModelParameter::setCalibrate(const bool b) { calibrate_ = b; }
+
 void ModelParameter::fromXML(XMLNode* node) {
     calibrate_ = XMLUtils::getChildValueAsBool(node, "Calibrate", true);
     type_ = parseParamType(XMLUtils::getChildValue(node, "ParamType", true));