/**
* Copyright (C) 2009 - present by OpenGamma Inc. and the OpenGamma group of companies
*
* Please see distribution for license.
*/
package com.opengamma.analytics.financial.equity.capm;
import static org.testng.AssertJUnit.assertEquals;
import org.testng.annotations.Test;
import org.threeten.bp.Instant;
import com.opengamma.analytics.financial.timeseries.analysis.DoubleTimeSeriesStatisticsCalculator;
import com.opengamma.analytics.math.statistics.descriptive.GeometricMeanCalculator;
import com.opengamma.analytics.math.statistics.descriptive.MeanCalculator;
import com.opengamma.analytics.math.statistics.descriptive.SampleCovarianceCalculator;
import com.opengamma.analytics.math.statistics.descriptive.SampleVarianceCalculator;
import com.opengamma.timeseries.DoubleTimeSeries;
import com.opengamma.timeseries.precise.instant.ImmutableInstantDoubleTimeSeries;
import com.opengamma.util.test.TestGroup;
/**
* Test.
*/
@Test(groups = TestGroup.UNIT)
public class CAPMCalculatorsTest {
private static final double HIGH_BETA = 2;
private static final double LOW_BETA = -0.02;
private static final double RISK_FREE = 0.04;
private static final DoubleTimeSeries<?> RISK_FREE_RETURN;
private static final DoubleTimeSeries<?> MARKET_RETURN;
private static final DoubleTimeSeries<?> HIGH_BETA_RETURN;
private static final DoubleTimeSeries<?> LOW_BETA_RETURN;
private static final double EPS = 1e-12;
private static final DoubleTimeSeriesStatisticsCalculator COVARIANCE = new DoubleTimeSeriesStatisticsCalculator(new SampleCovarianceCalculator());
private static final DoubleTimeSeriesStatisticsCalculator VARIANCE = new DoubleTimeSeriesStatisticsCalculator(new SampleVarianceCalculator());
private static final CAPMBetaCalculator BETA = new CAPMBetaCalculator(COVARIANCE, VARIANCE);
private static final DoubleTimeSeriesStatisticsCalculator GEOMETRIC_MEAN = new DoubleTimeSeriesStatisticsCalculator(new GeometricMeanCalculator());
private static final DoubleTimeSeriesStatisticsCalculator ARITHMETIC_MEAN = new DoubleTimeSeriesStatisticsCalculator(new MeanCalculator());
private static final CAPMExpectedReturnCalculator RETURN = new CAPMExpectedReturnCalculator(GEOMETRIC_MEAN, ARITHMETIC_MEAN);
static {
final int n = 1000;
final long[] t = new long[n];
final double[] r0 = new double[n];
final double[] r1 = new double[n];
final double[] r2 = new double[n];
final double[] r3 = new double[n];
for (int i = 0; i < n; i++) {
t[i] = i;
r0[i] = Math.random() - 0.5;
r1[i] = RISK_FREE;
r2[i] = r0[i] * HIGH_BETA;
r3[i] = r0[i] * LOW_BETA;
}
RISK_FREE_RETURN = ImmutableInstantDoubleTimeSeries.of(t, r1);
MARKET_RETURN = ImmutableInstantDoubleTimeSeries.of(t, r0);
HIGH_BETA_RETURN = ImmutableInstantDoubleTimeSeries.of(t, r2);
LOW_BETA_RETURN = ImmutableInstantDoubleTimeSeries.of(t, r3);
}
@Test(expectedExceptions = IllegalArgumentException.class)
public void testNullCovarianceCalculator() {
new CAPMBetaCalculator(null, VARIANCE);
}
@Test(expectedExceptions = IllegalArgumentException.class)
public void testNullVarianceCalculator() {
new CAPMBetaCalculator(COVARIANCE, null);
}
@Test(expectedExceptions = IllegalArgumentException.class)
public void testNullExpectedMarketReturnCalculator() {
new CAPMExpectedReturnCalculator(null, ARITHMETIC_MEAN);
}
@Test(expectedExceptions = IllegalArgumentException.class)
public void testNullExpectedRiskFreeRateCalculator() {
new CAPMExpectedReturnCalculator(GEOMETRIC_MEAN, null);
}
@Test(expectedExceptions = IllegalArgumentException.class)
public void testNullTSArray() {
BETA.evaluate((DoubleTimeSeries<?>[]) null);
}
@Test(expectedExceptions = IllegalArgumentException.class)
public void testWrongLength() {
BETA.evaluate(MARKET_RETURN);
}
@Test(expectedExceptions = IllegalArgumentException.class)
public void testShortTS() {
BETA.evaluate(ImmutableInstantDoubleTimeSeries.of(new long[] {1}, new double[] {1}),
ImmutableInstantDoubleTimeSeries.of(new long[] {1}, new double[] {1}));
}
@Test(expectedExceptions = IllegalArgumentException.class)
public void testMismatchingDates() {
final Instant[] t = (Instant[]) MARKET_RETURN.timesArray();
t[1] = t[1].plusMillis(100);
final DoubleTimeSeries<?> ts = ImmutableInstantDoubleTimeSeries.of(t, MARKET_RETURN.valuesArrayFast());
BETA.evaluate(MARKET_RETURN, ts);
}
@Test(expectedExceptions = IllegalArgumentException.class)
public void testNullMarketPriceTS() {
RETURN.evaluate(null, RISK_FREE_RETURN, 0);
}
@Test(expectedExceptions = IllegalArgumentException.class)
public void testNullRiskFreeTS() {
RETURN.evaluate(MARKET_RETURN, null, 0);
}
@Test
public void testBetas() {
assertEquals(BETA.evaluate(MARKET_RETURN, MARKET_RETURN), 1, EPS);
assertEquals(BETA.evaluate(RISK_FREE_RETURN, MARKET_RETURN), 0, EPS);
assertEquals(BETA.evaluate(HIGH_BETA_RETURN, MARKET_RETURN), HIGH_BETA, EPS);
assertEquals(BETA.evaluate(LOW_BETA_RETURN, MARKET_RETURN), LOW_BETA, EPS);
}
@Test
public void testExpectedReturns() {
assertEquals(RETURN.evaluate(MARKET_RETURN, RISK_FREE_RETURN, 1), 0, EPS);
assertEquals(RETURN.evaluate(MARKET_RETURN, RISK_FREE_RETURN, HIGH_BETA), (1 - HIGH_BETA) * RISK_FREE, EPS);
assertEquals(RETURN.evaluate(MARKET_RETURN, RISK_FREE_RETURN, LOW_BETA), (1 - LOW_BETA) * RISK_FREE, EPS);
}
}