/*
* (c) Copyright Christian P. Fries, Germany. All rights reserved. Contact: email@christian-fries.de.
*
* Created on 15.07.2012
*/
package net.finmath.timeseries.models.parametric;
import java.io.Serializable;
import java.util.Arrays;
import java.util.HashMap;
import java.util.Map;
import org.apache.commons.math3.analysis.MultivariateFunction;
import org.apache.commons.math3.optim.SimplePointChecker;
import org.apache.commons.math3.random.MersenneTwister;
import net.finmath.optimizer.LevenbergMarquardt;
import net.finmath.optimizer.OptimizerInterface;
import net.finmath.optimizer.SolverException;
import net.finmath.timeseries.HistoricalSimulationModel;
import net.finmath.timeseries.TimeSeriesInterface;
import net.finmath.timeseries.TimeSeriesModelParametric;
import net.finmath.timeseries.TimeSeriesView;
/**
* Displaced log-normal process with GJR-GARCH(1,1) volatility.
*
* This class estimate the process
* \[
* \mathrm{d} \log(X + a) = \frac{\sigma}{b + a} \mathrm{d}W(t)
* \]
* where \( a > -min(X(t_{i}) \) and thus \( X+a > 0 \) and \( b = 1 - -min(X(t_{i}) \) \) and
* \( \sigma \) is given by a GJR-GARCH(1,1) process.
*
* The choice of b ensures that b+a ≥ 1.
* For a=0 we have a log-normal process with volatility σ/(b + a).
* For a=infinity we have a normal process with volatility σ.
*
* @author Christian Fries
*/
public class DisplacedLognormalGJRGARCH implements TimeSeriesModelParametric, HistoricalSimulationModel {
private TimeSeriesInterface timeSeries;
private double lowerBoundDisplacement;
private double upperBoundDisplacement = 10000000;
private int maxIterations = 10000000;
/*
* Model properties
*/
private final String[] parameterNames = new String[] { "omega", "alpha", "beta", "mu", "gamma", "displacement" };
private final double[] parameterGuess = new double[] { 0.10, 0.2, 0.2, 0.0, 0.0, 10.0 };
private final double[] parameterStep = new double[] { 0.01, 0.1, 0.1, 0.1, 0.1, 1.0 };
private final double[] lowerBound;
private final double[] upperBound;
public DisplacedLognormalGJRGARCH(TimeSeriesInterface timeSeries) {
this(timeSeries, -Double.MAX_VALUE);
}
public DisplacedLognormalGJRGARCH(TimeSeriesInterface timeSeries, double lowerBoundDisplacement) {
this.timeSeries = timeSeries;
double valuesMin = Double.MAX_VALUE;
for(double value : timeSeries.getValues()) {
valuesMin = Math.min(value, valuesMin);
}
this.lowerBoundDisplacement = Math.max(-valuesMin+1,lowerBoundDisplacement);
lowerBound = new double[] { 0, 0, 0, 0, 0, this.lowerBoundDisplacement };
upperBound = new double[] { Double.POSITIVE_INFINITY, 1, 1, Double.POSITIVE_INFINITY, Double.POSITIVE_INFINITY, this.upperBoundDisplacement };
}
public DisplacedLognormalGJRGARCH(TimeSeriesInterface timeSeries, double lowerBoundDisplacement, double upperBoundDisplacement) {
this.timeSeries = timeSeries;
double valuesMin = Double.MAX_VALUE;
for(double value : timeSeries.getValues()) {
valuesMin = Math.min(value, valuesMin);
}
this.lowerBoundDisplacement = Math.max(-valuesMin+1,lowerBoundDisplacement);
this.upperBoundDisplacement = Math.max(this.lowerBoundDisplacement,upperBoundDisplacement);
lowerBound = new double[] { 0, 0, 0, 0, 0, this.lowerBoundDisplacement };
upperBound = new double[] { Double.POSITIVE_INFINITY, 1, 1, Double.POSITIVE_INFINITY, Double.POSITIVE_INFINITY, this.upperBoundDisplacement };
}
public double getLogLikelihoodForParameters(double[] parameters)
{
double omega = parameters[0];
double alpha = parameters[1];
double beta = parameters[2];
double mu = parameters[3];
double gamma = parameters[4];
double displacement = parameters[5];
double logLikelihood = 0.0;
double volScaling = (1+Math.abs(displacement));
double evalPrev = 0.0;
double eval = volScaling * (Math.log((timeSeries.getValue(1)+displacement)/(timeSeries.getValue(0)+displacement)));
double h = omega / (1.0 - alpha - beta);
double m = 0.0; // xxx how to init?
int length = timeSeries.getNumberOfTimePoints();
for (int i = 1; i < length-1; i++) {
m = eval;
h = (omega + (alpha + gamma * (m < mu ? 1.0 : 0.0)) * m * m) + beta * h;
double value1 = timeSeries.getValue(i);
double value2 = timeSeries.getValue(i+1);
double evalNext = volScaling * (Math.log((value2+displacement)/(value1+displacement)));
double mNext = evalNext;
logLikelihood += - Math.log(h) - 2 * Math.log((value2+displacement)/volScaling) - mNext* mNext / h;
evalPrev = eval;
eval = evalNext;
}
logLikelihood += - Math.log(2 * Math.PI) * (double)(length);
logLikelihood *= 0.5;
return logLikelihood;
}
public double getLastResidualForParameters(double[] parameters) {
double omega = parameters[0];
double alpha = parameters[1];
double beta = parameters[2];
double mu = parameters[3];
double gamma = parameters[4];
double displacement = parameters[5];
double evalPrev = 0.0;
double volScaling = (1+Math.abs(displacement));
double h = omega / (1.0 - alpha - beta);
double m = 0.0; // xxx how to init?
int length = timeSeries.getNumberOfTimePoints();
for (int i = 1; i < length-1; i++) {
double eval = volScaling * (Math.log((timeSeries.getValue(i)+displacement)/(timeSeries.getValue(i-1)+displacement)));
m = eval;
h = (omega + (alpha + gamma * (m < mu ? 1.0 : 0.0)) * m * m) + beta * h;
evalPrev = eval;
}
return h;
}
public double[] getSzenarios(double[] parameters) {
double omega = parameters[0];
double alpha = parameters[1];
double beta = parameters[2];
double mu = parameters[3];
double gamma = parameters[4];
double displacement = parameters[5];
double[] szenarios = new double[timeSeries.getNumberOfTimePoints()-1];
double volScaling = (1+Math.abs(displacement));
double evalPrev = 0.0;
double h = omega / (1.0 - alpha - beta);
double m = 0.0;
double vol = Math.sqrt(h) / volScaling;
for (int i = 1; i <= timeSeries.getNumberOfTimePoints()-1; i++) {
double y = Math.log((timeSeries.getValue(i)+displacement)/(timeSeries.getValue(i-1)+displacement));
double eval = volScaling * y;
m = eval;
szenarios[i-1] = m / vol / volScaling;
h = (omega + (alpha + gamma * (m < mu ? 1.0 : 0.0)) * m * m) + beta * h;
vol = Math.sqrt(h) / volScaling;
evalPrev = eval;
}
java.util.Arrays.sort(szenarios);
return szenarios;
}
@Override
public Map<String, Object> getBestParameters() {
return getBestParameters(null);
}
/* (non-Javadoc)
* @see net.finmath.timeseries.HistoricalSimulationModel#getBestParameters(java.util.Map)
*/
@Override
public Map<String, Object> getBestParameters(Map<String, Object> guess) {
// Create the objective function for the solver
class GARCHMaxLikelihoodFunction implements MultivariateFunction, Serializable {
private static final long serialVersionUID = 7072187082052755854L;
public double value(double[] parameters) {
double omega = parameters[0];
double alpha = parameters[1];
double beta = parameters[2];
double mu = parameters[3];
double gamma = parameters[4];
double displacement = parameters[5];
double logLikelihood = getLogLikelihoodForParameters(parameters);
// Penalty to prevent solver from hitting the bounds
logLikelihood -= Math.max(1E-30-omega,0)/1E-30;
logLikelihood -= Math.max(1E-30-alpha,0)/1E-30;
logLikelihood -= Math.max((alpha-1)+1E-30,0)/1E-30;
logLikelihood -= Math.max(1E-30-beta,0)/1E-30;
logLikelihood -= Math.max((beta-1)+1E-30,0)/1E-30;
return logLikelihood;
}
}
final GARCHMaxLikelihoodFunction objectiveFunction = new GARCHMaxLikelihoodFunction();
// Create a guess for the solver
final double[] guessParameters = new double[6];
System.arraycopy(parameterGuess, 0, guessParameters, 0, parameterGuess.length);
if(guess != null) {
// A guess was provided, use that one
guessParameters[0] = (Double)guess.get("Omega");
guessParameters[1] = (Double)guess.get("Alpha");
guessParameters[2] = (Double)guess.get("Beta");
guessParameters[3] = (Double)guess.get("Mu");
guessParameters[4] = (Double)guess.get("Gamme");
guessParameters[5] = (Double)guess.get("Displacement");
}
// Seek optimal parameter configuration
OptimizerInterface lm = new LevenbergMarquardt(guessParameters, new double[] { 1000.0 }, maxIterations*100, 2) {
@Override
public void setValues(double[] arg0, double[] arg1) throws SolverException {
arg1[0] = objectiveFunction.value(arg0);
}
};
double[] bestParameters = null;
boolean isUseLM = false;
if(isUseLM) {
try {
lm.run();
} catch (SolverException e1) {
// TODO Auto-generated catch block
e1.printStackTrace();
}
bestParameters = lm.getBestFitParameters();
}
else {
org.apache.commons.math3.optim.nonlinear.scalar.noderiv.CMAESOptimizer optimizer2 = new org.apache.commons.math3.optim.nonlinear.scalar.noderiv.CMAESOptimizer(maxIterations, Double.POSITIVE_INFINITY, true, 0, 0, new MersenneTwister(), false, new SimplePointChecker<org.apache.commons.math3.optim.PointValuePair>(0, 0))
{
@Override
public double computeObjectiveValue(double[] params) {
return objectiveFunction.value(params);
}
/* (non-Javadoc)
* @see org.apache.commons.math3.optim.nonlinear.scalar.MultivariateOptimizer#getGoalType()
*/
@Override
public org.apache.commons.math3.optim.nonlinear.scalar.GoalType getGoalType() {
// TODO Auto-generated method stub
return org.apache.commons.math3.optim.nonlinear.scalar.GoalType.MAXIMIZE;
}
/* (non-Javadoc)
* @see org.apache.commons.math3.optim.BaseMultivariateOptimizer#getStartPoint()
*/
@Override
public double[] getStartPoint() {
return guessParameters;
}
/* (non-Javadoc)
* @see org.apache.commons.math3.optim.BaseMultivariateOptimizer#getLowerBound()
*/
@Override
public double[] getLowerBound() {
return lowerBound;
}
/* (non-Javadoc)
* @see org.apache.commons.math3.optim.BaseMultivariateOptimizer#getUpperBound()
*/
@Override
public double[] getUpperBound() {
return upperBound;
}
};
try {
org.apache.commons.math3.optim.PointValuePair result = optimizer2.optimize(
new org.apache.commons.math3.optim.nonlinear.scalar.noderiv.CMAESOptimizer.PopulationSize((int) (4 + 3 * Math.log((double)guessParameters.length))),
new org.apache.commons.math3.optim.nonlinear.scalar.noderiv.CMAESOptimizer.Sigma(parameterStep)
);
bestParameters = result.getPoint();
} catch(org.apache.commons.math3.exception.MathIllegalStateException e) {
System.out.println("Solver failed");
bestParameters = guessParameters;
}
}
// Transform parameters to GARCH parameters
double omega = bestParameters[0];
double alpha = bestParameters[1];
double beta = bestParameters[2];
double mu = bestParameters[3];
double gamma = bestParameters[4];
double displacement = bestParameters[5];
Map<String, Object> results = new HashMap<String, Object>();
results.put("parameters", bestParameters);
results.put("Omega", omega);
results.put("Alpha", alpha);
results.put("Beta", beta);
results.put("Mu", mu);
results.put("gamma", gamma);
results.put("Displacement", displacement);
results.put("Szenarios", this.getSzenarios(bestParameters));
results.put("Likelihood", this.getLogLikelihoodForParameters(bestParameters));
results.put("Vol", Math.sqrt(this.getLastResidualForParameters(bestParameters)));
System.out.println(results.get("Likelihood") + "\t" + Arrays.toString(bestParameters));
return results;
}
private static double restrictToOpenSet(double value, double lowerBond, double upperBound) {
value = Math.max(value, lowerBond * (1.0+Math.signum(lowerBond)*1E-15) + 1E-15);
value = Math.min(value, upperBound * (1.0-Math.signum(upperBound)*1E-15) - 1E-15);
return value;
}
@Override
public TimeSeriesModelParametric getCloneCalibrated(TimeSeriesInterface timeSeries) {
return new DisplacedLognormalGJRGARCH(timeSeries);
}
@Override
public HistoricalSimulationModel getCloneWithWindow(int windowIndexStart, int windowIndexEnd) {
return new DisplacedLognormalGJRGARCH(new TimeSeriesView(timeSeries, windowIndexStart, windowIndexEnd));
}
@Override
public double[] getParameters() {
return (double[])getBestParameters().get("parameters");
}
@Override
public String[] getParameterNames() {
return parameterNames;
}
}