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  1. /*
  2.  *  Copyright (c) 2013 AWOLart.com
  3.  */
  4.  
  5. package com.awolart.fin.cu.ps2;
  6.  
  7.  
  8. import java.text.NumberFormat;
  9.  
  10. /**
  11.  * Suppose a 6-year swap with a notional principal of $10 million is being
  12.  * configured. What is the fixed rate of interest that will make the value
  13.  * of the swap equal to zero.
  14.  * (You should use the term structure of interest rates from Question 1.)
  15.  * <p/>
  16.  * Please submit your answer as a percentage rounded to two decimal places;
  17.  * i.e., if your answer is 4.567% or equivalently 0.04567,
  18.  * then submit answer as 4.57.
  19.  * <p/>
  20.  */
  21. public class FixedRateSwapZero {
  22.  
  23.     /**
  24.      * <p>
  25.      * Method to calculate the discount rate $ d(0,4) $
  26.      * where $ d(0,4) = \frac{1}{(1 + r)^t} $
  27.      * <p/>
  28.      * More generically, $$ r =  \frac{1 - d(0,T)}{\sum_{t0}^{T} d(0,T)}  $$
  29.      * </p>
  30.      *
  31.      * @param s double representing the spot interest rate at time $ t $
  32.      * @param t double representing the time $ t $
  33.      * @return double containing the calculated discount rate
  34.      */
  35.     public static double discountRate(double s, double t) {
  36.         return ((1 / Math.pow(1 + s, t)));
  37.     }
  38.  
  39.  
  40.     public static double getFixedRateDenominator(double time, double num) {
  41.         double X = 0.0;
  42.         int idx = 1;
  43.         for(int i = 0; i < num; ++i) {
  44.             X += discountRate(i, idx);
  45.             ++idx;
  46.         }
  47.  
  48.         return X;
  49.  
  50.     }
  51.  
  52.     private static double discountedFloatingRateCF(double C, double[] i, int n)  {
  53.         double dfr = 0.0;
  54.         // return (C / (Math.pow((1 + i), n)));
  55.         int i_len = i.length;
  56.         for(int j = 0; j < i_len; ++j) {
  57.             double dpv = ( C / ( Math.pow( ( 1 + i[j] ), n) ) );
  58.             System.out.println("discounted pv at " + j + " = " + dpv);
  59.             dfr += dpv;
  60.         }
  61.         System.out.println("DFR = " + dfr);
  62.         return dfr;
  63.     }
  64.  
  65.     public static double zeroSwap(double[] s, double t) {
  66.         double rate = 0.0;
  67.         int idx = 1;
  68.         int s_len = s.length;
  69.         for(int i = 0; i < s_len; ++i) {
  70.             double dr = ( 1 - discountRate(i, idx) );
  71.             System.out.println(" Discount rate where time is " + i
  72.                     + " and interest rate is " + s[i] + " = " + dr);
  73.             rate += dr;
  74.             ++idx;
  75.         }
  76.  
  77.         //  * r = 1−d(0,T) / ∑T t=1 d(0,t)
  78.  
  79.         double Z = ( ( 1 - discountRate(0, s_len+1) ) / rate );
  80.         return rate;
  81.     }
  82.  
  83.     public static double discountRateIterater(double[] s, double t) {
  84.         int s_len = s.length;
  85.         double total = 0.0;
  86.         for(int i = 1; i <= s_len; ++i)
  87.         {
  88.             double idr = discountRate(s[i], i+1);
  89.             System.out.println(" Discount rate where time is " + i
  90.                     + " and interest rate is " + s[i] + " = " + idr);
  91.             total += idr;
  92.         }
  93.         return total;
  94.     }
  95.  
  96.  
  97.         /*
  98.          * 1. sum(all discount factors from 1:6)
  99.          * 2. find the discount factor of T = 6
  100.          * 3. 1 - (discount factor of T=6)
  101.          * 4 divide  step 3/step 1
  102.          */
  103.     public static double sumAllDiscountFactors(double[] s, double t)  {
  104.         double sum = 0.0;
  105.         int s_len = s.length;
  106.         double idx = 1.0;
  107.         for(int i = 1; i < s_len; ++i) {
  108.             double dr = discountRate(s[i], idx);
  109.             sum += dr;
  110.             ++idx;
  111.         }
  112.         return sum;
  113.     }
  114.  
  115.  
  116.  
  117.     /**
  118.      * Convenience main method to facilitate command line/ide testing.
  119.      *
  120.      * @param args
  121.      */
  122.     public static void main(String[] args) {
  123.  
  124.         NumberFormat formatter = NumberFormat.getNumberInstance();
  125.         formatter.setMaximumFractionDigits(2);
  126.         formatter.setMinimumFractionDigits(4);
  127.  
  128.         double[] s = { 0.070, 0.073, 0.077, 0.081, 0.084, 0.088 };
  129.  
  130.         /*
  131.         double[] sx = { 0.070, 0.073, 0.077, 0.081, 0.084, 0.088 };
  132.         double C = 10000000.00;
  133.         double d_0_T = ( 1 - (discountRate(s[5], 6) ) );
  134.         System.out.println("d(0,T) = " + formatter.format(d_0_T));
  135.         double sum_fpmts = C * ( d_0_T );
  136.         System.out.println("Discount FR Pmts = " + formatter.format(sum_fpmts));
  137.         */
  138.  
  139.  
  140.         // C = notional; i = interest rate; and n = number of payments
  141.         ////discountedFloatingRateCF(C, s, s.length);
  142.  
  143.         /*
  144.         double Z = zeroSwap(s, s.length);
  145.         System.out.println("zeroSwap = " + formatter.format(Z));
  146.         */
  147.  
  148.         /*
  149.         double sum =  sumAllDiscountFactors(s, s.length);
  150.         System.out.println("sumAllDiscountFactors = " + formatter.format(sum));
  151.         */
  152.  
  153.         /*
  154.          * 1. sum(all discount factors from 1:6)
  155.          * 2. find the discount factor of T = 6
  156.          */
  157.         double d1 = discountRate(s[0], 1);
  158.         System.out.println("d1 = " + formatter.format(d1));
  159.         double d2 = discountRate(s[1], 2);
  160.         System.out.println("d2 = " + formatter.format(d2));
  161.         double d3 = discountRate(s[2], 3);
  162.         System.out.println("d3 = " + formatter.format(d3));
  163.         double d4 = discountRate(s[3], 4);
  164.         System.out.println("d4 = " + formatter.format(d4));
  165.         double d5 = discountRate(s[4], 5);
  166.         System.out.println("d5 = " + formatter.format(d5));
  167.         double d6 = discountRate(s[5], 6);
  168.         System.out.println("d6 = " + formatter.format(d6));
  169.         double sum1 =  d1 + d2 + d3 + d4 + d5 + d6;
  170.         System.out.println("sum d(0,1) to d(5,6) = " + formatter.format(sum1));
  171.  
  172.        /*
  173.          * 3. 1 - (discount factor of T=6)
  174.          * 4 divide  step 3/step 1
  175.          */
  176.         double discounted = 1 - d6;
  177.         System.out.println("1 - d(1,6) = " + formatter.format(discounted));
  178.         double answer = discounted / sum1;
  179.         System.out.println("Answer = " + formatter.format(answer * 100));  //
  180.     }
  181.  
  182. }
Compilation error #stdin compilation error #stdout 0s 0KB
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compilation info 
Main.java:21: error: class FixedRateSwapZero is public, should be declared in a file named FixedRateSwapZero.java
public class FixedRateSwapZero {
       ^
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Standard output is empty
https://ideone.com/ajaEDr
language:
Java (HotSpot 12)
created:
4 years ago
visibility:
public

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