def testFindsAnyRoots(self):
objective_fn = lambda x: (63 * x**5 - 70 * x**3 + 15 * x + 2) / 8.
left_bracket = [-10, 1]
right_bracket = [10, -1]
expected_num_iterations = [7, 6]
expected_num_iterations, result = self.evaluate([
tf.constant(expected_num_iterations, dtype=tf.int32),
root_search.brentq(
objective_fn,
tf.constant(left_bracket, dtype=tf.float64),
tf.constant(right_bracket, dtype=tf.float64),
stopping_policy_fn=tf.reduce_any)
])
roots, value_at_roots, num_iterations, _ = result
expected_roots = [
optimize.brentq(objective_fn, left_bracket[0], right_bracket[0]),
optimize.brentq(objective_fn, left_bracket[1], right_bracket[1])
]
self.assertNotAllClose(roots[0], expected_roots[0])
self.assertAllClose(roots[1], expected_roots[1])
self.assertNotAllClose(value_at_roots[0], 0.)
self.assertAllClose(value_at_roots[0], objective_fn(roots[0]))
self.assertAllClose(value_at_roots[1], 0.)
self.assertAllEqual(num_iterations, expected_num_iterations)
def testFindsRootForFlatFunction(self):
# Flat in the [-0.5, 0.5] range.
objective_fn = lambda x: 0 if x == 0 else x * exp(-1 / x**2)
left_bracket = [-10]
right_bracket = [1]
expected_num_iterations = [13]
expected_num_iterations, result = self.evaluate([
tf.constant(expected_num_iterations, dtype=tf.int32),
root_search.brentq(objective_fn,
tf.constant(left_bracket, dtype=tf.float64),
tf.constant(right_bracket, dtype=tf.float64))
])
_, value_at_roots, num_iterations, _ = result
# Simply check that the objective function is close to the root for the
# returned estimate. Do not check the estimate itself.
# Unlike Brent's original algorithm (and the SciPy implementation), this
# implementation stops the search as soon as a good enough root estimate is
# found. As a result, the estimate may significantly differ from the one
# returned by SciPy for functions which are extremely flat around the root.
self.assertAllClose(value_at_roots, [0.])
self.assertAllEqual(num_iterations, expected_num_iterations)
def testWithValueAtPositionssOfSameSign(self):
f = lambda x: x**2
# Should fail: The objective function has the same sign at both positions.
with self.assertRaises(tf.errors.InvalidArgumentError):
self.evaluate(
root_search.brentq(f,
tf.constant(-1, dtype=tf.float64),
tf.constant(1, dtype=tf.float64),
validate_args=True))
def body(right_bracket, converged, t_star):
t_star, value_at_t_star, num_iterations, converged = root_search.brentq(
fixed_point_function, left_bracket, right_bracket, None, None,
2e-12)
t_star = t_star - value_at_t_star
right_bracket = right_bracket * tf.constant(2.0, ztypes.float)
return right_bracket, converged, t_star
def testWithInvalidMaxIterations(self):
f = lambda x: x**3
# Should fail: Maximum number of iterations is negative.
with self.assertRaises(tf.errors.InvalidArgumentError):
self.evaluate(
root_search.brentq(f,
tf.constant(-1, dtype=tf.float64),
tf.constant(1, dtype=tf.float64),
max_iterations=-1,
validate_args=True))
def testWithInvalidValueTolerance(self):
f = lambda x: x**3
# Should fail: Value tolerance is negative.
with self.assertRaises(tf.errors.InvalidArgumentError):
self.evaluate(
root_search.brentq(f,
tf.constant(-1, dtype=tf.float64),
tf.constant(1, dtype=tf.float64),
function_tolerance=-2e-7,
validate_args=True))
def testWithInvalidAbsoluteRootTolerance(self):
f = lambda x: x**3
# Should fail: Absolute root tolerance is negative.
with self.assertRaises(tf.errors.InvalidArgumentError):
self.evaluate(
root_search.brentq(f,
tf.constant(-2, dtype=tf.float64),
tf.constant(2, dtype=tf.float64),
absolute_root_tolerance=-2e-7,
validate_args=True))
def _testFindsAllRoots(self,
objective_fn,
left_bracket,
right_bracket,
expected_num_iterations,
dtype=tf.float64,
absolute_root_tolerance=2e-7,
relative_root_tolerance=None,
function_tolerance=2e-7):
assert len(left_bracket) == len(
right_bracket), "Brackets have different sizes"
if relative_root_tolerance is None:
relative_root_tolerance = root_search.default_relative_root_tolerance(
dtype)
expected_num_iterations, result = self.evaluate([
tf.constant(expected_num_iterations, dtype=tf.int32),
root_search.brentq(
objective_fn,
tf.constant(left_bracket, dtype=dtype),
tf.constant(right_bracket, dtype=dtype),
absolute_root_tolerance=absolute_root_tolerance,
relative_root_tolerance=relative_root_tolerance,
function_tolerance=function_tolerance)
])
roots, value_at_roots, num_iterations, converged = result
expected_roots = []
for i in range(0, len(left_bracket)):
expected_roots.append(
optimize.brentq(
objective_fn,
left_bracket[i],
right_bracket[i],
xtol=absolute_root_tolerance,
rtol=relative_root_tolerance))
zeros = [0.] * len(left_bracket)
# The output of SciPy and Tensorflow implementation should match for
# well-behaved functions.
self.assertAllClose(
roots,
expected_roots,
atol=2 * absolute_root_tolerance,
rtol=2 * relative_root_tolerance)
self.assertAllClose(value_at_roots, zeros, atol=10 * function_tolerance)
self.assertAllEqual(num_iterations, expected_num_iterations)
self.assertAllEqual(
converged,
[abs(value) <= function_tolerance for value in value_at_roots])
def _testFindsAllRoots(self,
objective_fn,
left_bracket,
right_bracket,
expected_roots,
expected_num_iterations,
dtype=tf.float64,
absolute_root_tolerance=2e-7,
relative_root_tolerance=None,
function_tolerance=2e-7,
assert_check_for_num_iterations=True):
# expected_roots are pre-calculated as follows:
# import scipy.optimize as optimize
# roots = optimize.brentq(objective_fn,
# left_bracket[i],
# right_bracket[i],
# xtol=absolute_root_tolerance,
# rtol=relative_root_tolerance)
assert len(left_bracket) == len(
right_bracket), "Brackets have different sizes"
if relative_root_tolerance is None:
relative_root_tolerance = root_search.default_relative_root_tolerance(
dtype)
expected_num_iterations, result = self.evaluate([
tf.constant(expected_num_iterations, dtype=tf.int32),
root_search.brentq(objective_fn,
tf.constant(left_bracket, dtype=dtype),
tf.constant(right_bracket, dtype=dtype),
absolute_root_tolerance=absolute_root_tolerance,
relative_root_tolerance=relative_root_tolerance,
function_tolerance=function_tolerance)
])
roots, value_at_roots, num_iterations, converged = result
zeros = [0.] * len(left_bracket)
# The output of SciPy and Tensorflow implementation should match for
# well-behaved functions.
self.assertAllClose(roots,
expected_roots,
atol=2 * absolute_root_tolerance,
rtol=2 * relative_root_tolerance)
self.assertAllClose(value_at_roots,
zeros,
atol=10 * function_tolerance)
if assert_check_for_num_iterations:
self.assertAllEqual(num_iterations, expected_num_iterations)
self.assertAllEqual(
converged,
[abs(value) <= function_tolerance for value in value_at_roots])
def testWithNoIteration(self):
left_bracket = [-10, 1]
right_bracket = [10, -1]
first_guess = tf.constant(left_bracket, dtype=tf.float64)
second_guess = tf.constant(right_bracket, dtype=tf.float64)
# Skip iteration entirely.
# Should return a Tensor built from the best guesses in input positions.
guess, result = self.evaluate([
tf.constant([-10, -1], dtype=tf.float64),
root_search.brentq(
polynomial5, first_guess, second_guess, max_iterations=0)
])
self.assertAllEqual(result.estimated_root, guess)
def testFindsAllRootsUsingFloat16(self):
left_bracket = [-2, 1]
right_bracket = [2, -1]
expected_num_iterations = [9, 4]
expected_num_iterations, result = self.evaluate([
tf.constant(expected_num_iterations, dtype=tf.int32),
root_search.brentq(polynomial5,
tf.constant(left_bracket, dtype=tf.float16),
tf.constant(right_bracket, dtype=tf.float16))
])
_, value_at_roots, num_iterations, _ = result
# Simply check that the objective function is close to the root for the
# returned estimates. Do not check the estimates themselves.
# Using float16 may yield root estimates which differ from those returned
# by the SciPy implementation.
self.assertAllClose(value_at_roots, [0., 0.], atol=1e-3)
self.assertAllEqual(num_iterations, expected_num_iterations)
def find_practical_support_bandwidth(kernel, bandwidth, absolute_tolerance=10e-5):
"""
Return the support for practical purposes. Used to find a support value
for computations for kernel functions without finite (bounded) support.
"""
absolute_root_tolerance = 1e-3
relative_root_tolerance = root_search.default_relative_root_tolerance(ztypes.float)
function_tolerance = 0
kernel_instance = kernel(loc=0, scale=bandwidth)
def objective_fn(x):
return kernel_instance.prob(x) - tf.constant(absolute_tolerance, ztypes.float)
roots, value_at_roots, num_iterations, converged = root_search.brentq(
objective_fn,
tf.constant(0.0, dtype=ztypes.float),
tf.constant(8.0, dtype=ztypes.float) * bandwidth,
absolute_root_tolerance=absolute_root_tolerance,
relative_root_tolerance=relative_root_tolerance,
function_tolerance=function_tolerance
)
return roots + absolute_root_tolerance
def _jamshidian_decomposition(hw_model,
expiries,
maturities,
coefficients,
dtype,
name=None):
"""Jamshidian decomposition for European swaption valuation.
Jamshidian decomposition is a widely used technique for the valuation of
European swaptions (and options on coupon bearing bonds) when the underlying
models for the term structure are short rate models (such as Hull-White
model). The method transforms the swaption valuation to the valuation of a
portfolio of call (put) options on zero-coupon bonds.
Consider the following swaption payoff(assuming unit notional) at the
exipration time (under a single curve valuation):
```None
payoff = max(1 - P(T0, TN, r(T0)) - sum_1^N tau_i * X_i * P(T0, Ti, r(T0)), 0)
= max(1 - sum_0^N alpha_i * P(T0, Ti, r(T0)), 0)
```
where `T0` denotes the swaption expiry, P(T0, Ti, r(T0)) denotes the price
of the zero coupon bond at `T0` with maturity `Ti` and `r(T0)` is the short
rate at time `T0`. If `r*` (or breakeven short rate) is the solution of the
following equation:
```None
1 - sum_0^N alpha_i * P(T0, Ti, r*) = 0 (1)
```
Then the swaption payoff can be expressed as the following (Ref. [1]):
```None
payoff = sum_1^N alpha_i max(P(T0, Ti, r*) - P(T0, Ti), 0)
```
where in the above formulation the swaption payoff is the same as that of
a portfolio of bond options with strikes `P(T0, Ti, r*)`.
The function accepts relevant inputs for the above computation and returns
the strikes of the bond options computed using the Jamshidian decomposition.
#### References:
[1]: Leif B. G. Andersen and Vladimir V. Piterbarg. Interest Rate Modeling.
Volume II: Term Structure Models. Chapter 10.
Args:
hw_model: An instance of `VectorHullWhiteModel`. The model used for the
valuation.
expiries: A real `Tensor` of any shape and dtype. The the time to
expiration of the swaptions.
maturities: A real `Tensor` of same shape and dtype as `expiries`. The
payment times for fixed payments of the underlying swaptions.
coefficients: A real `Tensor` of shape `expiries.shape + [n]` where `n`
denotes the number of payments in the fixed leg of the underlying swaps.
dtype: The default dtype to use when converting values to `Tensor`s.
name: Python string. The name to give to the ops created by this function.
Default value: `None` which maps to the default name
`jamshidian_decomposition`.
Returns:
A real `Tensor` of shape expiries.shape + [dim] containing the forward
bond prices computed at the breakeven short rate using the Jamshidian
decomposition. `dim` stands for the dimensionality of the Hull-White
process.
"""
name = name or 'jamshidian_decomposition'
with tf.name_scope(name):
dim = hw_model.dim()
coefficients = tf.expand_dims(coefficients, axis=-1)
def _zero_fun(x):
# Get P(t0, t, r(t0)).
p_t0_t = hw_model.discount_bond_price(x, expiries, maturities)
# return_value.shape = batch_shape + [1] + [dim]
return_value = tf.reduce_sum(
coefficients * p_t0_t, axis=-2, keepdims=True) + [1.0]
return return_value
swap_shape = expiries.shape.as_list()[:-1] + [1] + [dim]
lower_bound = -1 * tf.ones(swap_shape, dtype=dtype)
upper_bound = 1 * tf.ones(swap_shape, dtype=dtype)
# Solve Eq.(1)
brent_results = root_search.brentq(_zero_fun, lower_bound, upper_bound)
breakeven_short_rate = brent_results.estimated_root
return hw_model.discount_bond_price(breakeven_short_rate, expiries,
maturities)