def _interpolate_adjacent(times, values, name=None):
"""Interpolates linearly between adjacent values.
Suppose `times` are `[t_1, t_2, ..., t_n]` an array of length `n` and
values are `[f_1, ... f_n]` of length `n`. This function associates
each of the values to the midpoint of the interval i.e. `f_i` is associated
to the midpoint of the interval `[t_i, t_{i+1}]`. Then it calculates the
values at the interval boundaries by linearly interpolating between adjacent
intervals. The first interval is considered to be `[0, t_1]`. The values at
the endpoints (i.e. result[0] and result[n]) are computed as follows:
`result[0] = values[0] - 0.5 * (result[1] - values[0])` and
`result[n] = values[n-1] - 0.5 * (result[n-1] - values[n-1])`.
The rationale for these specific values is discussed in Ref. [1].
Args:
times: A rank 1 `Tensor` of real dtype. The times at which the interpolated
values are to be computed. The values in the array should be positive and
monotonically increasing.
values: A rank 1 `Tensor` of the same dtype and shape as `times`. The values
assigned to the midpoints of the time intervals.
name: Python `str` name prefixed to Ops created by this class.
Default value: None which is mapped to the default name
'interpolate_adjacent'.
Returns:
interval_values: The values interpolated from the supplied midpoint values
as described above. A `Tensor` of the same dtype as `values` but shape
`[n+1]` where `[n]` is the shape of `values`. The `i`th component of the
is the value associated to the time point `t_{i+1}` with `t_0 = 0`.
"""
with tf.compat.v1.name_scope(name,
default_name='interpolate_adjacent',
values=[times, values]):
dt1 = diff(times, order=1, exclusive=False)
dt2 = diff(times, order=2, exclusive=False)[1:]
weight_right = dt1[:-1] / dt2
weight_left = dt1[1:] / dt2
interior_values = weight_right * values[1:] + weight_left * values[:-1]
value_0 = values[0] - 0.5 * (interior_values[0] - values[0])
value_n = values[-1] - 0.5 * (interior_values[-1] - values[-1])
return tf.concat([[value_0], interior_values, [value_n]], axis=0)
def realized_volatility(sample_paths,
times=None,
scaling_factors=None,
returns_type=ReturnsType.LOG,
path_scale=PathScale.ORIGINAL,
axis=-1,
dtype=None,
name=None):
r"""Calculates the total realized volatility for each path.
With `t_i, i=0,...,N` being a discrete sequence of times at which a series
`S_{t_k}, i=0,...,N` is observed. The logarithmic returns (`ReturnsType.LOG`)
process is given by:
```
R_k = log(S_{t_{k}} / S_{t_{k-1}})^2
```
Whereas for absolute returns (`ReturnsType.ABS`) it is given by:
```
R_k = |S_{t_k}} - S_{t_{k-1}})| / |S_{t_{k-1}}|
```
Letting `dt_k = t_k - t_{k-1}` the realized variance is then calculated as:
```
V = c * f( \Sum_{k=1}^{N-1} R_k / dt_k )
```
Where `f` is the square root for logarithmic returns and the identity function
for absolute returns. If `times` is not supplied then it is assumed that
`dt_k = 1` everywhere. The arbitrary scaling factor `c` enables various
flavours of averaging or annualization (for examples of which see [1] or
section 9.7 of [2]).
#### Examples
Calculation of realized logarithmic volatility as in [1]:
```python
import tensorflow as tf
import tf_quant_finance as tff
dtype=tf.float64
num_samples = 1000
num_times = 252
seed = (1, 2)
annual_vol = 20
sigma = annual_vol / (100 * np.sqrt(num_times - 1))
mu = -0.5*sigma**2
gbm = tff.models.GeometricBrownianMotion(mu=mu, sigma=sigma, dtype=dtype)
sample_paths = gbm.sample_paths(
times=range(num_times),
num_samples=num_samples,
seed=seed,
random_type=tff.math.random.RandomType.STATELESS_ANTITHETIC)
annualization = 100 * np.sqrt( (num_times / (num_times - 1)) )
tf.math.reduce_mean(
realized_volatility(sample_paths,
scaling_factors=annualization,
path_scale=PathScale.ORIGINAL,
axis=1))
# 20.03408344960287
```
Carrying on with the same paths the realized absolute volatility (`RV_d2` in
[3]) is:
```
scaling = 100 * np.sqrt((np.pi/(2 * (num_times-1))))
tf.math.reduce_mean(
realized_volatility(sample_paths,
scaling_factors=scaling,
returns_type=ReturnsType.ABS,
path_scale=PathScale.LOG))
# 19.811590402553158
```
#### References:
[1]: CBOE. Summary Product Specifications Chart for S&P 500 Variance Futures.
2012.
https://cdn.cboe.com/resources/futures/sp_500_variance_futures_contract.pdf
[2]: Iain J. Clark. Foreign exchange option pricing - A Practitioner's
guide. Chapter 5. 2011.
[3]: Zhu, S.P. and Lian, G.H., 2015. Analytically pricing volatility swaps
under stochastic volatility. Journal of Computational and Applied Mathematics.
Args:
sample_paths: A real `Tensor` of shape
`batch_shape_0 + [N] + batch_shape_1`.
times: A real `Tensor` of shape compatible with `batch_shape_0 + [N] +
batch_shape_1`. The times represented on the axis of interest (the `t_k`).
Default value: None. Resulting in the assumption of unit time increments.
scaling_factors: An optional real `Tensor` of shape compatible with
`batch_shape_0 + batch_shape_1`. Any scaling factors to be applied to the
result (e.g. for annualization).
Default value: `None`. Resulting in `c=1` in the above calculation.
returns_type: Value of ReturnsType. Indicates which definition of returns
should be used.
Default value: ReturnsType.LOG, representing logarithmic returns.
path_scale: Value of PathScale. Indicates which space the supplied
`sample_paths` are in. If required the paths will then be transformed onto
the appropriate scale.
Default value: PathScale.ORIGINAL.
axis: Python int. The axis along which to calculate the statistic.
Default value: -1 (the final axis).
dtype: `tf.DType`. If supplied the dtype for the input and output `Tensor`s.
Default value: `None` leading to use of `sample_paths`.
name: Python str. The name to give to the ops created by this function.
Default value: `None` which maps to 'realized_volatility'.
Returns:
Tensor of shape equal to `batch_shape_0 + batch_shape_1` (i.e. with axis
`axis` having been reduced over).
"""
with tf.name_scope(name or 'realized_volatility'):
sample_paths = tf.convert_to_tensor(sample_paths, dtype=dtype,
name='sample_paths')
dtype = dtype or sample_paths.dtype
if returns_type == ReturnsType.LOG:
component_transform = lambda t: tf.pow(t, 2)
result_transform = tf.math.sqrt
if path_scale == PathScale.ORIGINAL:
transformed_paths = tf.math.log(sample_paths)
elif path_scale == PathScale.LOG:
transformed_paths = sample_paths
elif returns_type == ReturnsType.ABS:
component_transform = tf.math.abs
result_transform = tf.identity
if path_scale == PathScale.ORIGINAL:
transformed_paths = sample_paths
elif path_scale == PathScale.LOG:
transformed_paths = tf.math.exp(sample_paths)
diffs = component_transform(
diff_ops.diff(transformed_paths, order=1, exclusive=True, axis=axis))
denominators = 1
if times is not None:
times = tf.convert_to_tensor(times, dtype=dtype, name='times')
denominators = diff_ops.diff(times, order=1, exclusive=True, axis=axis)
if returns_type == ReturnsType.ABS:
slices = transformed_paths.shape.rank * [slice(None)]
slices[axis] = slice(None, -1)
denominators = denominators * component_transform(
transformed_paths[slices])
path_statistics = result_transform(
tf.math.reduce_sum(diffs / denominators, axis=axis))
if scaling_factors is not None:
scaling_factors = tf.convert_to_tensor(
scaling_factors, dtype=dtype, name='scaling_factors')
return scaling_factors * path_statistics
return path_statistics
def replicating_weights(ordered_strikes,
reference_strikes,
expiries,
validate_args=False,
dtype=None,
name=None):
"""Calculates the weights for options to recreate the variance swap payoff.
This implements the approach in Appendix A of Demeterfi et al for calculating
the weight of European options required to replicate the payoff of a variance
swap given traded strikes. In particular this function calculates the weights
for the put option part of the portfolio (when `ordered_strikes` is descending
) or for the call option part of the portfolio (when `ordered_strikes`
is ascending). See the fair strike docstring for further details on variance
swaps.
#### Example
```python
dtype = tf.float64
ordered_put_strikes = [100, 95, 90, 85]
reference_strikes = ordered_put_strikes[0]
expiries = 0.25
# Contains weights for put options at ordered_put_strikes[:-1]
put_weights = variance_replicating_weights(
ordered_put_strikes, reference_strikes, expiries, dtype=dtype)
# [0.00206927, 0.00443828, 0.00494591]
```
#### References
[1] Demeterfi, K., Derman, E., Kamal, M. and Zou, J., 1999. More Than You Ever
Wanted To Know About Volatility Swaps. Goldman Sachs Quantitative Strategies
Research Notes.
Args:
ordered_strikes: A real `Tensor` of liquidly traded strikes of shape
`batch_shape + [num_strikes]`. The last entry will not receive a weight in
the portfolio. The values must be sorted ascending if the strikes are for
calls, or descending if the strikes are for puts. The final value in
`ordered_strikes` will not itself receive a weight.
reference_strikes: A `Tensor` of the same dtype as `ordered_strikes` and of
shape compatible with `batch_shape`. An arbitrarily chosen strike
representing an at the money strike price.
expiries: A `Tensor` of the same dtype as `ordered_strikes` and of shape
compatible with `batch_shape`. Represents the time to maturity of the
options.
validate_args: Python `bool`. When `True`, input `Tensor`s are checked for
validity. The checks verify that `ordered_strikes` is indeed ordered. When
`False` invalid inputs may silently render incorrect outputs, yet runtime
performance may be improved.
Default value: False.
dtype: `tf.Dtype`. If supplied the dtype for the input and output `Tensor`s.
Default value: None leading to use of `ordered_strikes.dtype`.
name: Python str. The name to give to the ops created by this function.
Default value: `None` which maps to 'variance_replicating_weights'.
Returns:
A `Tensor` of shape `batch_shape + [num_strikes - 1]` representing the
weight which should be given to each strike in the replicating portfolio,
save for the final strike which is not represented.
"""
with tf.name_scope(name or 'replicating_weights'):
# Input conversion.
ordered_strikes = tf.convert_to_tensor(ordered_strikes,
dtype=dtype,
name='ordered_strikes')
dtype = dtype or ordered_strikes.dtype
reference_strikes = tf.expand_dims(
tf.convert_to_tensor(reference_strikes,
dtype=dtype,
name='reference_strikes'), -1)
expiries = tf.expand_dims(
tf.convert_to_tensor(expiries, dtype=dtype, name='expiries'), -1)
# Descending is required for the formulae regardless of use as control dep.
strike_diff = diff_ops.diff(ordered_strikes, order=1, exclusive=True)
strikes_descending = tf.math.reduce_all(strike_diff < 0)
control_dependencies = []
if validate_args:
strikes_ascending = tf.math.reduce_all(strike_diff > 0)
control_dependencies.append(
tf.compat.v1.debugging.Assert(
tf.math.logical_or(strikes_descending, strikes_ascending),
[strike_diff]))
with tf.control_dependencies(control_dependencies):
# Weights calculation
term_lin = (ordered_strikes -
reference_strikes) / reference_strikes
term_log = tf.math.log(ordered_strikes) - tf.math.log(
reference_strikes)
payoff = (2.0 / expiries) * (term_lin - term_log)
payoff_diff = diff_ops.diff(payoff, order=1, exclusive=True)
r_vals = tf.math.divide_no_nan(payoff_diff, strike_diff)
zero = tf.zeros(r_vals.shape[:-1] + [1], dtype=r_vals.dtype)
r_vals_diff = diff_ops.diff(tf.concat([zero, r_vals], axis=-1),
order=1,
exclusive=True)
# If the strikes were for puts we need to flip the sign before returning.
return tf.where(strikes_descending, -r_vals_diff, r_vals_diff)
def segment_diff(x,
segment_ids,
order=1,
exclusive=False,
dtype=None,
name=None):
"""Computes difference of successive elements in a segment.
For a complete description of segment_* ops see documentation of
`tf.segment_max`. This op extends the `diff` functionality to segmented
inputs.
The behaviour of this op is the same as that of the op `diff` within each
segment. The result is effectively a concatenation of the results of `diff`
applied to each segment.
## Example
```python
x = tf.constant([2, 5, 1, 7, 9] + [32, 10, 12, 3] + [4, 8, 5])
segments = tf.constant([0, 0, 0, 0, 0] + [1, 1, 1, 1] + [2, 2, 2])
# First order diff. Expected result: [3, -4, 6, 2, -22, 2, -9, 4, -3]
dx1 = segment_diff(
x, segment_ids=segments, order=1, exclusive=True)
# Non-exclusive, second order diff.
# Expected result: [2, 5, -1, 2, 8, 32, 10, -20, -7, 4, 8, 1]
dx2 = segment_diff(
x, segment_ids=segments, order=2, exclusive=False)
```
Args:
x: A rank 1 `Tensor` of any dtype for which arithmetic operations are
permitted.
segment_ids: A `Tensor`. Must be one of the following types: int32, int64. A
1-D tensor whose size is equal to the size of `x`. Values should be sorted
and can be repeated.
order: Positive Python int. The order of the difference to compute. `order =
1` corresponds to the difference between successive elements.
Default value: 1
exclusive: Python bool. See description above.
Default value: False
dtype: Optional `tf.Dtype`. If supplied, the dtype for `x` to use when
converting to `Tensor`.
Default value: None which maps to the default dtype inferred by TF.
name: Python `str` name prefixed to Ops created by this class.
Default value: None which is mapped to the default name 'segment_diff'.
Returns:
diffs: A `Tensor` of the same dtype as `x`. Assuming that each segment is
of length greater than or equal to order, if `exclusive` is True,
then the size is `n-order*k` where `n` is the size of x,
`k` is the number of different segment ids supplied if `segment_ids` is
not None or 1 if `segment_ids` is None. If any of the segments is of
length less than the order, then the size is:
`n-sum(min(order, length(segment_j)), j)` where the sum is over segments.
If `exclusive` is False, then the size is `n`.
"""
with tf.compat.v1.name_scope(name, default_name='segment_diff',
values=[x]):
x = tf.convert_to_tensor(x, dtype=dtype)
raw_diffs = diff_ops.diff(x, order=order, exclusive=exclusive)
if segment_ids is None:
return raw_diffs
# If segment ids are supplied, raw_diffs are incorrect at locations:
# p, p+1, ... min(p+order-1, m_p-1) where p is the index of the first
# element of a segment other than the very first segment (which is
# already correct). m_p is the segment length.
# Find positions where the segments begin.
has_segment_changed = tf.concat(
[[False],
tf.not_equal(segment_ids[1:] - segment_ids[:-1], 0)],
axis=0)
# Shape [k, 1]
segment_start_index = tf.cast(tf.where(has_segment_changed),
dtype=tf.int32)
segment_end_index = tf.concat([
tf.reshape(segment_start_index, [-1])[1:], [tf.size(segment_ids)]
],
axis=0)
segment_end_index = tf.reshape(segment_end_index, [-1, 1])
# The indices of locations that need to be adjusted. This needs to be
# constructed in steps. First we generate p, p+1, ... p+order-1.
# Shape [num_segments-1, order]
fix_indices = (segment_start_index +
tf.range(order, dtype=segment_start_index.dtype))
in_bounds = tf.where(fix_indices < segment_end_index)
# Keep only the ones in bounds.
fix_indices = tf.reshape(tf.gather_nd(fix_indices, in_bounds), [-1, 1])
needs_fix = tf.scatter_nd(
fix_indices,
# Unfortunately, scatter_nd doesn't support bool on GPUs so we need to
# do ints here and then convert to bool.
tf.reshape(tf.ones_like(fix_indices, dtype=tf.int32), [-1]),
shape=tf.shape(x))
# If exclusive is False, then needs_fix means we need to replace the values
# in raw_diffs at those locations with the values in x.
needs_fix = tf.cast(needs_fix, dtype=tf.bool)
if not exclusive:
return tf.where(needs_fix, x, raw_diffs)
# If exclusive is True, we have to be more careful. The raw_diffs
# computation has removed the first 'order' elements. After removing the
# corresponding elements from needs_fix, we use it to remove the elements
# from raw_diffs.
return tf.boolean_mask(raw_diffs, tf.logical_not(needs_fix[order:]))