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Restoring apparently missing SIMM demo documentation (#2293)
(cherry picked from commit 2e84bad)
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Maksymilian Pawlak
Ben Abineri
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20683c3239
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5c85e80b17
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# SIMM Valuation Demo
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# SIMM and Portfolio Demo - aka the Initial Margin Agreement Demo
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See our [main documentation site](https://docs.corda.net/initial-margin-agreement.html) regarding the SIMM valuation and agreement on a distributed ledger.
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## Background and SIMM Introduction
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This app is a demonstration of how Corda can be used for the real world requirement of initial margin calculation and
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agreement; featuring the integration of complex and industry proven third party libraries into Corda nodes.
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SIMM is an acronym for "Standard Initial Margin Model". It is effectively the calculation of a "margin" that is paid
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by one party to another when they agree a trade on certain types of transaction.
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The SIMM was introduced to standardise the calculation of how much margin counterparties charge each other on their
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bilateral transactions. Before SIMM, each counterparty computed margins according to its own model and it was made it very
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difficult to agree the exact margin with the counterparty that faces the same trade on the other side.
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To enact this, in September 2016, the ISDA committee - with full backing from various governing bodies -
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[issued a ruling on what is known as the ISDA SIMM ™ model](http://www2.isda.org/news/isda-simm-deployed-today-new-industry-standard-for-calculating-initial-margin-widely-adopted-by-market-participants)
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a way of fairly and consistently calculating this margin. Any parties wishing to trade a financial product that is
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covered under this ruling would, independently, use this model and calculate their margin payment requirement,
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agree it with their trading counterparty and then pay (or receive, depending on the results of this calculation)
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this amount. In the case of disagreement that is not resolved in a timely fashion, this payment would increase
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and so therefore it is in the parties' interest to reach agreement in as short as time frame as possible.
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To be more accurate, the SIMM calculation is not performed on just one trade - it is calculated on an aggregate of
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intermediary values (which in this model are sensitivities to risk factors) from a portfolio of trades; therefore
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the input to a SIMM is actually this data, not the individual trades themselves.
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Also note that implementations of the SIMM are actually protected and subject to license restrictions by ISDA
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(this is due to the model itself being protected). We were fortunate enough to technically partner with
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[OpenGamma](http://www.opengamma.com) who allowed us to demonstrate the SIMM process using their proprietary model.
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In the source code released, we have replaced their analytics engine with very simple stub functions that allow
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the process to run without actually calculating correct values, and can easily be swapped out in place for their real libraries.
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## What happens in the demo (notionally)
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Preliminaries
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- Ensure that there are a number of live trades with another party based on financial products that are covered under the
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ISDA SIMM agreement (if none, then use the demo to enter some simple trades as described below).
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Initial Margin Agreement Process
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- Agree that one will be performing the margining calculation against a portfolio of trades with another party, and agree the trades in that portfolio. In practice, one node will start the flow but it does not matter which node does.
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- Individually (at the node level), identify the data (static, reference etc) one will need in order to be able to calculate the metrics on those trades
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- Confirm with the other counterparty the dataset from the above set
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- Calculate any intermediary steps and values needed for the margin calculation (ie sensitivities to risk factors)
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- Agree on the results of these steps
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- Calculate the initial margin
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- Agree on the calculation of the above with the other party
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- In practice, pay (or receive) this margin (omitted for the sake of complexity for this example)
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## Demo execution (step by step)
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**Setting up the Corda infrastructure**
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To run from the command line in Unix:
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1. Deploy the nodes using ``./gradlew samples:simm-valuation-demo:deployNodes``
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2. Run the nodes using ``./samples/simm-valuation-demo/build/nodes/runnodes``
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To run from the command line in Windows:
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1. Deploy the nodes using ``gradlew samples:simm-valuation-demo:deployNodes``
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2. Run the nodes using ``samples\simm-valuation-demo\build\nodes\runnodes``
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**Getting Bank A's details**
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From the command line run
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curl http://localhost:10005/api/simmvaluationdemo/whoami
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The response should be something like
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{
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"self" : {
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"id" : "8Kqd4oWdx4KQGHGQW3FwXHQpjiv7cHaSsaAWMwRrK25bBJj792Z4rag7EtA",
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"text" : "C=GB,L=London,O=Bank A"
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},
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"counterparties" : [
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{
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"id" : "8Kqd4oWdx4KQGHGL1DzULumUmZyyokeSGJDY1n5M6neUfAj2sjbf65wYwQM",
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"text" : "C=JP,L=Tokyo,O=Bank C"
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},
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{
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"id" : "8Kqd4oWdx4KQGHGTBm34eCM2nrpcWKeM1ZG3DUYat3JTFUQTwB3Lv2WbPM8",
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"text" : "C=US,L=New York,O=Bank B"
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}
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]
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}
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Now, if we ask the same question of Bank C we will see that it's id matches the id for Bank C as a counter
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party to Bank A and Bank A will appear as a counter party
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curl -i -H "Content-Type: application/json" -X GET http://localhost:10011/api/simmvaluationdemo/whoami
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**Creating a trade with Bank C**
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In what follows, we assume we are Bank A (which is listening on port 10005)
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Notice the id field in the output of the ``whoami`` command. We are going to use the id assocatied
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with Bank C, one of our counter parties, to create a trade. The general command for this is:
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curl -i -H "Content-Type: application/json" -X PUT -d <<<JSON representation of the trade>>> http://localhost:10005/api/simmvaluationdemo/<<<counter party id>>>/trades
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where the representation of the trade is
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{
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"id" : "trade1",
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"description" : "desc",
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"tradeDate" : [ 2016, 6, 6 ],
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"convention" : "EUR_FIXED_1Y_EURIBOR_3M",
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"startDate" : [ 2016, 6, 6 ],
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"endDate" : [ 2020, 1, 2 ],
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"buySell" : "BUY",
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"notional" : "1000",
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"fixedRate" : "0.1"
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}
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Continuing our example, the specific command we would run is
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curl -i -H "Content-Type: application/json" \
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-X PUT \
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-d '{"id":"trade1","description" : "desc","tradeDate" : [ 2016, 6, 6 ], "convention" : "EUR_FIXED_1Y_EURIBOR_3M", "startDate" : [ 2016, 6, 6 ], "endDate" : [ 2020, 1, 2 ], "buySell" : "BUY", "notional" : "1000", "fixedRate" : "0.1"}' \
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http://localhost:10005/api/simmvaluationdemo/8Kqd4oWdx4KQGHGL1DzULumUmZyyokeSGJDY1n5M6neUfAj2sjbf65wYwQM/trades
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With an expected response of
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HTTP/1.1 202 Accepted
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Date: Thu, 28 Sep 2017 17:19:39 GMT
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Content-Type: text/plain
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Access-Control-Allow-Origin: *
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Content-Length: 2
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Server: Jetty(9.3.9.v20160517)
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**Verifying trade completion**
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With the trade completed and stored by both parties, the complete list of trades with our couterparty can be seen with the following command
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curl -X GET http://localhost:10005/api/simmvaluationdemo/<<<counter party id>>>/trades
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The command for our example, using Bank A, would thus be
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curl -X GET http://localhost:10005/api/simmvaluationdemo/8Kqd4oWdx4KQGHGL1DzULumUmZyyokeSGJDY1n5M6neUfAj2sjbf65wYwQM/trades
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whilst a specific trade can be seen with
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curl -X GET http://localhost:10005/api/simmvaluationdemo/<<<counter party id>>>/trades/<<<trade id>>>
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If we look at the trade we created above, we assigned it the id "trade1", the complete command in this case would be
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curl -X GET http://localhost:10005/api/simmvaluationdemo/8Kqd4oWdx4KQGHGL1DzULumUmZyyokeSGJDY1n5M6neUfAj2sjbf65wYwQM/trades/trade1
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**Generating a valuation**
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curl -i -H "Content-Type: application/json" \
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-X POST \
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-d <<<JSON representation>>>
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http://localhost:10005/api/simmvaluationdemo/<<<counter party id>>>/portfolio/valuations/calculate
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Again, the specific command to continue our example would be
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curl -i -H "Content-Type: application/json" \
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-X POST \
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-d '{"valuationDate":[2016,6,6]}' \
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http://localhost:10005/api/simmvaluationdemo/8Kqd4oWdx4KQGHGL1DzLumUmZyyokeSGJDY1n5M6neUfAj2sjbf65wYwQM/portfolio/valuations/calculate
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**Viewing a valuation**
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In the same way we can ask for specific instances of trades with a counter party, we can request details of valuations
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curl -i -H "Content-Type: application/json" -X GET http://localhost:10005/api/simmvaluationdemo/<<<counter party id>>>/portfolio/valuations
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The specific command for out Bank A example is
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curl -i -H "Content-Type: application/json" \
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-X GET http://localhost:10005/api/simmvaluationdemo/8Kqd4oWdx4KQGHGL1DzULumUmZyyokeSGJDY1n5M6neUfAj2sjbf65YwQM/portfolio/valuations
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## SIMM Library Licensing
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