ConstrainedMeanVarianceOptimizer.java

  1. package org.drip.portfolioconstruction.allocator;

  3. /*
  4.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  5.  */

  7. /*!
  8.  * Copyright (C) 2020 Lakshmi Krishnamurthy
  9.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  10.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  11.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  12.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  13.  * 
  14.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  15.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  16.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  17.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  18.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  19.  *      and computational support.
  20.  *  
  21.  *      https://lakshmidrip.github.io/DROP/
  22.  *  
  23.  *  DROP is composed of three modules:
  24.  *  
  25.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  26.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  27.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  28.  * 
  29.  *  DROP Product Core implements libraries for the following:
  30.  *  - Fixed Income Analytics
  31.  *  - Loan Analytics
  32.  *  - Transaction Cost Analytics
  33.  * 
  34.  *  DROP Portfolio Core implements libraries for the following:
  35.  *  - Asset Allocation Analytics
  36.  *  - Asset Liability Management Analytics
  37.  *  - Capital Estimation Analytics
  38.  *  - Exposure Analytics
  39.  *  - Margin Analytics
  40.  *  - XVA Analytics
  41.  * 
  42.  *  DROP Computational Core implements libraries for the following:
  43.  *  - Algorithm Support
  44.  *  - Computation Support
  45.  *  - Function Analysis
  46.  *  - Model Validation
  47.  *  - Numerical Analysis
  48.  *  - Numerical Optimizer
  49.  *  - Spline Builder
  50.  *  - Statistical Learning
  51.  * 
  52.  *  Documentation for DROP is Spread Over:
  53.  * 
  54.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  55.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  56.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  57.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  58.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  59.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  60.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  61.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  62.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  63.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  64.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  65.  * 
  66.  *  Licensed under the Apache License, Version 2.0 (the "License");
  67.  *      you may not use this file except in compliance with the License.
  68.  *   
  69.  *  You may obtain a copy of the License at
  70.  *      http://www.apache.org/licenses/LICENSE-2.0
  71.  *  
  72.  *  Unless required by applicable law or agreed to in writing, software
  73.  *      distributed under the License is distributed on an "AS IS" BASIS,
  74.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  75.  *  
  76.  *  See the License for the specific language governing permissions and
  77.  *      limitations under the License.
  78.  */

  80. /**
  81.  * <i>ConstrainedMeanVarianceOptimizer</i> builds an Optimal Portfolio Based on MPT Using the Asset Pool
  82.  * Statistical Properties with the Specified Lower/Upper Bounds on the Component Assets.
  83.  *
  84.  *  <br><br>
  85.  *  <ul>
  86.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
  87.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/AssetAllocationAnalyticsLibrary.md">Asset Allocation Analytics</a></li>
  88.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/portfolioconstruction/README.md">Portfolio Construction under Allocation Constraints</a></li>
  89.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/portfolioconstruction/allocator/README.md">MVO Based Portfolio Allocation Construction</a></li>
  90.  *  </ul>
  91.  *
  92.  * @author Lakshmi Krishnamurthy
  93.  */

  95. public class ConstrainedMeanVarianceOptimizer extends
  96.     org.drip.portfolioconstruction.allocator.MeanVarianceOptimizer
  97. {
  98.     private org.drip.function.rdtor1descent.LineStepEvolutionControl _lineStepEvolutionControl = null;
  99.     private org.drip.function.rdtor1solver.InteriorPointBarrierControl _interiorPointBarrierControl = null;

  101.     protected org.drip.portfolioconstruction.allocator.HoldingsAllocationControl constrainedPCP (
  102.         final org.drip.portfolioconstruction.allocator.HoldingsAllocationControl
  103.             designPortfolioConstructionParameters,
  104.         final double returnsConstraint)
  105.     {
  106.         java.lang.String[] assetIDArray = designPortfolioConstructionParameters.assetIDArray();

  108.         int assetCount = assetIDArray.length;
  109.         org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  110.             boundedPortfolioConstructionParametersIn =
  111.                 (org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl)
  112.                     designPortfolioConstructionParameters;

  114.         try
  115.         {
  116.             org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  117.                 boundedPortfolioConstructionParametersOut =
  118.                     new org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl (
  119.                         assetIDArray,
  120.                         designPortfolioConstructionParameters.customRiskUtilitySettings(),
  121.                         new org.drip.portfolioconstruction.allocator.EqualityConstraintSettings (
  122.                             designPortfolioConstructionParameters.equalityConstraintSettings().constraintType() |
  123.                                 org.drip.portfolioconstruction.allocator.EqualityConstraintSettings.RETURNS_CONSTRAINT,
  124.                             returnsConstraint
  125.                         )
  126.                     );

  128.             for (int assetIndex = 0; assetIndex < assetCount; ++assetIndex)
  129.             {
  130.                 if (!boundedPortfolioConstructionParametersOut.addBound (
  131.                     assetIDArray[assetIndex],
  132.                     boundedPortfolioConstructionParametersIn.lowerBound (assetIDArray[assetIndex]),
  133.                     boundedPortfolioConstructionParametersIn.upperBound (assetIDArray[assetIndex])
  134.                 ))
  135.                 {
  136.                     return null;
  137.                 }
  138.             }

  140.             return boundedPortfolioConstructionParametersOut;
  141.         }
  142.         catch (java.lang.Exception e)
  143.         {
  144.             e.printStackTrace();
  145.         }

  147.         return null;
  148.     }

  150.     /**
  151.      * ConstrainedMeanVarianceOptimizer Constructor
  152.      * 
  153.      * @param interiorPointBarrierControl Interior Fixed Point Barrier Control Parameters
  154.      * @param lineStepEvolutionControl Line Step Evolution Control Parameters
  155.      */

  157.     public ConstrainedMeanVarianceOptimizer (
  158.         final org.drip.function.rdtor1solver.InteriorPointBarrierControl interiorPointBarrierControl,
  159.         final org.drip.function.rdtor1descent.LineStepEvolutionControl lineStepEvolutionControl)
  160.     {
  161.         if (null == (_interiorPointBarrierControl = interiorPointBarrierControl))
  162.         {
  163.             _interiorPointBarrierControl =
  164.                 org.drip.function.rdtor1solver.InteriorPointBarrierControl.Standard();
  165.         }

  167.         _lineStepEvolutionControl = lineStepEvolutionControl;
  168.     }

  170.     /**
  171.      * Retrieve the Line Step Evolution Control
  172.      * 
  173.      * @return The Line Step Evolution Control
  174.      */

  176.     public org.drip.function.rdtor1descent.LineStepEvolutionControl lineStepEvolutionControl()
  177.     {
  178.         return _lineStepEvolutionControl;
  179.     }

  181.     /**
  182.      * Retrieve the Interior Point Barrier Control
  183.      * 
  184.      * @return The Interior Point Barrier Control
  185.      */

  187.     public org.drip.function.rdtor1solver.InteriorPointBarrierControl interiorPointBarrierControl()
  188.     {
  189.         return _interiorPointBarrierControl;
  190.     }

  192.     @Override public org.drip.portfolioconstruction.allocator.HoldingsAllocation
  193.         longOnlyMaximumReturnsAllocate (
  194.             final org.drip.portfolioconstruction.allocator.HoldingsAllocationControl
  195.                 portfolioConstructionParameters,
  196.             final org.drip.portfolioconstruction.params.AssetUniverseStatisticalProperties
  197.                 assetUniverseStatisticalProperties)
  198.     {
  199.         if (null == portfolioConstructionParameters ||
  200.             !(portfolioConstructionParameters instanceof
  201.                 org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl) ||
  202.             null == assetUniverseStatisticalProperties)
  203.         {
  204.             return null;
  205.         }

  207.         java.lang.String[] assetIDArray = portfolioConstructionParameters.assetIDArray();

  209.         int portfolioAssetIndex = 0;
  210.         double cumulativeWeight = 0.;
  211.         int assetCount = assetIDArray.length;
  212.         org.drip.portfolioconstruction.asset.AssetComponent[] assetComponentArray = new
  213.             org.drip.portfolioconstruction.asset.AssetComponent[assetCount];
  214.         org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  215.             boundedPortfolioConstructionParameters =
  216.                 (org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl)
  217.                     portfolioConstructionParameters;

  219.         double[] expectedAssetReturnsArray = assetUniverseStatisticalProperties.expectedReturns (
  220.             assetIDArray
  221.         );

  223.         if (null == expectedAssetReturnsArray || assetCount != expectedAssetReturnsArray.length)
  224.         {
  225.             return null;
  226.         }

  228.         java.util.TreeMap<java.lang.Double, java.lang.String> assetReturnsMap =
  229.             new java.util.TreeMap<java.lang.Double, java.lang.String>();

  231.         for (int assetIndex = 0; assetIndex < assetCount; ++assetIndex)
  232.         {
  233.             assetReturnsMap.put (
  234.                 expectedAssetReturnsArray[assetIndex],
  235.                 assetIDArray[assetIndex]
  236.             );
  237.         }

  239.         java.util.Set<java.lang.Double> descendingAssetReturnsSet = assetReturnsMap.descendingKeySet();

  241.         for (double assetReturns : descendingAssetReturnsSet)
  242.         {
  243.             double assetWeight = 0.;

  245.             java.lang.String assetID = assetReturnsMap.get (assetReturns);

  247.             try
  248.             {
  249.                 if (1. > cumulativeWeight)
  250.                 {
  251.                     double assetWeightUpperBound = boundedPortfolioConstructionParameters.upperBound (
  252.                         assetID
  253.                     );

  255.                     double maximumAllowedAssetWeight = 1. - cumulativeWeight;

  257.                     if (!org.drip.numerical.common.NumberUtil.IsValid (assetWeightUpperBound))
  258.                     {
  259.                         assetWeightUpperBound = maximumAllowedAssetWeight;
  260.                     }

  262.                     assetWeight = assetWeightUpperBound < maximumAllowedAssetWeight ? assetWeightUpperBound :
  263.                         maximumAllowedAssetWeight;
  264.                     cumulativeWeight += assetWeight;
  265.                 }

  267.                 assetComponentArray[portfolioAssetIndex++] =
  268.                     new org.drip.portfolioconstruction.asset.AssetComponent (
  269.                         assetID,
  270.                         assetWeight
  271.                     );
  272.             }
  273.             catch (java.lang.Exception e)
  274.             {
  275.                 e.printStackTrace();

  277.                 return null;
  278.             }
  279.         }

  281.         return org.drip.portfolioconstruction.allocator.HoldingsAllocation.Create (
  282.             assetComponentArray,
  283.             assetUniverseStatisticalProperties
  284.         );
  285.     }

  287.     @Override public org.drip.portfolioconstruction.allocator.HoldingsAllocation
  288.         globalMinimumVarianceAllocate (
  289.             final org.drip.portfolioconstruction.allocator.HoldingsAllocationControl
  290.                 portfolioConstructionParameters,
  291.             final org.drip.portfolioconstruction.params.AssetUniverseStatisticalProperties
  292.                 assetUniverseStatisticalProperties)
  293.     {
  294.         if (null == portfolioConstructionParameters ||
  295.             !(portfolioConstructionParameters instanceof
  296.                 org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl) ||
  297.             null == assetUniverseStatisticalProperties)
  298.         {
  299.             return null;
  300.         }

  302.         java.lang.String[] assetIDArray = portfolioConstructionParameters.assetIDArray();

  304.         double[][] assetCovarianceMatrix = assetUniverseStatisticalProperties.covariance (assetIDArray);

  306.         if (null == assetCovarianceMatrix)
  307.         {
  308.             return null;
  309.         }

  311.         int assetCount = assetIDArray.length;
  312.         org.drip.portfolioconstruction.asset.AssetComponent[] assetComponentArray = new
  313.             org.drip.portfolioconstruction.asset.AssetComponent[assetCount];
  314.         org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  315.             boundedPortfolioConstructionParameters =
  316.                 (org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl)
  317.                     portfolioConstructionParameters;

  319.         try
  320.         {
  321.             org.drip.function.rdtor1.LagrangianMultivariate lagrangianMultivariate =
  322.                 new org.drip.function.rdtor1.LagrangianMultivariate (
  323.                     portfolioConstructionParameters.customRiskUtilitySettings().riskObjectiveUtility (
  324.                         assetIDArray,
  325.                         assetUniverseStatisticalProperties
  326.                     ),
  327.                     new org.drip.function.definition.RdToR1[]
  328.                     {
  329.                         boundedPortfolioConstructionParameters.fullyInvestedConstraint()
  330.                     }
  331.                 );

  333.             org.drip.function.rdtor1solver.VariateInequalityConstraintMultiplier
  334.                 variateInequalityConstraintMultiplier =
  335.                     new org.drip.function.rdtor1solver.BarrierFixedPointFinder (
  336.                         lagrangianMultivariate,
  337.                         boundedPortfolioConstructionParameters.boundingConstraintsArray (
  338.                             lagrangianMultivariate.constraintFunctionDimension()
  339.                         ),
  340.                         _interiorPointBarrierControl,
  341.                         _lineStepEvolutionControl
  342.                     ).solve (
  343.                         boundedPortfolioConstructionParameters.weightConstrainedFeasibleStart()
  344.                     );

  346.             if (null == variateInequalityConstraintMultiplier)
  347.             {
  348.                 return null;
  349.             }

  351.             double[] optimalWeightArray = variateInequalityConstraintMultiplier.variateArray();

  353.             for (int assetIndex = 0; assetIndex < assetCount; ++assetIndex)
  354.             {
  355.                 assetComponentArray[assetIndex] = new org.drip.portfolioconstruction.asset.AssetComponent (
  356.                     assetIDArray[assetIndex],
  357.                     optimalWeightArray[assetIndex]
  358.                 );
  359.             }

  361.             return org.drip.portfolioconstruction.allocator.HoldingsAllocation.Create (
  362.                 assetComponentArray,
  363.                 assetUniverseStatisticalProperties
  364.             );
  365.         }
  366.         catch (java.lang.Exception e)
  367.         {
  368.             e.printStackTrace();
  369.         }

  371.         return null;
  372.     }

  374.     @Override public org.drip.portfolioconstruction.allocator.HoldingsAllocation allocate (
  375.         final org.drip.portfolioconstruction.allocator.HoldingsAllocationControl
  376.             holdingsAllocationControl,
  377.         final org.drip.portfolioconstruction.params.AssetUniverseStatisticalProperties
  378.             assetUniverseStatisticalProperties)
  379.     {
  380.         if (null == holdingsAllocationControl ||
  381.             !(holdingsAllocationControl instanceof
  382.                 org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl) ||
  383.             null == assetUniverseStatisticalProperties)
  384.         {
  385.             return null;
  386.         }

  388.         java.lang.String[] assetIDArray = holdingsAllocationControl.assetIDArray();

  390.         double[][] aadblCovariance = assetUniverseStatisticalProperties.covariance (assetIDArray);

  392.         if (null == aadblCovariance)
  393.         {
  394.             return null;
  395.         }

  397.         int assetCount = assetIDArray.length;
  398.         org.drip.portfolioconstruction.asset.AssetComponent[] assetComponentArray = new
  399.             org.drip.portfolioconstruction.asset.AssetComponent[assetCount];
  400.         org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  401.             boundedHoldingsAllocationControl =
  402.                 (org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl)
  403.                     holdingsAllocationControl;

  405.         try
  406.         {
  407.             org.drip.function.rdtor1.LagrangianMultivariate lagrangianMultivariate =
  408.                 new org.drip.function.rdtor1.LagrangianMultivariate (
  409.                     holdingsAllocationControl.customRiskUtilitySettings().riskObjectiveUtility (
  410.                         assetIDArray,
  411.                         assetUniverseStatisticalProperties
  412.                     ),
  413.                     boundedHoldingsAllocationControl.equalityConstraintArray (
  414.                         assetUniverseStatisticalProperties
  415.                     )
  416.                 );

  418.             org.drip.function.rdtor1solver.VariateInequalityConstraintMultiplier
  419.                 variateInequalityConstraintMultiplier =
  420.                     new org.drip.function.rdtor1solver.BarrierFixedPointFinder (
  421.                         lagrangianMultivariate,
  422.                         boundedHoldingsAllocationControl.boundingConstraintsArray (
  423.                             lagrangianMultivariate.constraintFunctionDimension()
  424.                         ),
  425.                         _interiorPointBarrierControl,
  426.                         _lineStepEvolutionControl
  427.                     ).solve (
  428.                         boundedHoldingsAllocationControl.weightConstrainedFeasibleStart()
  429.                     );

  431.             if (null == variateInequalityConstraintMultiplier)
  432.             {
  433.                 return null;
  434.             }

  436.             double[] optimalWeightArray = variateInequalityConstraintMultiplier.variateArray();

  438.             for (int assetIndex = 0; assetIndex < assetCount; ++assetIndex)
  439.             {
  440.                 assetComponentArray[assetIndex] = new org.drip.portfolioconstruction.asset.AssetComponent (
  441.                     assetIDArray[assetIndex],
  442.                     optimalWeightArray[assetIndex]
  443.                 );
  444.             }

  446.             return org.drip.portfolioconstruction.allocator.HoldingsAllocation.Create (
  447.                 assetComponentArray,
  448.                 assetUniverseStatisticalProperties
  449.             );
  450.         }
  451.         catch (java.lang.Exception e)
  452.         {
  453.             e.printStackTrace();
  454.         }

  456.         return null;
  457.     }
  458. }
Created with JaCoCo 0.7.9.201702052155