CustomRiskUtilitySettings.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>CustomRiskUtilitySettings</i> contains the settings used to generate the Risk Objective Utility
  82.  * Function. It accommodates both the Risk Tolerance and Risk Aversion Variants.
  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 CustomRiskUtilitySettings
  96. {
  97.     private double _riskAversion = java.lang.Double.NaN;
  98.     private double _riskTolerance = java.lang.Double.NaN;

  100.     /**
  101.      * The Variance Minimizer CustomRiskUtilitySettings Instance
  102.      * 
  103.      * @return The Variance Minimizer CustomRiskUtilitySettings Instance
  104.      */

  106.     public static final CustomRiskUtilitySettings VarianceMinimizer()
  107.     {
  108.         try
  109.         {
  110.             return new CustomRiskUtilitySettings (
  111.                 1.,
  112.                 0.
  113.             );
  114.         }
  115.         catch (java.lang.Exception e)
  116.         {
  117.             e.printStackTrace();
  118.         }

  120.         return null;
  121.     }

  123.     /**
  124.      * The Risk Tolerant Variance Minimizer CustomRiskUtilitySettings Instance
  125.      * 
  126.      * @param riskTolerance The Risk Tolerance Parameter
  127.      * 
  128.      * @return The Risk Tolerant Variance Minimizer CustomRiskUtilitySettings Instance
  129.      */

  131.     public static final CustomRiskUtilitySettings RiskTolerant (
  132.         final double riskTolerance)
  133.     {
  134.         try
  135.         {
  136.             return new CustomRiskUtilitySettings (
  137.                 1.,
  138.                 riskTolerance
  139.             );
  140.         }
  141.         catch (java.lang.Exception e)
  142.         {
  143.             e.printStackTrace();
  144.         }

  146.         return null;
  147.     }

  149.     /**
  150.      * The Risk Aversion Variance Minimizer CustomRiskUtilitySettings Instance
  151.      * 
  152.      * @param riskAversion The Risk Aversion Parameter
  153.      * 
  154.      * @return The Risk Aversion Variance Minimizer CustomRiskUtilitySettings Instance
  155.      */

  157.     public static final CustomRiskUtilitySettings RiskAversion (
  158.         final double riskAversion)
  159.     {
  160.         try
  161.         {
  162.             return new CustomRiskUtilitySettings (
  163.                 riskAversion,
  164.                 1.
  165.             );
  166.         }
  167.         catch (java.lang.Exception e)
  168.         {
  169.             e.printStackTrace();
  170.         }

  172.         return null;
  173.     }

  175.     /**
  176.      * CustomRiskUtilitySettings Constructor
  177.      * 
  178.      * @param riskAversion The Risk Aversion Parameter
  179.      * @param riskTolerance The Risk Tolerance Parameter
  180.      * 
  181.      * @throws java.lang.Exception Thrown if the Inputs are Invalid
  182.      */

  184.     public CustomRiskUtilitySettings (
  185.         final double riskAversion,
  186.         final double riskTolerance)
  187.         throws java.lang.Exception
  188.     {
  189.         if (!org.drip.numerical.common.NumberUtil.IsValid (_riskAversion = riskAversion) ||
  190.             !org.drip.numerical.common.NumberUtil.IsValid (_riskTolerance = riskTolerance) ||
  191.                 0. > _riskTolerance)
  192.         {
  193.             throw new java.lang.Exception ("CustomRiskUtilitySettings Constructor => Invalid Inputs");
  194.         }
  195.     }

  197.     /**
  198.      * Retrieve the Risk Aversion Factor
  199.      * 
  200.      * @return The Risk Aversion Factor
  201.      */

  203.     public double riskAversion()
  204.     {
  205.         return _riskAversion;
  206.     }

  208.     /**
  209.      * Retrieve the Risk Tolerance Factor
  210.      * 
  211.      * @return The Risk Tolerance Factor
  212.      */

  214.     public double riskTolerance()
  215.     {
  216.         return _riskTolerance;
  217.     }

  219.     /**
  220.      * Retrieve the Custom Risk Objective Utility Multivariate
  221.      * 
  222.      * @param assetIDArray Array of the Asset IDs
  223.      * @param assetUniverseStatisticalProperties The Asset Universe Statistical Properties Instance
  224.      * 
  225.      * @return The Custom Risk Objective Utility Multivariate
  226.      */

  228.     public org.drip.function.definition.RdToR1 riskObjectiveUtility (
  229.         final java.lang.String[] assetIDArray,
  230.         final org.drip.portfolioconstruction.params.AssetUniverseStatisticalProperties
  231.             assetUniverseStatisticalProperties)
  232.     {
  233.         if (null == assetIDArray || null == assetUniverseStatisticalProperties)
  234.         {
  235.             return null;
  236.         }

  238.         int assetCount = assetIDArray.length;
  239.         double[] expectedReturnsArray = new double[assetCount];
  240.         double[][] covarianceMatrix = new double[assetCount][assetCount];
  241.         org.drip.portfolioconstruction.params.AssetStatisticalProperties[] assetStatisticalPropertiesArray =
  242.             new org.drip.portfolioconstruction.params.AssetStatisticalProperties[assetCount];

  244.         if (0 == assetCount)
  245.         {
  246.             return null;
  247.         }

  249.         for (int assetIndex = 0; assetIndex < assetCount; ++assetIndex)
  250.         {
  251.             if (null == (assetStatisticalPropertiesArray[assetIndex] =
  252.                 assetUniverseStatisticalProperties.assetStatisticalProperties (assetIDArray[assetIndex])))
  253.             {
  254.                 return null;
  255.             }

  257.             expectedReturnsArray[assetIndex] = assetStatisticalPropertiesArray[assetIndex].expectedReturn();
  258.         }

  260.         for (int assetIndexI = 0; assetIndexI < assetCount; ++assetIndexI)
  261.         {
  262.             double dblVarianceI = assetStatisticalPropertiesArray[assetIndexI].variance();

  264.             for (int assetIndexJ = 0; assetIndexJ < assetCount; ++assetIndexJ)
  265.             {
  266.                 try
  267.                 {
  268.                     covarianceMatrix[assetIndexI][assetIndexJ] = java.lang.Math.sqrt (
  269.                         dblVarianceI * assetStatisticalPropertiesArray[assetIndexJ].variance()
  270.                     ) * (
  271.                         assetIndexI == assetIndexJ ? 1. : assetUniverseStatisticalProperties.correlation (
  272.                             assetIDArray[assetIndexI], assetIDArray[assetIndexJ]
  273.                         )
  274.                     );
  275.                 }
  276.                 catch (java.lang.Exception e)
  277.                 {
  278.                     e.printStackTrace();

  280.                     return null;
  281.                 }
  282.             }
  283.         }

  285.         try
  286.         {
  287.             return new org.drip.function.rdtor1.RiskObjectiveUtilityMultivariate (
  288.                 covarianceMatrix,
  289.                 expectedReturnsArray,
  290.                 _riskAversion,
  291.                 _riskTolerance,
  292.                 assetUniverseStatisticalProperties.riskFreeRate()
  293.             );
  294.         }
  295.         catch (java.lang.Exception e)
  296.         {
  297.             e.printStackTrace();
  298.         }

  300.         return null;
  301.     }
  302. }
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