TadonkiVialMeanVarianceOptimizer.java

  1. package org.drip.portfolioconstruction.cardinality;

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

  77. /**
  78.  * <i>TadonkiVialMeanVarianceOptimizer</i> builds an Optimal Portfolio Based on MPT Using the Asset Pool
  79.  *  Statistical Properties with the Specified Lower/Upper Bounds on the Component Assets, along with an Upper
  80.  *  Bound on Portfolio Cardinality, using the Tadonki and Vial (2004) Heuristic Scheme. The References are:
  81.  * 
  82.  * <br><br>
  83.  *  <ul>
  84.  *      <li>
  85.  *          Chang, T., J., N. Meade, J. E. Beasley, and Y. M. Sharaiha (2000): Heuristics for Cardinality
  86.  *              Constrained Portfolio Optimization <i>Computers and Operations Research</i> <b>27 (13)</b>
  87.  *              1271-1302
  88.  *      </li>
  89.  *      <li>
  90.  *          Chvatal, V. (1973): Edmonds Polytopes in a Hierarchy of Combinatorial Problems <i>Discrete
  91.  *              Mathematics</i> <b>4 (4)</b> 305-337
  92.  *      </li>
  93.  *      <li>
  94.  *          Jobst, N. J., M. D. Horniman, C. A. Lucas, and G. Mitra (2001): Computational Aspects of
  95.  *              Alternative Portfolio Selection Models in the Presence of Discrete Asset Choice Constraints
  96.  *              <i>Quantitative Finance</i> <b>1 (5)</b> 1-13
  97.  *      </li>
  98.  *      <li>
  99.  *          Letchford, A. N. and A. Lodi (2002): Strengthening Chvatal-Gomory Cuts and Gomory Fractional Cuts
  100.  *              <i>Operations Research Letters</i> <b>30 (2)</b> 74-82
  101.  *      </li>
  102.  *      <li>
  103.  *          Tadonki, C., and J. P. Vial (2004): Portfolio Selection with Cardinality and Bound Constraints
  104.  *              https://www.cri.ensmp.fr/~tadonki/PaperForWeb/Tadonki_PF.pdf
  105.  *      </li>
  106.  *  </ul>
  107.  *
  108.  *  <br><br>
  109.  *  <ul>
  110.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
  111.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/AssetAllocationAnalyticsLibrary.md">Asset Allocation Analytics</a></li>
  112.  *      <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>
  113.  *      <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>
  114.  *  </ul>
  115.  *
  116.  * @author Lakshmi Krishnamurthy
  117.  */

  119. public class TadonkiVialMeanVarianceOptimizer
  120.     extends org.drip.portfolioconstruction.allocator.ConstrainedMeanVarianceOptimizer
  121. {

  123.     private org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  124.         workingPortfolioAllocationControl (
  125.             final java.lang.String[] assetIDArray,
  126.             final org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  127.                 boundedHoldingsAllocationControl,
  128.             final java.util.Set<java.lang.String> pruneAssetIDSet)
  129.     {
  130.         int prunedAssetIDIndex = 0;
  131.         org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  132.             workingPortfolioAllocationControl = null;

  134.         java.lang.String[] prunedAssetIDArray =
  135.             new java.lang.String[assetIDArray.length - pruneAssetIDSet.size()];

  137.         for (int assetIndex = 0;
  138.             assetIndex < assetIDArray.length;
  139.             ++assetIndex)
  140.         {
  141.             if (null == pruneAssetIDSet ||
  142.                 !pruneAssetIDSet.contains (
  143.                     assetIDArray[assetIndex]
  144.                 )
  145.             )
  146.             {
  147.                 prunedAssetIDArray[prunedAssetIDIndex++] = assetIDArray[assetIndex];
  148.             }
  149.         }

  151.         try
  152.         {
  153.             workingPortfolioAllocationControl =
  154.                 new org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl (
  155.                     prunedAssetIDArray,
  156.                     boundedHoldingsAllocationControl.customRiskUtilitySettings(),
  157.                     boundedHoldingsAllocationControl.equalityConstraintSettings()
  158.                 );

  160.             for (int prunedAssetIndex = 0;
  161.                 prunedAssetIndex < prunedAssetIDArray.length;
  162.                 ++prunedAssetIndex)
  163.             {
  164.                 workingPortfolioAllocationControl.addBound (
  165.                     prunedAssetIDArray[prunedAssetIndex],
  166.                     0.,
  167.                     boundedHoldingsAllocationControl.upperBound (
  168.                         prunedAssetIDArray[prunedAssetIndex]
  169.                     )
  170.                 );
  171.             }

  173.             return workingPortfolioAllocationControl;
  174.         }
  175.         catch (java.lang.Exception e)
  176.         {
  177.             e.printStackTrace();
  178.         }

  180.         return null;
  181.     }

  183.     private int firstGreedyPruneList (
  184.         final org.drip.portfolioconstruction.asset.Portfolio optimalPortfolio,
  185.         final org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  186.             boundedHoldingsAllocationControl,
  187.         final java.util.Set<java.lang.String> pruneAssetIDSet)
  188.     {
  189.         int pruneCount = 0;

  191.         org.drip.portfolioconstruction.asset.AssetComponent[] assetComponentArray =
  192.             optimalPortfolio.assetComponentArray();

  194.         try
  195.         {
  196.             for (int assetIndex = 0;
  197.                 assetIndex < assetComponentArray.length;
  198.                 ++assetIndex)
  199.             {
  200.                 java.lang.String assetID = assetComponentArray[assetIndex].id();

  202.                 if (assetComponentArray[assetIndex].amount() <
  203.                     boundedHoldingsAllocationControl.lowerBound (
  204.                         assetID
  205.                     )
  206.                 )
  207.                 {
  208.                     pruneAssetIDSet.add (
  209.                         assetID
  210.                     );

  212.                     ++pruneCount;
  213.                 }
  214.             }
  215.         }
  216.         catch (java.lang.Exception e)
  217.         {
  218.             e.printStackTrace();
  219.         }


  222.         return pruneCount;
  223.     }

  225.     private boolean secondGreedyPruneList (
  226.         final org.drip.portfolioconstruction.asset.Portfolio optimalPortfolio,
  227.         final org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  228.             parentBoundedPortfolioConstructionParameters,
  229.         final java.util.Set<java.lang.String> pruneAssetIDSet,
  230.         int pruneCount)
  231.     {
  232.         java.util.Map<java.lang.Double, java.lang.String> boundsDepartureMap =
  233.             new java.util.TreeMap<java.lang.Double, java.lang.String>();

  235.         org.drip.portfolioconstruction.asset.AssetComponent[] assetComponentArray =
  236.             optimalPortfolio.assetComponentArray();

  238.         for (int assetIndex = 0;
  239.             assetIndex < assetComponentArray.length;
  240.             ++assetIndex)
  241.         {
  242.             java.lang.String assetID = assetComponentArray[assetIndex].id();

  244.             try
  245.             {
  246.                 boundsDepartureMap.put (
  247.                     assetComponentArray[assetIndex].amount() -
  248.                     parentBoundedPortfolioConstructionParameters.lowerBound (
  249.                         assetID
  250.                     ),
  251.                     assetID
  252.                 );
  253.             }
  254.             catch (java.lang.Exception e)
  255.             {
  256.                 e.printStackTrace();

  258.                 return false;
  259.             }
  260.         }

  262.         for (java.util.Map.Entry<java.lang.Double, java.lang.String> boundsDepartureEntry :
  263.             boundsDepartureMap.entrySet())
  264.         {
  265.             if (0 == pruneCount)
  266.             {
  267.                 break;
  268.             }

  270.             pruneAssetIDSet.add (
  271.                 boundsDepartureEntry.getValue()
  272.             );

  274.             --pruneCount;
  275.         }

  277.         return true;
  278.     }

  280.     /**
  281.      * TadonkiVialMeanVarianceOptimizer Constructor
  282.      * 
  283.      * @param interiorPointBarrierControl Interior Fixed Point Barrier Control Parameters
  284.      * @param lineStepEvolutionControl Line Step Evolution Control Parameters
  285.      */

  287.     public TadonkiVialMeanVarianceOptimizer (
  288.         final org.drip.function.rdtor1solver.InteriorPointBarrierControl interiorPointBarrierControl,
  289.         final org.drip.function.rdtor1descent.LineStepEvolutionControl lineStepEvolutionControl)
  290.     {
  291.         super (
  292.             interiorPointBarrierControl,
  293.             lineStepEvolutionControl
  294.         );
  295.     }

  297.     @Override public org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation allocate (
  298.         final org.drip.portfolioconstruction.allocator.HoldingsAllocationControl
  299.             holdingsAllocationControl,
  300.         final org.drip.portfolioconstruction.params.AssetUniverseStatisticalProperties
  301.             assetUniverseStatisticalProperties)
  302.     {
  303.         if (!(holdingsAllocationControl instanceof
  304.             org.drip.portfolioconstruction.cardinality.UpperBoundHoldingsAllocationControl))
  305.         {
  306.             return null;
  307.         }

  309.         org.drip.portfolioconstruction.cardinality.UpperBoundHoldingsAllocationControl
  310.             upperBoundHoldingsAllocationControl =
  311.                 (org.drip.portfolioconstruction.cardinality.UpperBoundHoldingsAllocationControl)
  312.                     holdingsAllocationControl;

  314.         int cardinalityUpperBound = upperBoundHoldingsAllocationControl.cardinalityUpperBound();

  316.         java.lang.String[] assetIDArray = upperBoundHoldingsAllocationControl.assetIDArray();

  318.         if (cardinalityUpperBound >= assetIDArray.length)
  319.         {
  320.             return org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation.Standard (
  321.                 super.allocate (
  322.                     holdingsAllocationControl,
  323.                     assetUniverseStatisticalProperties
  324.                 )
  325.             );
  326.         }

  328.         java.util.Set<java.lang.String> pruneAssetIDSet = new java.util.HashSet<java.lang.String>();

  330.         org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
  331.             workingPortfolioAllocationControl = workingPortfolioAllocationControl (
  332.                 assetIDArray,
  333.                 upperBoundHoldingsAllocationControl,
  334.                 pruneAssetIDSet
  335.             );

  337.         org.drip.portfolioconstruction.allocator.HoldingsAllocation floorPassHoldingsAllocation =
  338.             super.allocate (
  339.                 workingPortfolioAllocationControl,
  340.                 assetUniverseStatisticalProperties
  341.             );

  343.         if (null == floorPassHoldingsAllocation)
  344.         {
  345.             return null;
  346.         }

  348.         org.drip.portfolioconstruction.allocator.HoldingsAllocation firstPrunePassHoldingsAllocation =
  349.             floorPassHoldingsAllocation;

  351.         org.drip.portfolioconstruction.asset.Portfolio optimalPortfolio =
  352.             firstPrunePassHoldingsAllocation.optimalPortfolio();

  354.         while (0 != firstGreedyPruneList (
  355.             optimalPortfolio,
  356.             upperBoundHoldingsAllocationControl,
  357.             pruneAssetIDSet
  358.         ))
  359.         {
  360.             workingPortfolioAllocationControl = workingPortfolioAllocationControl (
  361.                 assetIDArray,
  362.                 upperBoundHoldingsAllocationControl,
  363.                 pruneAssetIDSet
  364.             );

  366.             firstPrunePassHoldingsAllocation = super.allocate (
  367.                 workingPortfolioAllocationControl,
  368.                 assetUniverseStatisticalProperties
  369.             );

  371.             if (null == firstPrunePassHoldingsAllocation)
  372.             {
  373.                 return null;
  374.             }

  376.             optimalPortfolio = firstPrunePassHoldingsAllocation.optimalPortfolio();
  377.         }

  379.         if (cardinalityUpperBound >= optimalPortfolio.cardinality())
  380.         {
  381.             org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation
  382.                 tadonkiVialHoldingsAllocation = 
  383.                     org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation.Standard (
  384.                         firstPrunePassHoldingsAllocation
  385.                     );

  387.             return null == tadonkiVialHoldingsAllocation ||
  388.                 !tadonkiVialHoldingsAllocation.setFloorPassHoldingsAllocation (
  389.                     floorPassHoldingsAllocation
  390.                 ) || !tadonkiVialHoldingsAllocation.setFirstPrunePassHoldingsAllocation (
  391.                     firstPrunePassHoldingsAllocation
  392.                 ) ? null : tadonkiVialHoldingsAllocation;
  393.         }

  395.         secondGreedyPruneList (
  396.             optimalPortfolio,
  397.             upperBoundHoldingsAllocationControl,
  398.             pruneAssetIDSet,
  399.             optimalPortfolio.cardinality() - cardinalityUpperBound
  400.         );

  402.         workingPortfolioAllocationControl = workingPortfolioAllocationControl (
  403.             assetIDArray,
  404.             upperBoundHoldingsAllocationControl,
  405.             pruneAssetIDSet
  406.         );

  408.         org.drip.portfolioconstruction.allocator.HoldingsAllocation secondPrunePassHoldingsAllocation =
  409.             super.allocate (
  410.                 workingPortfolioAllocationControl,
  411.                 assetUniverseStatisticalProperties
  412.             );

  414.         if (null == secondPrunePassHoldingsAllocation)
  415.         {
  416.             return null;
  417.         }

  419.         org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation
  420.             tadonkiVialHoldingsAllocation = 
  421.                 org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation.Standard (
  422.                     secondPrunePassHoldingsAllocation
  423.                 );

  425.         return null == tadonkiVialHoldingsAllocation ||
  426.             !tadonkiVialHoldingsAllocation.setFloorPassHoldingsAllocation (
  427.                 floorPassHoldingsAllocation
  428.             ) || !tadonkiVialHoldingsAllocation.setFirstPrunePassHoldingsAllocation (
  429.                 firstPrunePassHoldingsAllocation
  430.             ) || !tadonkiVialHoldingsAllocation.setSecondPrunePassHoldingsAllocation (
  431.                 secondPrunePassHoldingsAllocation
  432.             ) ? null : tadonkiVialHoldingsAllocation;
  433.     }
  434. }
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