TadonkiVialMeanVarianceOptimizer.java
package org.drip.portfolioconstruction.cardinality;
/*
* -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
*/
/*!
* Copyright (C) 2020 Lakshmi Krishnamurthy
* Copyright (C) 2019 Lakshmi Krishnamurthy
*
* This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
* asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
* analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
* equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
* numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
* and computational support.
*
* https://lakshmidrip.github.io/DROP/
*
* DROP is composed of three modules:
*
* - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
* - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
* - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
*
* DROP Product Core implements libraries for the following:
* - Fixed Income Analytics
* - Loan Analytics
* - Transaction Cost Analytics
*
* DROP Portfolio Core implements libraries for the following:
* - Asset Allocation Analytics
* - Asset Liability Management Analytics
* - Capital Estimation Analytics
* - Exposure Analytics
* - Margin Analytics
* - XVA Analytics
*
* DROP Computational Core implements libraries for the following:
* - Algorithm Support
* - Computation Support
* - Function Analysis
* - Model Validation
* - Numerical Analysis
* - Numerical Optimizer
* - Spline Builder
* - Statistical Learning
*
* Documentation for DROP is Spread Over:
*
* - Main => https://lakshmidrip.github.io/DROP/
* - Wiki => https://github.com/lakshmiDRIP/DROP/wiki
* - GitHub => https://github.com/lakshmiDRIP/DROP
* - Repo Layout Taxonomy => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
* - Javadoc => https://lakshmidrip.github.io/DROP/Javadoc/index.html
* - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
* - Release Versions => https://lakshmidrip.github.io/DROP/version.html
* - Community Credits => https://lakshmidrip.github.io/DROP/credits.html
* - Issues Catalog => https://github.com/lakshmiDRIP/DROP/issues
* - JUnit => https://lakshmidrip.github.io/DROP/junit/index.html
* - Jacoco => https://lakshmidrip.github.io/DROP/jacoco/index.html
*
* Licensed under the Apache License, Version 2.0 (the "License");
* you may not use this file except in compliance with the License.
*
* You may obtain a copy of the License at
* http://www.apache.org/licenses/LICENSE-2.0
*
* Unless required by applicable law or agreed to in writing, software
* distributed under the License is distributed on an "AS IS" BASIS,
* WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
*
* See the License for the specific language governing permissions and
* limitations under the License.
*/
/**
* <i>TadonkiVialMeanVarianceOptimizer</i> builds an Optimal Portfolio Based on MPT Using the Asset Pool
* Statistical Properties with the Specified Lower/Upper Bounds on the Component Assets, along with an Upper
* Bound on Portfolio Cardinality, using the Tadonki and Vial (2004) Heuristic Scheme. The References are:
*
* <br><br>
* <ul>
* <li>
* Chang, T., J., N. Meade, J. E. Beasley, and Y. M. Sharaiha (2000): Heuristics for Cardinality
* Constrained Portfolio Optimization <i>Computers and Operations Research</i> <b>27 (13)</b>
* 1271-1302
* </li>
* <li>
* Chvatal, V. (1973): Edmonds Polytopes in a Hierarchy of Combinatorial Problems <i>Discrete
* Mathematics</i> <b>4 (4)</b> 305-337
* </li>
* <li>
* Jobst, N. J., M. D. Horniman, C. A. Lucas, and G. Mitra (2001): Computational Aspects of
* Alternative Portfolio Selection Models in the Presence of Discrete Asset Choice Constraints
* <i>Quantitative Finance</i> <b>1 (5)</b> 1-13
* </li>
* <li>
* Letchford, A. N. and A. Lodi (2002): Strengthening Chvatal-Gomory Cuts and Gomory Fractional Cuts
* <i>Operations Research Letters</i> <b>30 (2)</b> 74-82
* </li>
* <li>
* Tadonki, C., and J. P. Vial (2004): Portfolio Selection with Cardinality and Bound Constraints
* https://www.cri.ensmp.fr/~tadonki/PaperForWeb/Tadonki_PF.pdf
* </li>
* </ul>
*
* <br><br>
* <ul>
* <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
* <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/AssetAllocationAnalyticsLibrary.md">Asset Allocation Analytics</a></li>
* <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>
* <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>
* </ul>
*
* @author Lakshmi Krishnamurthy
*/
public class TadonkiVialMeanVarianceOptimizer
extends org.drip.portfolioconstruction.allocator.ConstrainedMeanVarianceOptimizer
{
private org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
workingPortfolioAllocationControl (
final java.lang.String[] assetIDArray,
final org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
boundedHoldingsAllocationControl,
final java.util.Set<java.lang.String> pruneAssetIDSet)
{
int prunedAssetIDIndex = 0;
org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
workingPortfolioAllocationControl = null;
java.lang.String[] prunedAssetIDArray =
new java.lang.String[assetIDArray.length - pruneAssetIDSet.size()];
for (int assetIndex = 0;
assetIndex < assetIDArray.length;
++assetIndex)
{
if (null == pruneAssetIDSet ||
!pruneAssetIDSet.contains (
assetIDArray[assetIndex]
)
)
{
prunedAssetIDArray[prunedAssetIDIndex++] = assetIDArray[assetIndex];
}
}
try
{
workingPortfolioAllocationControl =
new org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl (
prunedAssetIDArray,
boundedHoldingsAllocationControl.customRiskUtilitySettings(),
boundedHoldingsAllocationControl.equalityConstraintSettings()
);
for (int prunedAssetIndex = 0;
prunedAssetIndex < prunedAssetIDArray.length;
++prunedAssetIndex)
{
workingPortfolioAllocationControl.addBound (
prunedAssetIDArray[prunedAssetIndex],
0.,
boundedHoldingsAllocationControl.upperBound (
prunedAssetIDArray[prunedAssetIndex]
)
);
}
return workingPortfolioAllocationControl;
}
catch (java.lang.Exception e)
{
e.printStackTrace();
}
return null;
}
private int firstGreedyPruneList (
final org.drip.portfolioconstruction.asset.Portfolio optimalPortfolio,
final org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
boundedHoldingsAllocationControl,
final java.util.Set<java.lang.String> pruneAssetIDSet)
{
int pruneCount = 0;
org.drip.portfolioconstruction.asset.AssetComponent[] assetComponentArray =
optimalPortfolio.assetComponentArray();
try
{
for (int assetIndex = 0;
assetIndex < assetComponentArray.length;
++assetIndex)
{
java.lang.String assetID = assetComponentArray[assetIndex].id();
if (assetComponentArray[assetIndex].amount() <
boundedHoldingsAllocationControl.lowerBound (
assetID
)
)
{
pruneAssetIDSet.add (
assetID
);
++pruneCount;
}
}
}
catch (java.lang.Exception e)
{
e.printStackTrace();
}
return pruneCount;
}
private boolean secondGreedyPruneList (
final org.drip.portfolioconstruction.asset.Portfolio optimalPortfolio,
final org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
parentBoundedPortfolioConstructionParameters,
final java.util.Set<java.lang.String> pruneAssetIDSet,
int pruneCount)
{
java.util.Map<java.lang.Double, java.lang.String> boundsDepartureMap =
new java.util.TreeMap<java.lang.Double, java.lang.String>();
org.drip.portfolioconstruction.asset.AssetComponent[] assetComponentArray =
optimalPortfolio.assetComponentArray();
for (int assetIndex = 0;
assetIndex < assetComponentArray.length;
++assetIndex)
{
java.lang.String assetID = assetComponentArray[assetIndex].id();
try
{
boundsDepartureMap.put (
assetComponentArray[assetIndex].amount() -
parentBoundedPortfolioConstructionParameters.lowerBound (
assetID
),
assetID
);
}
catch (java.lang.Exception e)
{
e.printStackTrace();
return false;
}
}
for (java.util.Map.Entry<java.lang.Double, java.lang.String> boundsDepartureEntry :
boundsDepartureMap.entrySet())
{
if (0 == pruneCount)
{
break;
}
pruneAssetIDSet.add (
boundsDepartureEntry.getValue()
);
--pruneCount;
}
return true;
}
/**
* TadonkiVialMeanVarianceOptimizer Constructor
*
* @param interiorPointBarrierControl Interior Fixed Point Barrier Control Parameters
* @param lineStepEvolutionControl Line Step Evolution Control Parameters
*/
public TadonkiVialMeanVarianceOptimizer (
final org.drip.function.rdtor1solver.InteriorPointBarrierControl interiorPointBarrierControl,
final org.drip.function.rdtor1descent.LineStepEvolutionControl lineStepEvolutionControl)
{
super (
interiorPointBarrierControl,
lineStepEvolutionControl
);
}
@Override public org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation allocate (
final org.drip.portfolioconstruction.allocator.HoldingsAllocationControl
holdingsAllocationControl,
final org.drip.portfolioconstruction.params.AssetUniverseStatisticalProperties
assetUniverseStatisticalProperties)
{
if (!(holdingsAllocationControl instanceof
org.drip.portfolioconstruction.cardinality.UpperBoundHoldingsAllocationControl))
{
return null;
}
org.drip.portfolioconstruction.cardinality.UpperBoundHoldingsAllocationControl
upperBoundHoldingsAllocationControl =
(org.drip.portfolioconstruction.cardinality.UpperBoundHoldingsAllocationControl)
holdingsAllocationControl;
int cardinalityUpperBound = upperBoundHoldingsAllocationControl.cardinalityUpperBound();
java.lang.String[] assetIDArray = upperBoundHoldingsAllocationControl.assetIDArray();
if (cardinalityUpperBound >= assetIDArray.length)
{
return org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation.Standard (
super.allocate (
holdingsAllocationControl,
assetUniverseStatisticalProperties
)
);
}
java.util.Set<java.lang.String> pruneAssetIDSet = new java.util.HashSet<java.lang.String>();
org.drip.portfolioconstruction.allocator.BoundedHoldingsAllocationControl
workingPortfolioAllocationControl = workingPortfolioAllocationControl (
assetIDArray,
upperBoundHoldingsAllocationControl,
pruneAssetIDSet
);
org.drip.portfolioconstruction.allocator.HoldingsAllocation floorPassHoldingsAllocation =
super.allocate (
workingPortfolioAllocationControl,
assetUniverseStatisticalProperties
);
if (null == floorPassHoldingsAllocation)
{
return null;
}
org.drip.portfolioconstruction.allocator.HoldingsAllocation firstPrunePassHoldingsAllocation =
floorPassHoldingsAllocation;
org.drip.portfolioconstruction.asset.Portfolio optimalPortfolio =
firstPrunePassHoldingsAllocation.optimalPortfolio();
while (0 != firstGreedyPruneList (
optimalPortfolio,
upperBoundHoldingsAllocationControl,
pruneAssetIDSet
))
{
workingPortfolioAllocationControl = workingPortfolioAllocationControl (
assetIDArray,
upperBoundHoldingsAllocationControl,
pruneAssetIDSet
);
firstPrunePassHoldingsAllocation = super.allocate (
workingPortfolioAllocationControl,
assetUniverseStatisticalProperties
);
if (null == firstPrunePassHoldingsAllocation)
{
return null;
}
optimalPortfolio = firstPrunePassHoldingsAllocation.optimalPortfolio();
}
if (cardinalityUpperBound >= optimalPortfolio.cardinality())
{
org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation
tadonkiVialHoldingsAllocation =
org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation.Standard (
firstPrunePassHoldingsAllocation
);
return null == tadonkiVialHoldingsAllocation ||
!tadonkiVialHoldingsAllocation.setFloorPassHoldingsAllocation (
floorPassHoldingsAllocation
) || !tadonkiVialHoldingsAllocation.setFirstPrunePassHoldingsAllocation (
firstPrunePassHoldingsAllocation
) ? null : tadonkiVialHoldingsAllocation;
}
secondGreedyPruneList (
optimalPortfolio,
upperBoundHoldingsAllocationControl,
pruneAssetIDSet,
optimalPortfolio.cardinality() - cardinalityUpperBound
);
workingPortfolioAllocationControl = workingPortfolioAllocationControl (
assetIDArray,
upperBoundHoldingsAllocationControl,
pruneAssetIDSet
);
org.drip.portfolioconstruction.allocator.HoldingsAllocation secondPrunePassHoldingsAllocation =
super.allocate (
workingPortfolioAllocationControl,
assetUniverseStatisticalProperties
);
if (null == secondPrunePassHoldingsAllocation)
{
return null;
}
org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation
tadonkiVialHoldingsAllocation =
org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation.Standard (
secondPrunePassHoldingsAllocation
);
return null == tadonkiVialHoldingsAllocation ||
!tadonkiVialHoldingsAllocation.setFloorPassHoldingsAllocation (
floorPassHoldingsAllocation
) || !tadonkiVialHoldingsAllocation.setFirstPrunePassHoldingsAllocation (
firstPrunePassHoldingsAllocation
) || !tadonkiVialHoldingsAllocation.setSecondPrunePassHoldingsAllocation (
secondPrunePassHoldingsAllocation
) ? null : tadonkiVialHoldingsAllocation;
}
}