DualConstrainedVariateConvergence.java

  1. package org.drip.sample.assetallocation;

  3. import org.drip.function.rdtor1descent.LineStepEvolutionControl;
  4. import org.drip.function.rdtor1solver.*;
  5. import org.drip.measure.statistics.MultivariateMoments;
  6. import org.drip.numerical.common.FormatUtil;
  7. import org.drip.portfolioconstruction.allocator.*;
  8. import org.drip.portfolioconstruction.params.AssetUniverseStatisticalProperties;
  9. import org.drip.service.env.EnvManager;

  11. /*
  12.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  13.  */

  15. /*!
  16.  * Copyright (C) 2020 Lakshmi Krishnamurthy
  17.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  18.  * Copyright (C) 2018 Lakshmi Krishnamurthy
  19.  * Copyright (C) 2017 Lakshmi Krishnamurthy
  20.  * Copyright (C) 2016 Lakshmi Krishnamurthy
  21.  * 
  22.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  23.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  24.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  25.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  26.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  27.  *      and computational support.
  28.  *  
  29.  *      https://lakshmidrip.github.io/DROP/
  30.  *  
  31.  *  DROP is composed of three modules:
  32.  *  
  33.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  34.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  35.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  36.  * 
  37.  *  DROP Product Core implements libraries for the following:
  38.  *  - Fixed Income Analytics
  39.  *  - Loan Analytics
  40.  *  - Transaction Cost Analytics
  41.  * 
  42.  *  DROP Portfolio Core implements libraries for the following:
  43.  *  - Asset Allocation Analytics
  44.  *  - Asset Liability Management Analytics
  45.  *  - Capital Estimation Analytics
  46.  *  - Exposure Analytics
  47.  *  - Margin Analytics
  48.  *  - XVA Analytics
  49.  * 
  50.  *  DROP Computational Core implements libraries for the following:
  51.  *  - Algorithm Support
  52.  *  - Computation Support
  53.  *  - Function Analysis
  54.  *  - Model Validation
  55.  *  - Numerical Analysis
  56.  *  - Numerical Optimizer
  57.  *  - Spline Builder
  58.  *  - Statistical Learning
  59.  * 
  60.  *  Documentation for DROP is Spread Over:
  61.  * 
  62.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  63.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  64.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  65.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  66.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  67.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  68.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  69.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  70.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  71.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  72.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  73.  * 
  74.  *  Licensed under the Apache License, Version 2.0 (the "License");
  75.  *      you may not use this file except in compliance with the License.
  76.  *   
  77.  *  You may obtain a copy of the License at
  78.  *      http://www.apache.org/licenses/LICENSE-2.0
  79.  *  
  80.  *  Unless required by applicable law or agreed to in writing, software
  81.  *      distributed under the License is distributed on an "AS IS" BASIS,
  82.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  83.  *  
  84.  *  See the License for the specific language governing permissions and
  85.  *      limitations under the License.
  86.  */

  88. /**
  89.  * <i>DualConstrainedVariateConvergence</i> demonstrates the Sequential Convergence of the Constrained
  90.  * Optimal R<sup>d</sup> Space.
  91.  *  
  92.  * <br><br>
  93.  *  <ul>
  94.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
  95.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/AssetAllocationAnalyticsLibrary.md">Asset Allocation Analytics</a></li>
  96.  *      <li><b>Project</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/README.md">DROP API Construction and Usage</a></li>
  97.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/assetallocation/README.md">MVO Based Constrained Optimal Allocator</a></li>
  98.  *  </ul>
  99.  * <br><br>
  100.  *
  101.  * @author Lakshmi Krishnamurthy
  102.  */

  104. public class DualConstrainedVariateConvergence
  105. {

  107.     public static final void main (
  108.         final String[] argumentArray)
  109.         throws Exception
  110.     {
  111.         EnvManager.InitEnv (
  112.             "",
  113.             true
  114.         );

  116.         VariateInequalityConstraintMultiplier.s_preBoundBlog = true;
  117.         VariateInequalityConstraintMultiplier.s_postBoundBlog = true;

  119.         String[] assetIDArray = new String[]
  120.         {
  121.             "TOK",
  122.             "EWJ",
  123.             "HYG",
  124.             "LQD",
  125.             "EMD",
  126.             "GSG",
  127.             "BWX"
  128.         };
  129.         double[] assetHoldingsLowerBoundArray = new double[]
  130.         {
  131.             0.05,
  132.             0.04,
  133.             0.06,
  134.             0.03,
  135.             0.03,
  136.             0.03,
  137.             0.13
  138.         };
  139.         double[] assetHoldingsUpperBoundArray = new double[]
  140.         {
  141.             0.43,
  142.             0.27,
  143.             0.44,
  144.             0.32,
  145.             0.66,
  146.             0.32,
  147.             0.88
  148.         };
  149.         double[] assetExpectedReturnsArray = new double[]
  150.         {
  151.             0.1300,
  152.             0.0700,
  153.             0.0400,
  154.             0.0300,
  155.             0.0800,
  156.             0.1000,
  157.             0.0100
  158.         };
  159.         double portfolioDesignReturn = 0.06000;
  160.         double[][] assetReturnsCovarianceMatrix = new double[][]
  161.         {
  162.             {0.002733 * 12, 0.002083 * 12, 0.001593 * 12, 0.000488 * 12, 0.001172 * 12, 0.002312 * 12, 0.000710 * 12},
  163.             {0.002083 * 12, 0.002768 * 12, 0.001302 * 12, 0.000457 * 12, 0.001105 * 12, 0.001647 * 12, 0.000563 * 12},
  164.             {0.001593 * 12, 0.001302 * 12, 0.001463 * 12, 0.000639 * 12, 0.001050 * 12, 0.001110 * 12, 0.000519 * 12},
  165.             {0.000488 * 12, 0.000457 * 12, 0.000639 * 12, 0.000608 * 12, 0.000663 * 12, 0.000042 * 12, 0.000370 * 12},
  166.             {0.001172 * 12, 0.001105 * 12, 0.001050 * 12, 0.000663 * 12, 0.001389 * 12, 0.000825 * 12, 0.000661 * 12},
  167.             {0.002312 * 12, 0.001647 * 12, 0.001110 * 12, 0.000042 * 12, 0.000825 * 12, 0.005211 * 12, 0.000749 * 12},
  168.             {0.000710 * 12, 0.000563 * 12, 0.000519 * 12, 0.000370 * 12, 0.000661 * 12, 0.000749 * 12, 0.000703 * 12}
  169.         };

  171.         AssetUniverseStatisticalProperties assetUniverseStatisticalProperties =
  172.             AssetUniverseStatisticalProperties.FromMultivariateMetrics (
  173.                 MultivariateMoments.Standard (
  174.                     assetIDArray,
  175.                     assetExpectedReturnsArray,
  176.                     assetReturnsCovarianceMatrix
  177.                 )
  178.             );

  180.         double[][] covarianceMatrix = assetUniverseStatisticalProperties.covariance (
  181.             assetIDArray
  182.         );

  184.         System.out.println ("\n\n\t|------------------------------------------------------------------------------------------------||");

  186.         System.out.println ("\t|                                  CROSS ASSET COVARIANCE MATRIX                                 ||");

  188.         System.out.println ("\t|------------------------------------------------------------------------------------------------||");

  190.         String header = "\t|     |";

  192.         for (int assetIndex = 0;
  193.             assetIndex < assetIDArray.length;
  194.             ++assetIndex)
  195.         {
  196.             header += "    " + assetIDArray[assetIndex] + "     |";
  197.         }

  199.         System.out.println (header + "|");

  201.         System.out.println ("\t|------------------------------------------------------------------------------------------------||");

  203.         for (int assetIndexI = 0;
  204.             assetIndexI < assetIDArray.length;
  205.             ++assetIndexI)
  206.         {
  207.             String dump = "\t| " + assetIDArray[assetIndexI] + " ";

  209.             for (int assetIndexJ = 0;
  210.                 assetIndexJ < assetIDArray.length;
  211.                 ++assetIndexJ)
  212.             {
  213.                 dump += "|" + FormatUtil.FormatDouble (
  214.                     covarianceMatrix[assetIndexI][assetIndexJ], 1, 8, 1.
  215.                 ) + " ";
  216.             }

  218.             System.out.println (dump + "||");
  219.         }

  221.         System.out.println ("\t|------------------------------------------------------------------------------------------------||\n\n");

  223.         System.out.println ("\t|-------------------||");

  225.         System.out.println ("\t|   ASSET BOUNDS    ||");

  227.         System.out.println ("\t|-------------------||");

  229.         for (int assetIndex = 0;
  230.             assetIndex < assetIDArray.length;
  231.             ++assetIndex)
  232.         {
  233.             System.out.println (
  234.                 "\t| " + assetIDArray[assetIndex] + " | " +
  235.                 FormatUtil.FormatDouble (assetHoldingsLowerBoundArray[assetIndex], 2, 0, 100.) + "% | " +
  236.                 FormatUtil.FormatDouble (assetHoldingsUpperBoundArray[assetIndex], 2, 0, 100.) + "% ||"
  237.             );
  238.         }

  240.         System.out.println ("\t|-------------------||\n\n");

  242.         InteriorPointBarrierControl interiorPointBarrierControl = InteriorPointBarrierControl.Standard();

  244.         System.out.println ("\t|--------------------------------------------||");

  246.         System.out.println ("\t|  INTERIOR POINT METHOD BARRIER PARAMETERS  ||");

  248.         System.out.println ("\t|--------------------------------------------||");

  250.         System.out.println (
  251.             "\t|    Barrier Decay Velocity        : " + 1. / interiorPointBarrierControl.decayVelocity()
  252.         );

  254.         System.out.println (
  255.             "\t|    Barrier Decay Steps           : " + interiorPointBarrierControl.decayStepCount()
  256.         );

  258.         System.out.println (
  259.             "\t|    Initial Barrier Strength      : " + interiorPointBarrierControl.initialStrength()
  260.         );

  262.         System.out.println (
  263.             "\t|    Barrier Convergence Tolerance : " + interiorPointBarrierControl.relativeTolerance()
  264.         );

  266.         System.out.println ("\t|--------------------------------------------||\n\n");

  268.         BoundedHoldingsAllocationControl boundedPortfolioConstructionParameters =
  269.             new BoundedHoldingsAllocationControl (
  270.                 assetIDArray,
  271.                 CustomRiskUtilitySettings.VarianceMinimizer(),
  272.                 new EqualityConstraintSettings (
  273.                     EqualityConstraintSettings.FULLY_INVESTED_CONSTRAINT |
  274.                         EqualityConstraintSettings.RETURNS_CONSTRAINT,
  275.                     portfolioDesignReturn
  276.                 )
  277.             );

  279.         for (int assetIndex = 0;
  280.             assetIndex < assetIDArray.length;
  281.             ++assetIndex)
  282.         {
  283.             boundedPortfolioConstructionParameters.addBound (
  284.                 assetIDArray[assetIndex],
  285.                 assetHoldingsLowerBoundArray[assetIndex],
  286.                 assetHoldingsUpperBoundArray[assetIndex]
  287.             );
  288.         }

  290.         new ConstrainedMeanVarianceOptimizer (
  291.             interiorPointBarrierControl,
  292.             LineStepEvolutionControl.NocedalWrightStrongWolfe (
  293.                 false
  294.             )
  295.         ).allocate (
  296.             boundedPortfolioConstructionParameters,
  297.             assetUniverseStatisticalProperties
  298.         );

  300.         EnvManager.TerminateEnv();
  301.     }
  302. }
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