DaJagannathan2005d.java
package org.drip.sample.blacklitterman;
import org.drip.measure.statistics.MultivariateMoments;
import org.drip.numerical.common.FormatUtil;
import org.drip.numerical.linearalgebra.Matrix;
import org.drip.portfolioconstruction.allocator.*;
import org.drip.portfolioconstruction.asset.AssetComponent;
import org.drip.portfolioconstruction.params.AssetUniverseStatisticalProperties;
import org.drip.service.env.EnvManager;
/*
* -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
*/
/*!
* Copyright (C) 2020 Lakshmi Krishnamurthy
* Copyright (C) 2019 Lakshmi Krishnamurthy
* Copyright (C) 2018 Lakshmi Krishnamurthy
* Copyright (C) 2017 Lakshmi Krishnamurthy
* Copyright (C) 2016 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>DaJagannathan2005d</i> reconciles the Outputs of the Black-Litterman Model Process. The References are:
*
* <br><br>
* <ul>
* <li>
* Da, Z., and R. Jagannathan (2005): https://www3.nd.edu/~zda/TeachingNote_Black-Litterman.pdf
* </li>
* <li>
* He. G., and R. Litterman (1999): <i>The Intuition behind the Black-Litterman Model Portfolios</i>
* <b>Goldman Sachs Asset Management</b>
* </li>
* </ul>
*
* <br><br>
* <ul>
* <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/ProductCore.md">Product Core Module</a></li>
* <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/TransactionCostAnalyticsLibrary.md">Transaction Cost Analytics</a></li>
* <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>
* <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/blacklitterman/README.md">Canonical Black Litterman and Extensions</a></li>
* </ul>
* <br><br>
*
* @author Lakshmi Krishnamurthy
*/
public class DaJagannathan2005d {
public static final void main (
final String[] astArgs)
throws Exception
{
EnvManager.InitEnv (
"",
true
);
String[] astrID = new String[] {
"CORPORATE BOND ",
"LONG TERM GOVVIE ",
"MEDIUM TERM GOVVIE ",
"STRONG BUY EQUITY ",
"BUY EQUITY ",
"NEUTRAL EQUITY ",
"SELL EQUITY ",
"STRONG SELL EQUITY "
};
double[][] aadblHistoricalCovariance = new double[][] {
{0.0050, 0.0047, 0.0024, 0.0036, 0.0023, 0.0031, 0.0032, 0.0030},
{0.0047, 0.0062, 0.0030, 0.0033, 0.0016, 0.0024, 0.0026, 0.0020},
{0.0024, 0.0030, 0.0020, 0.0015, 0.0006, 0.0009, 0.0012, 0.0008},
{0.0036, 0.0033, 0.0015, 0.0468, 0.0354, 0.0371, 0.0379, 0.0414},
{0.0023, 0.0016, 0.0006, 0.0354, 0.0354, 0.0323, 0.0317, 0.0371},
{0.0031, 0.0024, 0.0009, 0.0371, 0.0323, 0.0349, 0.0342, 0.0364},
{0.0032, 0.0026, 0.0012, 0.0379, 0.0317, 0.0342, 0.0432, 0.0384},
{0.0030, 0.0020, 0.0008, 0.0414, 0.0371, 0.0364, 0.0384, 0.0498}
};
double[] adblHistoricalReturn = new double[] {
0.0595,
0.0553,
0.0545,
0.1302,
0.1114,
0.1116,
0.1217,
0.1220
};
double[] adblHistoricalOptimalWeight = new double[] {
0.2154,
-0.5434,
1.1976,
0.0624,
0.0808,
-0.0450,
0.0472,
-0.0149
};
double[] adblMarketWeight = new double[] {
0.1667,
0.0833,
0.0833,
0.2206,
0.1184,
0.1065,
0.0591,
0.1622
};
double[] adblMarketImpliedReturnReconciler = new double[] {
0.0335,
0.0332,
0.0315,
0.0584,
0.0539,
0.0544,
0.0554,
0.0585
};
double dblRiskFreeRate = 0.03;
double[] adblAdjustedHistoricalReturn = new double[adblHistoricalReturn.length];
for (int i = 0; i < adblHistoricalReturn.length; ++i)
adblAdjustedHistoricalReturn[i] = adblHistoricalReturn[i] - dblRiskFreeRate;
HoldingsAllocation op = new QuadraticMeanVarianceOptimizer().allocate (
new HoldingsAllocationControl (
astrID,
CustomRiskUtilitySettings.RiskTolerant (0.078),
EqualityConstraintSettings.FullyInvested()
),
AssetUniverseStatisticalProperties.FromMultivariateMetrics (
MultivariateMoments.Standard (
astrID,
adblAdjustedHistoricalReturn,
aadblHistoricalCovariance
)
)
);
AssetComponent[] aAC = op.optimalPortfolio().assetComponentArray();
double[] adblMarketImpliedReturn = Matrix.Product (
aadblHistoricalCovariance,
adblMarketWeight
);
System.out.println ("\n\t|---------------------------------------------------------------------------------------------||");
System.out.println ("\t| HISTORICAL COVARIANCE MATRIX ||");
System.out.println ("\t|---------------------------------------------------------------------------------------------||");
for (int i = 0; i < astrID.length; ++i) {
String strDump = "\t| " + astrID[i] + " ";
for (int j = 0; j < astrID.length; ++j)
strDump += "|" + FormatUtil.FormatDouble (aadblHistoricalCovariance[i][j], 1, 4, 1.) + " ";
System.out.println (strDump + "||");
}
System.out.println ("\t|---------------------------------------------------------------------------------------------||\n");
System.out.println ("\t||---------------------------------||");
System.out.println ("\t|| MARKET WEIGHT ||");
System.out.println ("\t||---------------------------------||");
for (int i = 0; i < adblMarketWeight.length; ++i)
System.out.println (
"\t|| " + astrID[i] + " => " +
FormatUtil.FormatDouble (adblMarketWeight[i], 2, 2, 100.) + "% ||"
);
System.out.println ("\t||---------------------------------||\n");
System.out.println ("\t||---------------------------------||");
System.out.println ("\t|| HISTORICAL RETURNS ||");
System.out.println ("\t||---------------------------------||");
for (int i = 0; i < adblHistoricalReturn.length; ++i)
System.out.println (
"\t|| " + astrID[i] + " => " +
FormatUtil.FormatDouble (adblHistoricalReturn[i], 2, 2, 100.) + "% ||"
);
System.out.println ("\t||---------------------------------||");
System.out.println ("\n\t||---------------------------------------------||");
System.out.println ("\t|| HISTORICAL PARAM OPTIMAL WEIGHTS ||");
System.out.println ("\t||---------------------------------------------||");
System.out.println ("\t|| ASSET => CALC | PAPER ||");
System.out.println ("\t||---------------------------------------------||");
for (int i = 0; i < aAC.length; ++i)
System.out.println (
"\t|| " + astrID[i] + " => " +
FormatUtil.FormatDouble (adblHistoricalOptimalWeight[i], 3, 2, 100.) + "% | " +
FormatUtil.FormatDouble (aAC[i].amount(), 3, 2, 100.) + "% ||"
);
System.out.println ("\t||---------------------------------------------||");
System.out.println ("\n\t||----------------------------------------||");
System.out.println ("\t|| MARKET IMPLIED RETURNS ||");
System.out.println ("\t||----------------------------------------||");
System.out.println ("\t|| ASSET => CALC | PAPER ||");
System.out.println ("\t||----------------------------------------||");
for (int i = 0; i < aAC.length; ++i)
System.out.println (
"\t|| " + astrID[i] + " => " +
FormatUtil.FormatDouble (adblMarketImpliedReturn[i] + dblRiskFreeRate, 1, 2, 100.) + "% |" +
FormatUtil.FormatDouble (adblMarketImpliedReturnReconciler[i], 1, 2, 100.) + "% ||"
);
System.out.println ("\t||----------------------------------------||\n");
EnvManager.TerminateEnv();
}
}