HeuristicCardinalityBoundOptimizer01.java

  1. package org.drip.sample.tadonkivial;

  3. import org.drip.function.rdtor1descent.LineStepEvolutionControl;
  4. import org.drip.function.rdtor1solver.InteriorPointBarrierControl;
  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.asset.Portfolio;
  9. import org.drip.portfolioconstruction.cardinality.UpperBoundHoldingsAllocationControl;
  10. import org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation;
  11. import org.drip.portfolioconstruction.cardinality.TadonkiVialMeanVarianceOptimizer;
  12. import org.drip.portfolioconstruction.params.AssetUniverseStatisticalProperties;
  13. import org.drip.service.env.EnvManager;

  15. /*
  16.  * -*- mode: java; tab-width: 4; indent-tabs-mode: nil; c-basic-offset: 4 -*-
  17.  */

  19. /*!
  20.  * Copyright (C) 2020 Lakshmi Krishnamurthy
  21.  * Copyright (C) 2019 Lakshmi Krishnamurthy
  22.  * 
  23.  *  This file is part of DROP, an open-source library targeting analytics/risk, transaction cost analytics,
  24.  *      asset liability management analytics, capital, exposure, and margin analytics, valuation adjustment
  25.  *      analytics, and portfolio construction analytics within and across fixed income, credit, commodity,
  26.  *      equity, FX, and structured products. It also includes auxiliary libraries for algorithm support,
  27.  *      numerical analysis, numerical optimization, spline builder, model validation, statistical learning,
  28.  *      and computational support.
  29.  *  
  30.  *      https://lakshmidrip.github.io/DROP/
  31.  *  
  32.  *  DROP is composed of three modules:
  33.  *  
  34.  *  - DROP Product Core - https://lakshmidrip.github.io/DROP-Product-Core/
  35.  *  - DROP Portfolio Core - https://lakshmidrip.github.io/DROP-Portfolio-Core/
  36.  *  - DROP Computational Core - https://lakshmidrip.github.io/DROP-Computational-Core/
  37.  * 
  38.  *  DROP Product Core implements libraries for the following:
  39.  *  - Fixed Income Analytics
  40.  *  - Loan Analytics
  41.  *  - Transaction Cost Analytics
  42.  * 
  43.  *  DROP Portfolio Core implements libraries for the following:
  44.  *  - Asset Allocation Analytics
  45.  *  - Asset Liability Management Analytics
  46.  *  - Capital Estimation Analytics
  47.  *  - Exposure Analytics
  48.  *  - Margin Analytics
  49.  *  - XVA Analytics
  50.  * 
  51.  *  DROP Computational Core implements libraries for the following:
  52.  *  - Algorithm Support
  53.  *  - Computation Support
  54.  *  - Function Analysis
  55.  *  - Model Validation
  56.  *  - Numerical Analysis
  57.  *  - Numerical Optimizer
  58.  *  - Spline Builder
  59.  *  - Statistical Learning
  60.  * 
  61.  *  Documentation for DROP is Spread Over:
  62.  * 
  63.  *  - Main                     => https://lakshmidrip.github.io/DROP/
  64.  *  - Wiki                     => https://github.com/lakshmiDRIP/DROP/wiki
  65.  *  - GitHub                   => https://github.com/lakshmiDRIP/DROP
  66.  *  - Repo Layout Taxonomy     => https://github.com/lakshmiDRIP/DROP/blob/master/Taxonomy.md
  67.  *  - Javadoc                  => https://lakshmidrip.github.io/DROP/Javadoc/index.html
  68.  *  - Technical Specifications => https://github.com/lakshmiDRIP/DROP/tree/master/Docs/Internal
  69.  *  - Release Versions         => https://lakshmidrip.github.io/DROP/version.html
  70.  *  - Community Credits        => https://lakshmidrip.github.io/DROP/credits.html
  71.  *  - Issues Catalog           => https://github.com/lakshmiDRIP/DROP/issues
  72.  *  - JUnit                    => https://lakshmidrip.github.io/DROP/junit/index.html
  73.  *  - Jacoco                   => https://lakshmidrip.github.io/DROP/jacoco/index.html
  74.  * 
  75.  *  Licensed under the Apache License, Version 2.0 (the "License");
  76.  *      you may not use this file except in compliance with the License.
  77.  *   
  78.  *  You may obtain a copy of the License at
  79.  *      http://www.apache.org/licenses/LICENSE-2.0
  80.  *  
  81.  *  Unless required by applicable law or agreed to in writing, software
  82.  *      distributed under the License is distributed on an "AS IS" BASIS,
  83.  *      WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
  84.  *  
  85.  *  See the License for the specific language governing permissions and
  86.  *      limitations under the License.
  87.  */

  89. /**
  90.  * <i>HeuristicCardinalityBoundOptimizer01</i> demonstrates the Setup and Execution of a Cardinality Bounded
  91.  *  Portfolio Allocator with Asset Level Bounds using the Tadonki-Vial (2004) Heuristics. The References are:
  92.  * 
  93.  * <br><br>
  94.  *  <ul>
  95.  *      <li>
  96.  *          Chang, T., J., N. Meade, J. E. Beasley, and Y. M. Sharaiha (2000): Heuristics for Cardinality
  97.  *              Constrained Portfolio Optimization <i>Computers and Operations Research</i> <b>27 (13)</b>
  98.  *              1271-1302
  99.  *      </li>
  100.  *      <li>
  101.  *          Chvatal, V. (1973): Edmonds Polytopes in a Hierarchy of Combinatorial Problems <i>Discrete
  102.  *              Mathematics</i> <b>4 (4)</b> 305-337
  103.  *      </li>
  104.  *      <li>
  105.  *          Jobst, N. J., M. D. Horniman, C. A. Lucas, and G. Mitra (2001): Computational Aspects of
  106.  *              Alternative Portfolio Selection Models in the Presence of Discrete Asset Choice Constraints
  107.  *              <i>Quantitative Finance</i> <b>1 (5)</b> 1-13
  108.  *      </li>
  109.  *      <li>
  110.  *          Letchford, A. N. and A. Lodi (2002): Strengthening Chvatal-Gomory Cuts and Gomory Fractional Cuts
  111.  *              <i>Operations Research Letters</i> <b>30 (2)</b> 74-82
  112.  *      </li>
  113.  *      <li>
  114.  *          Tadonki, C., and J. P. Vial (2004): Portfolio Selection with Cardinality and Bound Constraints
  115.  *              https://www.cri.ensmp.fr/~tadonki/PaperForWeb/Tadonki_PF.pdf
  116.  *      </li>
  117.  *  </ul>
  118.  *  
  119.  * <br><br>
  120.  *  <ul>
  121.  *      <li><b>Module </b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/PortfolioCore.md">Portfolio Core Module</a></li>
  122.  *      <li><b>Library</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/AssetAllocationAnalyticsLibrary.md">Asset Allocation Analytics</a></li>
  123.  *      <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>
  124.  *      <li><b>Package</b> = <a href = "https://github.com/lakshmiDRIP/DROP/tree/master/src/main/java/org/drip/sample/assetallocationexcel/README.md">Asset-Bound Allocator Excel Reconciliation</a></li>
  125.  *  </ul>
  126.  * <br><br>
  127.  *
  128.  * @author Lakshmi Krishnamurthy
  129.  */

  131. public class HeuristicCardinalityBoundOptimizer01
  132. {

  134.     private static final void PrintPortfolio (
  135.         final String header,
  136.         final HoldingsAllocation holdingsAllocation)
  137.     {
  138.         if (null == holdingsAllocation)
  139.         {
  140.             return;
  141.         }

  143.         Portfolio optimalPortfolio = holdingsAllocation.optimalPortfolio();

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

  147.         System.out.println ("\t|  " + header);

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

  151.         System.out.println ("\t| ASSET |   DROP   ||");

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

  155.         for (int assetIndex = 0;
  156.             assetIndex < optimalPortfolio.assetComponentArray().length;
  157.             ++assetIndex)
  158.         {
  159.             System.out.println (
  160.                 "\t|  " + optimalPortfolio.assetComponentArray()[assetIndex].id() + "  |" +
  161.                 FormatUtil.FormatDouble (
  162.                     optimalPortfolio.assetComponentArray()[assetIndex].amount(), 2, 4, 100.
  163.                 ) + "% ||"
  164.             );
  165.         }

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

  169.         System.out.println ("\t| Cardinality => " + optimalPortfolio.cardinality());

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

  173.         System.out.println();
  174.     }

  176.     public static final void main (
  177.         final String[] argumentArray)
  178.         throws Exception
  179.     {
  180.         EnvManager.InitEnv (
  181.             "",
  182.             true
  183.         );

  185.         int cardinalityUpperBound = 4;
  186.         String[] assetIDArray = new String[]
  187.         {
  188.             "TOK",
  189.             "EWJ",
  190.             "HYG",
  191.             "LQD",
  192.             "EMD",
  193.             "GSG",
  194.             "BWX"
  195.         };
  196.         double[] assetHoldingsLowerBoundArray = new double[]
  197.         {
  198.             0.05,
  199.             0.05,
  200.             0.05,
  201.             0.10,
  202.             0.05,
  203.             0.05,
  204.             0.03
  205.         };
  206.         double[] assetHoldingsUpperBoundArray = new double[]
  207.         {
  208.             0.40,
  209.             0.40,
  210.             0.30,
  211.             0.60,
  212.             0.35,
  213.             0.15,
  214.             0.50
  215.         };
  216.         double[] expectedAssetReturnsArray = new double[]
  217.         {
  218.             0.008355,
  219.             0.007207,
  220.             0.006279,
  221.             0.002466,
  222.             0.004472,
  223.             0.006821,
  224.             0.001570
  225.         };
  226.         double portfolioDesignReturn = 0.005497;
  227.         double[][] assetReturnsCovarianceMatrix = new double[][]
  228.         {
  229.             {0.002733, 0.002083, 0.001593, 0.000488, 0.001172, 0.002312, 0.000710},
  230.             {0.002083, 0.002768, 0.001302, 0.000457, 0.001105, 0.001647, 0.000563},
  231.             {0.001593, 0.001302, 0.001463, 0.000639, 0.001050, 0.001110, 0.000519},
  232.             {0.000488, 0.000457, 0.000639, 0.000608, 0.000663, 0.000042, 0.000370},
  233.             {0.001172, 0.001105, 0.001050, 0.000663, 0.001389, 0.000825, 0.000661},
  234.             {0.002312, 0.001647, 0.001110, 0.000042, 0.000825, 0.005211, 0.000749},
  235.             {0.000710, 0.000563, 0.000519, 0.000370, 0.000661, 0.000749, 0.000703}
  236.         };

  238.         AssetUniverseStatisticalProperties assetUniverseStatisticalProperties =
  239.             AssetUniverseStatisticalProperties.FromMultivariateMetrics (
  240.                 MultivariateMoments.Standard (
  241.                     assetIDArray,
  242.                     expectedAssetReturnsArray,
  243.                     assetReturnsCovarianceMatrix
  244.                 )
  245.             );

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

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

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

  253.         for (int assetIndex = 0;
  254.             assetIndex < assetIDArray.length;
  255.             ++assetIndex)
  256.         {
  257.             System.out.println (
  258.                 "\t| " + assetIDArray[assetIndex] + " | " +
  259.                 FormatUtil.FormatDouble (assetHoldingsLowerBoundArray[assetIndex], 2, 0, 100.) + "% | " +
  260.                 FormatUtil.FormatDouble (assetHoldingsUpperBoundArray[assetIndex], 2, 0, 100.) + "% ||"
  261.             );
  262.         }

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

  266.         UpperBoundHoldingsAllocationControl boundedCardinalityParameters =
  267.             new UpperBoundHoldingsAllocationControl (
  268.                 assetIDArray,
  269.                 CustomRiskUtilitySettings.VarianceMinimizer(),
  270.                 new EqualityConstraintSettings (
  271.                     EqualityConstraintSettings.FULLY_INVESTED_CONSTRAINT |
  272.                         EqualityConstraintSettings.RETURNS_CONSTRAINT,
  273.                     portfolioDesignReturn
  274.                 ),
  275.                 cardinalityUpperBound
  276.             );

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

  289.         TadonkiVialHoldingsAllocation tadonkiVialHoldingsAllocation = new TadonkiVialMeanVarianceOptimizer (
  290.             InteriorPointBarrierControl.Standard(),
  291.             LineStepEvolutionControl.NocedalWrightStrongWolfe (
  292.                 false
  293.             )
  294.         ).allocate (
  295.             boundedCardinalityParameters,
  296.             assetUniverseStatisticalProperties
  297.         );

  299.         PrintPortfolio (
  300.             "FLOOR PASS",
  301.             tadonkiVialHoldingsAllocation.floorPassHoldingsAllocation()
  302.         );

  304.         PrintPortfolio (
  305.             "FIRST GREEDY PRUNE PASS",
  306.             tadonkiVialHoldingsAllocation.firstPrunePassHoldingsAllocation()
  307.         );

  309.         PrintPortfolio (
  310.             "SECOND GREEDY PRUNE PASS",
  311.             tadonkiVialHoldingsAllocation.secondPrunePassHoldingsAllocation()
  312.         );

  314.         EnvManager.TerminateEnv();
  315.     }
  316. }
Created with JaCoCo 0.7.9.201702052155