HeuristicCardinalityBoundOptimizer15.java
package org.drip.sample.tadonkivial;
import org.drip.function.rdtor1descent.LineStepEvolutionControl;
import org.drip.function.rdtor1solver.InteriorPointBarrierControl;
import org.drip.measure.statistics.MultivariateMoments;
import org.drip.numerical.common.FormatUtil;
import org.drip.portfolioconstruction.allocator.*;
import org.drip.portfolioconstruction.asset.Portfolio;
import org.drip.portfolioconstruction.cardinality.UpperBoundHoldingsAllocationControl;
import org.drip.portfolioconstruction.cardinality.TadonkiVialHoldingsAllocation;
import org.drip.portfolioconstruction.cardinality.TadonkiVialMeanVarianceOptimizer;
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
*
* 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>HeuristicCardinalityBoundOptimizer15</i> demonstrates the Setup and Execution of a Cardinality Bounded
* Portfolio Allocator with Asset Level Bounds using the Tadonki-Vial (2004) Heuristics. 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/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/assetallocationexcel/README.md">Asset-Bound Allocator Excel Reconciliation</a></li>
* </ul>
* <br><br>
*
* @author Lakshmi Krishnamurthy
*/
public class HeuristicCardinalityBoundOptimizer15
{
private static final void PrintPortfolio (
final String header,
final HoldingsAllocation holdingsAllocation)
{
if (null == holdingsAllocation)
{
return;
}
Portfolio optimalPortfolio = holdingsAllocation.optimalPortfolio();
System.out.println ("\t|------------------||");
System.out.println ("\t| " + header);
System.out.println ("\t|------------------||");
System.out.println ("\t| ASSET | DROP ||");
System.out.println ("\t|------------------||");
for (int assetIndex = 0;
assetIndex < optimalPortfolio.assetComponentArray().length;
++assetIndex)
{
System.out.println (
"\t| " + optimalPortfolio.assetComponentArray()[assetIndex].id() + " |" +
FormatUtil.FormatDouble (
optimalPortfolio.assetComponentArray()[assetIndex].amount(), 2, 4, 100.
) + "% ||"
);
}
System.out.println ("\t|------------------||");
System.out.println ("\t| Cardinality => " + optimalPortfolio.cardinality());
System.out.println ("\t|------------------||");
System.out.println();
}
public static final void main (
final String[] argumentArray)
throws Exception
{
EnvManager.InitEnv (
"",
true
);
int cardinalityUpperBound = 4;
String[] assetIDArray = new String[]
{
"TOK",
"EWJ",
"HYG",
"LQD",
"EMD",
"GSG",
"BWX"
};
double[] assetHoldingsLowerBoundArray = new double[]
{
0.05,
0.05,
0.05,
0.05,
0.00,
0.00,
0.00
};
double[] assetHoldingsUpperBoundArray = new double[]
{
0.50,
0.40,
0.30,
0.30,
0.35,
0.15,
0.50
};
double[] expectedAssetReturnsArray = new double[]
{
0.1100,
0.1000,
0.0800,
0.0500,
0.0600,
0.0700,
0.0200
};
double portfolioDesignReturn = 0.08200;
double[][] assetReturnsCovarianceMatrix = new double[][]
{
{0.002733 * 12, 0.002083 * 12, 0.001593 * 12, 0.000488 * 12, 0.001172 * 12, 0.002312 * 12, 0.000710 * 12},
{0.002083 * 12, 0.002768 * 12, 0.001302 * 12, 0.000457 * 12, 0.001105 * 12, 0.001647 * 12, 0.000563 * 12},
{0.001593 * 12, 0.001302 * 12, 0.001463 * 12, 0.000639 * 12, 0.001050 * 12, 0.001110 * 12, 0.000519 * 12},
{0.000488 * 12, 0.000457 * 12, 0.000639 * 12, 0.000608 * 12, 0.000663 * 12, 0.000042 * 12, 0.000370 * 12},
{0.001172 * 12, 0.001105 * 12, 0.001050 * 12, 0.000663 * 12, 0.001389 * 12, 0.000825 * 12, 0.000661 * 12},
{0.002312 * 12, 0.001647 * 12, 0.001110 * 12, 0.000042 * 12, 0.000825 * 12, 0.005211 * 12, 0.000749 * 12},
{0.000710 * 12, 0.000563 * 12, 0.000519 * 12, 0.000370 * 12, 0.000661 * 12, 0.000749 * 12, 0.000703 * 12}
};
AssetUniverseStatisticalProperties assetUniverseStatisticalProperties =
AssetUniverseStatisticalProperties.FromMultivariateMetrics (
MultivariateMoments.Standard (
assetIDArray,
expectedAssetReturnsArray,
assetReturnsCovarianceMatrix
)
);
System.out.println ("\t|-------------------||");
System.out.println ("\t| ASSET BOUNDS ||");
System.out.println ("\t|-------------------||");
for (int assetIndex = 0;
assetIndex < assetIDArray.length;
++assetIndex)
{
System.out.println (
"\t| " + assetIDArray[assetIndex] + " | " +
FormatUtil.FormatDouble (assetHoldingsLowerBoundArray[assetIndex], 2, 0, 100.) + "% | " +
FormatUtil.FormatDouble (assetHoldingsUpperBoundArray[assetIndex], 2, 0, 100.) + "% ||"
);
}
System.out.println ("\t|-------------------||");
UpperBoundHoldingsAllocationControl boundedCardinalityParameters =
new UpperBoundHoldingsAllocationControl (
assetIDArray,
CustomRiskUtilitySettings.VarianceMinimizer(),
new EqualityConstraintSettings (
EqualityConstraintSettings.FULLY_INVESTED_CONSTRAINT |
EqualityConstraintSettings.RETURNS_CONSTRAINT,
portfolioDesignReturn
),
cardinalityUpperBound
);
for (int assetIndex = 0;
assetIndex < assetIDArray.length;
++assetIndex)
{
boundedCardinalityParameters.addBound (
assetIDArray[assetIndex],
assetHoldingsLowerBoundArray[assetIndex],
assetHoldingsUpperBoundArray[assetIndex]
);
}
TadonkiVialHoldingsAllocation tadonkiVialHoldingsAllocation = new TadonkiVialMeanVarianceOptimizer (
InteriorPointBarrierControl.Standard(),
LineStepEvolutionControl.NocedalWrightStrongWolfe (
false
)
).allocate (
boundedCardinalityParameters,
assetUniverseStatisticalProperties
);
PrintPortfolio (
"FLOOR PASS",
tadonkiVialHoldingsAllocation.floorPassHoldingsAllocation()
);
PrintPortfolio (
"FIRST GREEDY PRUNE PASS",
tadonkiVialHoldingsAllocation.firstPrunePassHoldingsAllocation()
);
PrintPortfolio (
"SECOND GREEDY PRUNE PASS",
tadonkiVialHoldingsAllocation.secondPrunePassHoldingsAllocation()
);
EnvManager.TerminateEnv();
}
}