[GSoC-PortA] Constraints and Objectives Separately in Optimize.Portfolio

Sun Jul 28 20:50:20 CEST 2013

-----Original Message-----
From: gsoc-porta-bounces at lists.r-forge.r-project.org
[mailto:gsoc-porta-bounces at lists.r-forge.r-project.org] On Behalf Of Brian
G. Peterson
Sent: Sunday, July 28, 2013 11:31 AM
To: gsoc-porta at r-forge.wu-wien.ac.at
Subject: Re: [GSoC-PortA] Constraints and Objectives Separately in
Optimize.Portfolio

I think it is worth supporting, and I don't think it will be too hard.

If we allow optimize.portfolio to take portfolio( the default) as well as
constraints and objectives arguments (with default NULL) we can reconstitute
a 'full' portfolio object with constraints and objectives included inside
optimize.portfolio.  I'd suggest that the behavior in this case would be to
append the constraints list/object or objectives list/object to the slots in
the portfolio specification.

I think this is important because while constraints, by definition, usually
require some knowledge of the portfolio, objectives, again by definition,
can often be completely independent of the portfolio specification.

Another related use case which we should begin discussing is the ability to
store multiple constraint and objective sets.  See for example the various
benchmark optimizations Peter and I used in the 2012 R/Finance seminar.

To understand the solution space, it is very common for an investor to
calculate GMV, Markowitz, minETL, risk budget, etc portfolios.  How should
we represent this multiple specification model?  A list of portfolio
specifications?  I don't have an implementation answer right now, I'm just
aware of the user case for supporting it.

[Doug] Indeed, this is crucial.  I did the following with backtest code I
used in the spring - it has a function backtest.weight that generates the
time series of rebalanced weights, and looks like this locally (one of a
bunch of examples):

weight.mvlub <- backtest.weight(ret, t.mw, FUN =
"port.mvlub",blo,bup)$weight

weight.mveq <- backtest.weight(ret, t.mw, port.eq)$weight

So I'm wondering if we can't have FUN = optimize.portfolio, and pass the
arguments for constraints and/or ojbectives as in the case of blo and bup
for each instance of executing backtest.weight?  I will, as we discussed in
Hood River, end up using the PortfolioAnalytics backtest capability.

Best,

Doug 

Regards,

Brian

On 07/28/2013 01:17 PM, Doug Martin wrote:

> Ross,

> 

> Earlier this week Brian and I discussed the desirability of being able 

> to specify constraints and objectives separately in 

> optimize.portfolio, and agreed that this is worth doing.  Brian, please
confirm.

> 

> Thanks,

> 

> Doug

> 

> *From:*Ross Bennett [ <mailto:rossbennett34 at gmail.com>
mailto:rossbennett34 at gmail.com]

> *Sent:* Thursday, July 18, 2013 9:05 AM

> *To:* Doug Martin

> *Cc:* Guy Yollin

> *Subject:* Constraints and Objectives Separately in Optimize.Portfolio

> 

> It is doable, but it won't be an easy fix because 

> optimize.portfolio_v2, constrained_objective_v2, and the subfunctions 

> are designed to operate on a single portfolio object.

> 

> It is possible to change constraints or objectives without recreating 

> the entire portfolio object. You can do this for constraints as well 

> as objectives. See example below, will this suffice?

> 

> # Load necessary packages

> 

> library(PortfolioAnalytics)

> 

> library(ROI)

> 

> library(ROI.plugin.glpk)

> 

> # Load the edhec data

> 

> data(edhec)

> 

> ret <- edhec[, 1:4]

> 

> funds <- colnames(ret)

> 

> # Specify a portfolio object

> 

> pspec <- portfolio.spec(assets=funds)

> 

> # Add constraints

> 

> pspec <- add.constraint(portfolio=pspec, type="weight_sum",

> 

>                          min_sum=0.99, max_sum=1.01, enabled=TRUE)

> 

> pspec <- add.constraint(portfolio=pspec, type="box", min=0.1, max=0.4,

> enabled=TRUE)

> 

> pspec <- add.objective_v2(portfolio=pspec, type="return", name="mean",

> enabled=TRUE)

> 

> opt <- optimize.portfolio_v2(R=ret, portfolio=pspec, 

> optimize_method="ROI")

> 

> opt$weights

> 

> # The box constraints is the 2nd element (indexnum=2) in the 

> constraints list

> 

> # We can update this in place by specifying the indexnum argument in 

> add.constraint

> 

> # The indexnum depends on the order the constraint was added

> 

> pspec$constraints

> 

> # Now say we wanted to change the box constraints to for specific per 

> asset weights

> 

> pspec <- add.constraint(portfolio=pspec, type="box",

> 

>                          min=c(0.1, 0.05, 0.1, 0.15),

> 

>                          max=c(0.4, 0.4, 0.5, 0.45),

> 

>                          indexnum=2, enabled=TRUE)

> 

> opt_new <- optimize.portfolio_v2(R=ret, portfolio=pspec,

> optimize_method="ROI")

> 

> opt_new$weights

> 

> Ross

> 

> On Thu, Jul 18, 2013 at 10:05 AM, Doug Martin <martinrd at comcast.net 

> < <mailto:martinrd at comcast.net> mailto:martinrd at comcast.net>> wrote:

> 

> Do you think you can fairly easily make the fix I suggested concerning 

> having optimize.portfolio take separate constraint and objective 

> arguments, in case the is not already possible?

> 

> Doug

> 

> *From:*Ross Bennett [mailto:rossbennett34 at gmail.com 

> < <mailto:rossbennett34 at gmail.com> mailto:rossbennett34 at gmail.com>]

> *Sent:* Thursday, July 18, 2013 7:24 AM

> 

> 

> *To:* Doug Martin

> *Cc:* Guy Yollin

> *Subject:* Re: Recurrent Problem

> 

> Excellent, glad to hear that fixed the problem.

> 

> Ross

> 

> On Thu, Jul 18, 2013 at 9:16 AM, Doug Martin <martinrd at comcast.net 

> < <mailto:martinrd at comcast.net> mailto:martinrd at comcast.net>> wrote:

> 

> I did as you suggested and that fixed the problem.  Thanks!  Doug

> 

> *From:*Ross Bennett [mailto:rossbennett34 at gmail.com 

> < <mailto:rossbennett34 at gmail.com> mailto:rossbennett34 at gmail.com>]

> *Sent:* Thursday, July 18, 2013 4:18 AM

> *To:* Doug Martin

> *Cc:* Guy Yollin

> *Subject:* Re: Recurrent Problem

> 

> Doug,

> 

> That does seem to be the exact problem you were running into before. I 

> found this discussion about dependencies for the methods package.

>  <http://grokbase.com/t/r/r-devel/1272tva0c2/rd-dependency-problem-for-h>
http://grokbase.com/t/r/r-devel/1272tva0c2/rd-dependency-problem-for-h

> asarg

> 

> I'm not familiar with WinEdt and Stangle, but it might be calling 

> Rscript to run the R code chunks and the methods package doesn't load 

> with Rscript. Can you try putting require(methods) in the first R code 

> chunk?

> 

> Hope that helps,

> 

> Ross

> 

> On Wed, Jul 17, 2013 at 10:14 PM, Doug Martin <martinrd at comcast.net 

> < <mailto:martinrd at comcast.net> mailto:martinrd at comcast.net>> wrote:

> 

> Ross,

> 

> When I run the attached .Rnw file from WinEdt it fails and I get the 

> following _Err.log message:

> 

> Error:  chunk 1

> 

> Error in add.constraint(portfolio = pspec, type = "full_investment", 

> enabled = TRUE) :

> 

>    could not find function "hasArg"

> 

> Execution halted

> 

> I believe this was the same error message I got when I tried to run 

> your Vignette (remember the "could not find function "hasArg".

> 

> If you run Stangle on the .Rnw file and execute it, it runs fine.

> 

> I tried R2.15.1 as well as 3.0.1 and have the same problem.

> 

> Any idea how to fix this problem?

> 

> Doug

> 

> P.S. I am running other R code with Sweave in the latex document for 

> Chapter 1 with no problem.

> 

--

Brian G. Peterson

 <http://braverock.com/brian/> http://braverock.com/brian/

Ph: 773-459-4973

IM: bgpbraverock

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