[GSoC-PortA] Quick question on multipliers and constrained_objective()

Mon Jun 24 03:35:08 CEST 2013

Professor Martin,

I look forward to your feedback after you have a chance to run the
testing_ROI_Martin.R script.

See a few additional comments below.

Ross Bennett

On Sun, Jun 23, 2013 at 7:28 PM, Doug Martin <martinrd at comcast.net> wrote:

> Ross and others,****
>
> ** **
>
> I will check this out.  Meanwhile I offer a few comments below.****
>
> ** **
>
> Thanks,****
>
> Doug****
>
> ** **
>
> ** **
>
> *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 *Ross
> Bennett
> *Sent:* Saturday, June 22, 2013 10:13 AM
> *To:* PortfolioAnalytics
>
> *Subject:* Re: [GSoC-PortA] Quick question on multipliers and
> constrained_objective()****
>
> ** **
>
> Professor Martin and others,****
>
> ** **
>
> I just added a testing script to match your examples in your 1. theory
> review weights constrained mvo v5.pdf slides (attached). See committed
> revision 2402 with sandbox/testing_ROI_Martin.R. Currently, the user just
> chooses optimize_method="ROI" and optimize.portfolio() takes care of
> choosing the ROI plugin for solve.QP or Rglpk_solve_LP based on the
> objectives specified. ****
>
> *[Doug] I guess you mean that rev. 2402 still requires use of the
> argument optimize_method=”ROI”.  I’m wondering if my earlier assumption
> from last summer that the code could be changed so that we don’t have to
> specify ROI in an argument.  *
>
> *Brian, what is your opinion on this?*****
>
> ** **
>
> If "var" is specified as the only objective, then the plug-in selected is
> quadprog for solve.QP to minimize variance.****
>
> *[Doug] I think we need to specify the solver independently of the use of
> “var”, with a default choice which could be solve.QP for now.*
>
> *I am not very confident about the quality of solve.QP.  Maybe Brian
> knows if there are any test-bed benchmarks on it?  In addition*
>
> *solve.QP lacks the following:  (a) The ability to provide an initial set
> of weights, (b) Lack of a “verbose =” (or “trace =”) with default F.*****
>
> ** **
>
> If "var" and "mean" are specified as objectives, then the plug-in selected
> is quadprog for solve.QP to maximize quadratic utility.****
>
> *[Doug] This is a way to go.  But maybe we want to be more explicit and
> clear by using “quadutil” or “qu” or some such?*
>
[Ross] Brian mentioned "templated" objective functions in an earlier email
and I think this could be part of doing that and should be fairly easy to
implement.

> ****
>
> ** **
>
> If "mean" is specified as the only objective, then the plug-in selected is
> glpk for Rglpk_solve_LP to maximize return.****
>
> *[Doug] Good*****
>
> ** **
>
> If "CVaR" is specified as the only objective, then the plug-in selected is
> glpk for Rglpk_solve_LP to minimize sample CVaR.****
>
> *[Doug] Good.  I would prefer to use the term ETL.  This is just my
> habit, but I must say that CVaR was a bad naming choice by R&S,*
>
> *the reason being that the literal translation “conditional VaR” is not
> what it is about.  I guess in situations like this where some *
>
> *People like one name and some like another, we can use aliases???*
>
[Ross] I think this would be fairly easy to change in optimize.portfolio().
Currently the function only looks for "CVaR" as an objective name. The if
statements could just be extend to look for "CVaR", "ETL" or "ES" as an
objective name.

> ****
>
> ** **
>
> This is nice for the user because they don't need to know when to use
> quadprog and vice versa for glpk.****
>
> ** **
>
> It appears that the reference manual may be out of date. I could easily
> make a vignette with several examples about the functionality that
> optimize_method="ROI" offers.  I'd prefer to do this after we are all
> satisfied how to set the portfolio object with constraints and objectives.
> ****
>
> ** **
>
> Regards,****
>
> Ross Bennett****
>
> ** **
>
> ** **
>
> On Fri, Jun 21, 2013 at 11:52 PM, Doug Martin <martinrd at comcast.net>
> wrote:****
>
> Brian and Ross (and anyone else who wishes to comment),****
>
>  ****
>
> Thanks for the late evening response.   Good to allow both conventions wrt
> the sign of risk.  Will check the leading portfolio and risk products for
> most frequent choice, and then we should go to with the majority.  My
> priors are that the plus sign will win.****
>
>  ****
>
> Much more importantly:  I just started browsing the PortfolioAnalytics
> help files manual, slowly starting to refresh my memory of what little I
> understood last summer.  Please see the attached version of August 26 (not
> the latest I know, but almost the last if not the last the Hezky edited)),
> where I have added a small number of comments here and there.  See in
> particular my comments on optimize.portfolio.  It would be very helpful if
> the unfinished business of making ROI invisible to the user is taken care
> of, and soon we just have solve.QP and Rglpk_solve_LP as optimizer choice
> arguments.  Even before getting all the constraint object changes, because
> then I could check running my solve.QP and Rglpk_solve_LP based examples
> (Ross you are quite familiar with these) run via optimize.portfolio and box
> constraints.  Then come back to group constraints when they are implemented.
> ****
>
>  ****
>
> Will keep browsing the manual, and try to understand what is going on.
> Brian, I don’t know if you (and Ross) can manage, but examples at the end
> of each help file would be truly helpful (no pun intended).****
>
>  ****
>
> Thanks,****
>
> Doug****
>
>  ****
>
> P.S. Brian, I hope you didn’t hear my phone call at 11:15 or so – I
> thought you were still live on email and then realized that almost 30
> minutes had passed and you had probably crashed. ****
>
>  ****
>
>  ****
>
>  ****
>
> -----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: Friday, June 21, 2013 8:55 PM
> To: gsoc-porta at r-forge.wu-wien.ac.at
> Subject: Re: [GSoC-PortA] Quick question on multipliers and
> constrained_objective()****
>
>  ****
>
> On 06/21/2013 10:44 PM, Doug Martin wrote:****
>
> > Small comment:  a lot (if not most) literature on risk takes risk as a *
> ***
>
> > positive number, so puts a minus sign on the VaR quantile, etc.  I ****
>
> > previously noticed that PerformanceAnalytics takes risk as negative, ***
> *
>
> > had the thought to change that.****
>
>  ****
>
> PerformanceAnalytics allows it either way, user's choice.****
>
>  ****
>
> Risk is risk of *loss*.  Period.****
>
>  ****
>
> Now, the math is sometimes/often easier with a positive number, I admit,
> but it's typical for risk reports on real portfolios to describe those
> risks as negative numbers.****
>
>  ****
>
> So we allow either.****
>
>  ****
>
>  ****
>
> Cheers,****
>
>  ****
>
> Brian****
>
>  ****
>
>  ****
>
> --****
>
> Brian G. Peterson****
>
> http://braverock.com/brian/****
>
> Ph: 773-459-4973****
>
> IM: bgpbraverock****
>
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>
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