[GSoC-PortA] Regime Switching

[Ross Bennett]

Thanks for the suggestion, I think that makes the most sense. I'll go ahead
and implement that.

Ross


On Wed, May 28, 2014 at 2:49 PM, Brian G. Peterson <brian at braverock.com>wrote:

> What about generating an rp set for each portfolio constraint set, and
> using the superset as the rp object passed into optimize.portfolio in the
> loop?
>
> I think this will automatically penalize the non-conforming portfolios (or
> can if we set a single parameter to do so), and the conforming portfolios
> will be the ones chosen on a objective value basis.
>
> Should work with a minimum of messing with the code.
>
> Regards,
>
> Brian
>
>
> On 05/28/2014 04:36 PM, Ross Bennett wrote:
>
>> All,
>>
>> I am close to wrapping up adding support for regime switching as per my
>> proposal. I added a demo so you can see an example of the functionality
>> (see demo/regime_switching.R).
>>
>> There is one issue that came up that I would like some input on. The
>> case is running optimize.portfolio.rebalancing with
>> optimize_method="random".  If the rp object is not passed in as an
>> argument to optimize.portfolio.rebalancing, then we try to generate the
>> random portfolios there so the random portfolios are not (re)generated
>> inside the loop in optimize.portfolio.
>>
>> Since the regime portfolio has N portfolios for N regimes, the challenge
>> here is knowing what portfolio to use for generating the random
>> portfolios because the constraints could be very different in each
>> portfolio. This only impacts optimize.portfolio.rebalancing because we
>> do not know the portfolio specification based on the regime at the time
>> we check the rp object. We do know inside optimize.portfolio.
>>
>> The check for rp in optimize.portfolio.rebalancing looks like this
>> if(optimize_method=="random"){
>>      if(is.null(rp))
>>        rp<-random_portfolios(portfolio=portfolio,
>> permutations=search_size)
>>    }
>>
>> I have a couple proposed solutions
>>
>> Solution 1:
>> Require that the user pass in a random portfolios object for the rp
>> argument. We don't try to generate random portfolios and we throw an
>> error if rp is null. We could just use a single rp object or allow for a
>> list of rp objects with one rp object for each regime portfolio.
>>
>> Solution 2:
>> Bypass this check and let optimize.portfolio generate random portfolios
>> for each regime at each iteration. This is flexible, but could result in
>> very long run times.
>>
>> Are there any other solutions I should consider.
>>
>> Please let me know your thoughts on this.
>>
>> Thanks,
>> Ross
>>
>>
>>
>>
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>>
> --
> Brian G. Peterson
> http://braverock.com/brian/
> Ph: 773-459-4973
> IM: bgpbraverock
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