tech.nmfin.algoquant.demo.model.portfoliooptimization

Class Corvalan2005Demo

java.lang.Object

tech.nmfin.algoquant.demo.model.portfoliooptimization.Corvalan2005Demo

@Demo
public class Corvalan2005Demo
extends Object

This paper tackles the corner solution problem of many portfolio optimizers, by optimizing the portfolio diversification with some relaxation on the volatility σ and the expected return R of a given optimized (but non-diversified) portfolio. This implementation generalizes this framework as the following optimization problem: \[ \max_{w} D(w) \quad \text{s.t.} \\ \begin{aligned} \sqrt{w' \Sigma w} & \le \sigma^* (1 + \Delta \sigma) \\ R^* (1 - \Delta R) & \le w'r \\ w' 1 & = 1 \\ ... & \text{some extra constraints} \end{aligned} \] where \( ( \sigma^* , R^* ) = ( \sqrt{w^{*'} \Sigma w^*} , w^{*'} r ) \), \(w^*\) is the original optimal weights, \(\Delta \sigma, \Delta R\) are the relaxation tolerance parameters, and \(D(w)\) is a defined measure for portfolio diversification (DiversificationMeasure).

Using this example. Applies portfolio diversification with return and volatility relaxation around an optimized portfolio. The Yahoo sample supplies estimation data; tolerance parameters alter the feasible portfolio set. The reported weights are allocations, not share quantities or realized backtest returns.

Model and publication. Corvalán proposes two stages: find a mean–variance reference portfolio, then improve diversification while allowing a neighborhood of return/risk deviations. The paper discusses multiple diversification measures.

Implementation in this tutorial. Corvalan2005 in this example exposes the relaxation settings and chosen diversification measure through library classes. Its documented constraints use relative return/volatility relaxations; check that parameterization rather than substituting a tolerance directly from the paper. Weights, estimated risk and forecast return are optimizer outputs, not a realized account-performance report.

See Also:

Well Diversified Efficient Portfolios, A. Corvalán (2005), Well Diversified Efficient Portfolios, Central Bank of Chile Working Paper 336

Constructor Summary

Constructors

Constructor and Description
Corvalan2005Demo(double deltaSigma, double deltaR)

Method Summary

Modifier and Type	Method and Description
static void	main(String[] args)

Methods inherited from class java.lang.Object

clone, equals, finalize, getClass, hashCode, notify, notifyAll, toString, wait, wait, wait

Constructor Detail

Corvalan2005Demo

public Corvalan2005Demo(double deltaSigma,
                        double deltaR)

Method Detail

main

public static void main(String[] args)
                 throws Exception

Throws:

Exception