[R] The best solver for non-smooth functions?

[Patrick Burns]

There is a new blog post that is pertinent to this question:

http://www.portfolioprobe.com/2012/07/23/a-comparison-of-some-heuristic-optimization-methods/

Pat

On 18/07/2012 21:00, Cren wrote:
> # Hi all,
>
> # consider the following code (please, run it:
> # it's fully working and requires just few minutes
> # to finish):
>
> require(CreditMetrics)
> require(clusterGeneration)
> install.packages("Rdonlp2", repos= c("http://R-Forge.R-project.org",
> getOption("repos")))
> install.packages("Rsolnp2", repos= c("http://R-Forge.R-project.org",
> getOption("repos")))
> require(Rdonlp2)
> require(Rsolnp)
> require(Rsolnp2)
>
> N <- 3
> n <- 100000
> r <- 0.0025
> ead <- rep(1/3,3)
> rc <- c("AAA", "AA", "A", "BBB", "BB", "B", "CCC", "D")
> lgd <- 0.99
> rating <- c("BB", "BB", "BBB")	
> firmnames <- c("firm 1", "firm 2", "firm 3")
> alpha <- 0.99
>
> # One year empirical migration matrix from Standard & Poor's website
>
> rc <- c("AAA", "AA", "A", "BBB", "BB", "B", "CCC", "D")
> M <- matrix(c(90.81,  8.33,  0.68,  0.06,  0.08,  0.02,  0.01,   0.01,
>                0.70, 90.65,  7.79,  0.64,  0.06,  0.13,  0.02,   0.01,
>                0.09,  2.27, 91.05,  5.52,  0.74,  0.26,  0.01,   0.06,
>                0.02,  0.33,  5.95, 85.93,  5.30,  1.17,  1.12,   0.18,
>                0.03,  0.14,  0.67,  7.73, 80.53,  8.84,  1.00,   1.06,
>                0.01,  0.11,  0.24,  0.43,  6.48, 83.46,  4.07,   5.20,
>                0.21,     0,  0.22,  1.30,  2.38, 11.24, 64.86,  19.79,
>                0,     0,     0,     0,     0,     0,     0, 100
> )/100, 8, 8, dimnames = list(rc, rc), byrow = TRUE)
>
> # Correlation matrix
>
> rho <- rcorrmatrix(N) ; dimnames(rho) = list(firmnames, firmnames)
>
> # Credit Value at Risk
>
> cm.CVaR(M, lgd, ead, N, n, r, rho, alpha, rating)
>
> # Risk neutral yield rates
>
> Y <- cm.cs(M, lgd)
> y <- c(Y[match(rating[1],rc)], Y[match(rating[2],rc)],
> Y[match(rating[3],rc)]) ; y
>
> # The function to be minimized
>
> sharpe <- function(w) {
>    - (t(w) %*% y) / cm.CVaR(M, lgd, ead, N, n, r, rho, alpha, rating)
> }
>
> # The linear constraints
>
> constr <- function(w) {
>    sum(w)
> }
>
> # Results' matrix (it's empty by now)
>
> Results <- matrix(NA, nrow = 3, ncol = 4)
> rownames(Results) <- list('donlp2', 'solnp', 'solnp2')
> colnames(Results) <- list('w_1', 'w_2', 'w_3', 'Sharpe')
>
> # See the differences between different solvers
>
> rho
> Results[1,1:3] <- round(donlp2(fn = sharpe, par = rep(1/N,N), par.lower =
> rep(0,N), par.upper = rep(1,N), A = t(rep(1,N)), lin.lower = 1, lin.upper =
> 1)$par, 2)
> Results[2,1:3] <- round(solnp(pars = rep(1/N,N), fun = sharpe, eqfun =
> constr, eqB = 1, LB = rep(0,N), UB = rep(1,N))$pars, 2)
> Results[3,1:3] <- round(solnp2(par = rep(1/N,N), fun = sharpe, eqfun =
> constr, eqB = 1, LB = rep(0,N), UB = rep(1,N))$pars, 2)
> for(i in 1:3) {
>    Results[i,4] <- abs(sharpe(Results[i,1:3]))
> }
> Results
>
> # In fact the "sharpe" function I previously defined
> # is not smooth because of the cm.CVaR function.
> # If you change correlation matrix, ratings or yields
> # you see how different solvers produce different
> # parameters estimation.
>
> # Then the main issue is: how may I know which is the
> # best solver at all to deal with non-smooth functions
> # such as this one?
>
> --
> View this message in context: http://r.789695.n4.nabble.com/The-best-solver-for-non-smooth-functions-tp4636934.html
> Sent from the R help mailing list archive at Nabble.com.
>
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>

-- 
Patrick Burns
pburns at pburns.seanet.com
twitter: @portfolioprobe
http://www.portfolioprobe.com/blog
http://www.burns-stat.com
(home of 'Some hints for the R beginner'
and 'The R Inferno')