i have an optimization problem that i am trying to solve here and i want your advice on what tools to use and what environment to develop the model.
Essentially the problem is to develop a portfolio of securities (mainly fixed income and mortgage backed securities) based on user defined constraints that would represent a Collateralized Debt Obligations.
Now there are various constraints to optimize over - such as
- overall size of portfolio (example - 1 billion)
- max size of single issuance (example 2% or 20M in this ex)
- ratings stratification (for example user will define what % are
AAA vs AA vs noninvestment grade)
- industry concentrations (MAX and MIN limits that user defines
for a group of industries)
- weighted average spread minimum and weighted aver rating
factor
each issuance has an associated spread (bps over libor) associated with it.
I've thought about this issue and here's how i think i'm going to tackle this:
- user input to be done in excel + vba
- this will pass the constraints to a java engine or a c++ engine (any comments on this?)
- the engine will use some sort of heuristic approach to finding the optimal solution (or solutions)...
- the java/c++ engine will pass back to excel the optimal portfolio based on user constraints
now my question is: rather than me trying to build this thing from scratch, is there objects/code i can use for the actual optimization portion of this problem? In general is there literature or example code that i can base myself off and then customize to my own solution.
Am I thinking about this too hard and can Excel help me solve this multiple constraint problem? I don't think a linear solution is possible and as such i need to use heuristic approaches (genetic algorithms) in order to solve this non-linear problem. However, if you think I'm wrong, please let me know and how i can solve this problem.
sincerely,
Azhar
Essentially the problem is to develop a portfolio of securities (mainly fixed income and mortgage backed securities) based on user defined constraints that would represent a Collateralized Debt Obligations.
Now there are various constraints to optimize over - such as
- overall size of portfolio (example - 1 billion)
- max size of single issuance (example 2% or 20M in this ex)
- ratings stratification (for example user will define what % are
AAA vs AA vs noninvestment grade)
- industry concentrations (MAX and MIN limits that user defines
for a group of industries)
- weighted average spread minimum and weighted aver rating
factor
each issuance has an associated spread (bps over libor) associated with it.
I've thought about this issue and here's how i think i'm going to tackle this:
- user input to be done in excel + vba
- this will pass the constraints to a java engine or a c++ engine (any comments on this?)
- the engine will use some sort of heuristic approach to finding the optimal solution (or solutions)...
- the java/c++ engine will pass back to excel the optimal portfolio based on user constraints
now my question is: rather than me trying to build this thing from scratch, is there objects/code i can use for the actual optimization portion of this problem? In general is there literature or example code that i can base myself off and then customize to my own solution.
Am I thinking about this too hard and can Excel help me solve this multiple constraint problem? I don't think a linear solution is possible and as such i need to use heuristic approaches (genetic algorithms) in order to solve this non-linear problem. However, if you think I'm wrong, please let me know and how i can solve this problem.
sincerely,
Azhar
