Creating Custom Constraint Models

A quick note: if you aren't using a convex optimization based investment strategy (like SPO), constraint models don't do anything!

Extending BaseConstraint

The BaseConstraint class provides a foundational structure for creating custom constraint models.

Below is a step-by-step guide for extending BaseConstraint.

Import Required Modules:

First, ensure you have the necessary modules imported:

import datetime as dt
import pandas as pd
import numpy as np
import cvxpy as cvx

from investos.portfolio.constraint_model import BaseConstraint
from investos.util import get_value_at_t

Define the Custom Constraint Class:

Subclass BaseConstraint to implement your desired constraint model.

class CustomConstraint(BaseConstraint):

Initialize Custom Attributes (Optional):

You may want to add additional attributes specific to your constraint model. Override the __init__ method:

def __init__(self, *args, custom_param=None, **kwargs):
    super().__init__(*args, **kwargs)
    self.custom_param = custom_param

Implement the _cvxpy_expression Method:

This is the core method where your constraint logic resides.

Given a datetime t, a numpy-like array of asset holding weights weights_portfolio_plus_trades, a numpy-like array of trade weights weights_trades, and a portfolio value portfolio_value, return a CVXPY constraint expression.

See MaxLeverageConstraint for inspiration:

def _cvxpy_expression(
    self, t, weights_portfolio_plus_trades, weights_trades, portfolio_value
):
    return cvx.sum(cvx.abs(weights_portfolio_plus_trades)) <= self.limit

Test Your Constraint Model:

You can test that your custom constraint model generates constraints as expected for a specific datetime period:

actual_returns = pd.DataFrame(...)  # Add your data here. Each asset should be a column, and it should be indexed by datetime
initial_holdings = pd.Series(...)  # Holding values, indexed by asset

strategy = SPO(
    actual_returns=actual_returns,
    constraints=[CustomConstraint]
)

trade_list = strategy.generate_trade_list(
    initial_holdings,
    dt.datetime.now()
)

You can also plug your custom constraint model into BacktestController (through your investment strategy) to run a full backtest!

backtest_controller = inv.portfolio.BacktestController(
    strategy=strategy
)