Power-Log Optimizer®

 

The Power-Log Optimizer® has been developed jointly by Michael Best, Professor Emeritus, Department of Combinatorics and Optimization, University of Waterloo, and Jivendra Kale, President, Financiometrics Inc. It is an innovative asset allocation system that uses utility functions based on concepts of behavioral finance, and can be used with combinations of assets that have approximately normal returns, such as stock funds, and assets with non-normal returns, such as bonds, hedge funds and options. In addition, it is a powerful tool for optimal call writing against long portfolios, since it accounts for the extreme skewness in option returns very effectively.

 
Power-Log Optimization models investor preferences with versatile Power-Log utility functions, that can maximize portfolio growth and limit downside risk. For a description of the underlying methodology see, “Growth Optimization with Downside Protection: A New Paradigm for Portfolio Selection,” by Jivendra Kale, in the Journal of Behavioral Finance, and “Growth Optimal Asset Allocation Strategies,” by Michael Best and Jivendra Kale, in Financial Services Information Systems, edited by Jessica Keyes. For a backtest of the methodology see, “Power-Log Optimization and Positively Skewed Option Returns Reduce Risk and Raise Portfolio Performance,” by Jivendra Kale and Arnav Sheth, in the Journal of Investing.

 

FREE. . . PLO-3™

This is a free version of the Power-Log Optimizer® that anyone can use for educational purposes and research, but is limited to three assets. To get it, click Contact and submit your request in the Message box with your affiliation, and information about your computer and operating system.

 

PLO-20™

This is a stand-alone, 20-asset version of the Power-Log Optimizer®, which is adequate for most asset allocation applications, and is very reasonably priced. To get it, click Contact and submit your request in the Message box with your affiliation, and information about your computer and operating system.

 

PLO-MAX™

This is an unlimited version of the Power-Log Optimizer® that can be licensed as a stand-alone system, or as a subroutine library that you can embed in your program. To get it, click Contact and submit your request in the Message box with your affiliation, and information about your computer and operating system.

 

Power-Log Optimizer® Features

The Power-Log Optimizer® is an exceptionally fast non-linear optimizer that uses an accelerated conjugate direction method for constructing portfolios. It is specifically designed to take advantage of the structure of Power-Log utility functions.

Special features include…

Specify the Log utility function to model preferences of an investor who wants to maximize portfolio growth.

Specify a two-segment Power-Log utility function, where gains are modeled with the Log utility function that maximizes portfolio growth, and losses are modeled with a Power utility function with a downside power that corresponds to the investor’s aversion to losses.

Set transactions costs that vary individually for each asset.

Set linear equality and inequality constraints for portfolio attributes and asset-group weights.

Set upper and lower bounds on asset weights individually for each asset.

Include risk-free assets.

Specify the joint distribution of asset returns to account for mean, variance, skewness, kurtosis and all cross-moments in asset returns.

 

Platforms

Customizable application for Windows.
Customizable application for Linux.
Customizable application for the Mac.

C/C++ object code library for Windows.
C/C++ object code library for Linux.
C/C++ object code library for the Mac.
C/C++ source code library for all platforms.

Fortran object code library for Windows.
Fortran object code library for Linux.
Fortran source code library for all platforms including supercomputers.

The libraries can be used with systems developed with Java, C/C++, R, Visual Basic and Fortran.

No limits in the subroutine libraries, and they are thread safe.

 

We provide support by e-mail and telephone during business hours Pacific Time, U.S.A.

We provide consulting services for building in-house systems that incorporate PLO-MAX™.