I was wondering how finance folks go about storing and modelling portfolio exposure relationships with the aim to later aggregate or slice & dice the exposures by different factor sets.

For example, a portfolio invests into changing set of instruments (stocks, bonds, other portfolios ...) with time-varying value. The instruments in turn are sensitive to factors such as sectors (e.g. GICS classification), regions/countries, size etc.

Tabular Approach

One straightforward approach would be to express this mix of network and/or hierarchical relationships in a tabular format such as below, which is amenable to use with SQL design patterns (adjacency-list, path-enumeration, nested-sets, closure-table) :

   Portfolio                         Holding    Instrument       Date BALANCE.USD
1        ABC           Stock 1 Share Class A       Stock 1 2013-12-31    25360291
2        ABC           Stock 1 Share Class A       Stock 1 2014-01-31    25302011
3        ABC           Stock 1 Share Class B       Stock 1 2013-12-31    12264011
4        ABC           Stock 1 Share Class B       Stock 1 2014-01-31    12893201
5        DEF Fund 1 Share Class EUR Series 1        Fund 1 2013-12-31    21012222
6        DEF Fund 1 Share Class EUR Series 1        Fund 1 2014-01-31    21632101
7        DEF Fund 1 Share Class EUR Series 2        Fund 1 2013-12-31     8214325
8        DEF Fund 1 Share Class EUR Series 2        Fund 1 2014-01-31     8292630
9        DEF           Portfolio ABC Account Portfolio ABC 2013-12-31   155364592
10       DEF           Portfolio ABC Account Portfolio ABC 2014-01-31   156202162

  Instrument                                         Factor ExposureStrength
1    Stock 1                              North America: US             1.00
2    Stock 1                                    Industrials             1.00
3     Fund 1                                 Liquidity: Low             0.05
4     Fund 1                                  North America             0.70
5     Fund 1                      Europe: Eurozone: Germany             0.20
6     Fund 1 Industrials : Capital Goods: Building Products             0.25

Network Approach

Does anyone have any experience with modelling this particular domain as network objects rather than tables/matrices? In R for example using packages such as igraph, or statnet umbrella of packages (network, networkDynamic as exposures are time-varying attributes)

If so, could you kindly share short snippets of code demonstrating that it makes sense to use graph theory for these kinds of problems. My web research was not fruitful in this regard; I found mostly social network models.

If not, does it make any sense at all to persist this as network objects rather than plain old tables, in terms of complexity (code overhead), computational and storage efficiency?

To the support of the latter, vignette for the network package in R states:

For example, a network with 100,000 vertices and 100,000 edges currently consumes approximately 74MB of RAM (R 2.6.1), versus approximately 40GB for a full sociomatrix (a savings of approximately 99.8%). When dealing with extremely large, sparse graphs it therefore follows that network objects are substantially more efficient than simpler representations such as adjacency matrices.

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    $\begingroup$ I did a moderator flag to do so. Hopefully someone with appropriate rep can move it. $\endgroup$ – hrbrmstr May 30 '14 at 21:32
  • $\begingroup$ Note that each question can only have five total tags (which yours currently has). In reading your question, my impression is that a statnet tag is not wholly necessary here since you're asking a bit more general question. I think your mention of it in the body is good and sufficient. Welcome to the site! $\endgroup$ – cardinal May 31 '14 at 21:42
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    $\begingroup$ It is not entirely related, but Andrew Lo and collaborators have done some (fairly minimal) work in the last five years with network structure in financial applications, often in the context of modelling some aspect of liquidity or contagion risk. His webpage of research publications can be found here. $\endgroup$ – cardinal May 31 '14 at 21:57

One of the graph-databases - Neo4j showcases this specific GraphGist: Analysis over Finance and Portfolio Management can shed more light with regards the code complexity, computational and storage efficiency vs. classical RDBMS (tabular) approach.

It is not clear from that GraphGist alone whether Neo4j easily facilitates work with time-varying networks (i.e. when attributes/relationships change over time).

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