FRAPO (version 0.3-7)

PERC2: Equal risk contributed portfolios (alternative)

Description

This function solves for equal risk contributed portfolio weights by employing the solnp() function.

Usage

PERC2(Sigma, par = NULL, percentage = TRUE, ...)

Arguments

Sigma

Matrix, the variance-covariance matrix of asset returns

par

Vector, the initial values of the weights.

percentage

Logical, whether the weights shall be returned as decimals or percentages (default).

...

Ellipsis argument is passed down to solnp().

Value

• An object of formal class "PortSol".

concept

• ERC
• equal risk contribution

Details

The objective function is the standard deviation of the marginal risk contributions, which is minimal, i.e. zero, if all contributions are equal. The weights are rescaled to sum to unity. The lower and upper bounds are set to LB = rep(0, N) and UB = rep(1, N), respectively.

References

Maillard, S. and Roncalli, T. and Teiletche, J.: The Properties of Equally Weighted Risk Contribution Portfolios, Journal of Portfolio Management, Vol. 36, No. 4, Summer 2010, 60--70.

See Also

"PortSol", PERC

Examples

library(Rsolnp)
data(MultiAsset)
Rets <- returnseries(MultiAsset, method = "discrete", trim = TRUE,
                     percentage = TRUE)
V <- cov(Rets)
## Budget Constraint
Budget <- function(x, Sigma) sum(x)
ERC <- PERC2(V, eqfun = Budget, eqB = 1)
ERC
w <- Weights(ERC) / 100
w * V