RcmdrPlugin.RiskDemo (version 1.9)

drawFigure: Efficient frontier and return distribution figures

Description

Plots the efficient frontiers of risky investments and all investments. The optimum points corresponding to the risk aversion coefficient are indicated by dots. Further, the function plots a predictive return distribution figure.

Usage

drawFigure(symbol, yield, vol, beta, r = 1, 
  total = 1, indexVol = 20, nStocks = 7, balanceInt = 12, A = 10, 
  riskfree = FALSE, bor = FALSE)

Arguments

symbol

character vector of the symbols of the risky investments

yield

vector of yields (%)

vol

vector of volatilities (%)

beta

vector of betas (%)

r

risk-free interest rate (%)

total

total investment (for example in euros)

indexVol

volatility of market portfolio (%)

nStocks

number of risky investments in the portfolio

balanceInt

balancing interval of the portfolio in months

A

risk aversion coefficient (see details)

riskfree

is risk-free investment included in the portfolio (logical)

bor

is borrowing (negative risk-free investment) allowed (logical)

Value

portfolio

allocation of the total investment (in euros)

returnExpectation

expected portfolio return

returnDeviation

standard deviation of the portfolio

Details

The function uses the single-index model and Markovitz portfolio optimization model to find the optimum risky portfolio. The returns are assumed to be log-normally distributed. The maximized function is mu - 0.5*A*var where mu is expected return, A is risk aversion coefficient, and var is return variance.

References

Bodie, Kane, and Marcus (2014) Investments, 10th Global Edition, McGraw-Hill Education, (see Section 7.4 The Markowitz Portfolio Optimization Model and Section 8.2 The Single-Index Model).

See Also

portfOptim

Examples

# NOT RUN {
data(stockData, package="RcmdrPlugin.RiskDemo")
with(stockData,drawFigure(symbol=rownames(stockData),yield=divYield,
  vol=vol,beta=beta,r=1,total=100,indexVol=10, 
  nStocks=5,balanceInt=12,A=10,riskfree=TRUE,bor=FALSE))
# }