portfolio.optim

0th

Percentile

Portfolio Optimization

Computes an efficient portfolio from the given return series x in the mean-variance sense.

Keywords
ts
Usage
## S3 method for class 'default':
portfolio.optim(x, pm = mean(x), riskless = FALSE,
                shorts = FALSE, rf = 0.0, reslow = NULL, reshigh = NULL,
                covmat = cov(x), ...)
Arguments
x
a numeric matrix or multivariate time series consisting of a series of returns.
pm
the desired mean portfolio return.
riskless
a logical indicating whether there is a riskless lending and borrowing rate.
shorts
a logical indicating whether shortsales on the risky securities are allowed.
rf
the riskfree interest rate.
reslow
a vector specifying the (optional) lower bound on allowed portfolio weights.
reshigh
a vector specifying the (optional) upper bound on allowed portfolio weights.
covmat
the covariance matrix of asset returns.
...
further arguments to be passed from or to methods.
Details

The computed portfolio has the desired expected return pm and no other portfolio exists, which has the same mean return, but a smaller variance. Inequality restrictions of the form $w_l \le w \le w_h$ can be imposed using the reslow and reshigh vectors. An alternative covariance matrix estimate can be supplied via the covmat argument. To solve the quadratic program, solve.QP is used.

portfolio.optim is a generic function with methods for multivariate "ts" and default for matrix.

Missing values are not allowed.

Value

  • A list containing the following components:
  • pwthe portfolio weights.
  • pxthe returns of the overall portfolio.
  • pmthe expected portfolio return.
  • psthe standared deviation of the portfolio returns.

References

E. J. Elton and M. J. Gruber (1991): Modern Portfolio Theory and Investment Analysis, 4th Edition, Wiley, NY, pp. 65-93.

C. Huang and R. H. Litzenberger (1988): Foundations for Financial Economics, Elsevier, NY, pp. 59-82.

See Also

solve.QP

Aliases
  • portfolio.optim
  • portfolio.optim.ts
  • portfolio.optim.default
Examples
x <- rnorm (1000)
dim(x) <- c(500,2)
res <- portfolio.optim (x)
res$pw
Documentation reproduced from package tseries, version 0.8-0, License: GPL (see file COPYING), except for ./src/muin2ser.f and ./misc which are free for non-commercial purposes. See file README for details.

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