Static Portfolio Optimization
Jorge Nieves wrote:
Thanks for your responses. I found the function "portfolio.optim" and the tseries series package [...] However, I still do not see how to pass into the function the vector of expected values and the covariance matrix.
[...] This bothers me on two counts: 1) computational 2) subject matter That Jorge is not finding the functionality that he wants means that modular programming is not being used. The modular approach would have a function that does the optimization with the expected returns and variance as arguments. That function would then be used by a function that does the larger task. Okay, an advantage of R is that it is generally easy to modify functions for your own purposes. But it is better to organize ocmputations so that people don't feel compelled to do that. Let's abandon the SAS monolith culture. I haven't investigated the functions that are under discussion, so perhaps I am misunderstanding what they are doing. But if they are using the history of returns to predict future returns, that is almost always going to be pretty much complete nonsense -- with or without the Efficient Market Hypothesis. I would hope the R community embrace quality in subject matter decisions as well as computational quality. Patrick Burns patrick at burns-stat.com +44 (0)20 8525 0696 http://www.burns-stat.com (home of "The R Inferno" and "A Guide for the Unwilling S User")
Thanks,
Jorge Nieves
-----Original Message-----
From: Dirk Eddelbuettel [mailto:edd at debian.org]
Sent: Thursday, October 01, 2009 04:25 PM
To: markleeds at verizon.net
Cc: Jorge Nieves; r-sig-finance at stat.math.ethz.ch;
jessevel at andrew.cmu.edu
Subject: Re: [R-SIG-Finance] Static Portfolio Optimization
On 1 October 2009 at 15:01, markleeds at verizon.net wrote:
| I think I remember Adrian Trapletti implemented static portfolio
| optimization using quadprog in tseries. It's been a long time so I
| don't remember the details ( it may be restricted to long only but you
| can add variables to make<br />it handle long short ) but you may want
| to check tseries out.
Correct -- the tseries package has done since time immportal.
And some seven or eight years ago I sent Adrian a patch, styled after
the discussion in Huang and Litzenberger, that adds the ability to have
long and short positions.
Which Adrian promptly added and which has been there ever since:
R> head(as.zoo(EuStockMarkets))
DAX SMI CAC FTSE
1991(130) 1629 1678 1773 2444
1991(131) 1614 1688 1750 2460
1991(132) 1607 1679 1718 2448
1991(133) 1621 1684 1708 2470
1991(134) 1618 1687 1723 2485
1991(135) 1611 1672 1714 2467
R> X <- diff(log(as.zoo(EuStockMarkets)))
R> res <- portfolio.optim(X) ## Long only
R> res$pw
[1] 0.0000 0.3958 0.0000 0.6042
R> res <- portfolio.optim(X, shorts=TRUE) ## Long/Short
R> res$pw
[1] 0.02550 0.38213 -0.06377 0.65614
R>
This is arguably a better example than the one in help(portfolio.optim)
so maybe I should send Kurt a new patch :)
Dirk
--
Three out of two people have difficulties with fractions.
_______________________________________________ R-SIG-Finance at stat.math.ethz.ch mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance -- Subscriber-posting only. -- If you want to post, subscribe first.