Optimization Constraint Violations
fPortfolio uses quadprog underneath, so I don't know that using quadprog
directly does anything other than lose the portability of the portfolio
specification in fPortfolio.
Mattias raises the correct point, that fPortfolio will 'fall back' on
unconstrained optimization when optimization is not possible with a given
constraint set. I believe that the unconstrained optimization is always
performed, such that the efficient frontier is known and may be plotted against
the constrained efficient frontier.
It is possible in any portfolio optimization problem, Markowitz MV or not, to
specify constraints and objectives that are unreasonable. Pat Burns has
correctly suggested in his many writings that random portfolios can help to
define the shape of the available space. A portfolio manager also rapidly
wants to specify constraints or objectives that are not amenable to a quadratic
solution, and then other optimization engines are required. Linear and Conical
solvers are available in fPortfolio for some more robust approaches. Fully
non-linear approaches such as random portfolios, simulated annealing, and
differential evolution are available in other R packages.
However, none of this will matter if the combination of objectives and
constraints are unreasonable.
And, to echo the other posters, please do take the time to construct a minimal
example that shows what you're seeing. It is really not to hard to either use
publicly available data, or to disguise your data, such that we can see what's
causing the problem.
Regards,
- Brian
julien cuisinier wrote:
I agree on the use of quadprog package, I do not know fPortfolio package and its MV optimization function but I can only guess it is done to provide an output in any case, i.e. whether an optimal solution fit within the constraints or not (so considering the constraints as soft by default)...but that only a guess. Indeed providing a reproducible code would make much easier to investigate what's going on.
Sarbo writes: Would you mind including the code that you're using? It will be (much) easier to figure out what's going on once we know precisely what the constraints and the objective function are. One other thing- if you're looking to find the standard Markowitz optimal portfolio with multiple assets and weightings, I recommend using the "quadprog" package. I've used it before to solve such problems and it does the job pretty nicely. On Sun, 2010-02-21 at 23:31 -0500, Todd Chadwick wrote:
Hi all, I'm stumped with a portfolio optimization issue. I'm utilizing the fPortfolio package (although I know this issue is more general) and I am trying to perform a vanilla MV optimization using both a weighting constraint (box constrained and sum to unity) and target return specification (specifically using the "efficientPortfolio()" wrapper function). My puzzle is that sometimes the box constraints are violated and I am curious as to either what else I need to consider (I suspect the issue involves the target return spec) or how to force the constraints to be honored. Sorry no data examples to provide, but I hope that the experience of the collective can shed some light for a rookie. Todd
Brian G. Peterson http://braverock.com/brian/ Ph: 773-459-4973 IM: bgpbraverock