Message-ID: <48F76BC5.9050309@braverock.com>
Date: 2008-10-16T16:28:53Z
From: Brian G. Peterson
Subject: Value of liquidity
In-Reply-To: <AC36F1084FDE8E4CAFD5CF2409F051D5A740AF@vsw3exch2.tiff.local>
Chiquoine, Ben wrote:
> I am trying to come up with a value for liquidity where I define
> liquidity as the ability to rebalance your portfolio. My thought at how
> to do this is to start with a set of assets. Given their expected
> returns, volatilities, and correlations I will pick an efficient
> portfolio. I will then run a Monte-Carlo simulation using the efficient
> weights, expected returns, vols, and correlations to look at the
> expected distribution of returns. I will compare this to the return
> distribution from a Monte-Carlo simulation in which my I rebalance my
> portfolio to the efficient weights every year. Eventually I'd like to
> allow or disallow rebalancing to a select subset of the assets in the
> portfolio (say private equity and absolute return) while rebalancing to
> optimal weights (as much as possible) the remaining assets. I'm really
> new to Monte-Carlo simulation so my question has three parts. First, is
> this idea completely crazy? Second, is their a preexisting R package
> that is designed to be used for portfolio asset allocation? Third, if
> no package exists to do this what is the data generating process I
> should use to model portfolio returns for a portfolio with multiple,
> correlated, underlying assets? I hope this is the right forum for this
> and that a similar issue had not already been addressed. Thanks in
> advance for any suggestions you can provide.
>
There are many packages available in R for performing Monte Carlo
simulation, and many packages for optimization under various
constraints. Someone has already suggested that you check out
fPortfolio, and there are many more. I suggest that you start with the
quantitative finance task view on CRAN.
If you want to maximise the help you receive from this list, you will
need to be a bit more specific in your questioning. Preferably, share
code and data and someone here will almost certainly help you make it
work the way you want.
Regards,
- Brian