drawFigure: Efficient frontier and return distribution figures

In RcmdrPlugin.RiskDemo: R Commander Plug-in for Risk Demonstration

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)

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.

Value

portfolio	allocation of the total investment (in euros)
returnExpectation	expected portfolio return
returnDeviation	standard deviation of the portfolio

Author(s)

Arto Luoma <[e-mail]>

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

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))

RcmdrPlugin.RiskDemo documentation built on June 22, 2024, 7:06 p.m.