portfOptim: Portfolio optimization for an index model

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

Portfolio optimization for an index model

Description

Finds an optimal portfolio for long-term investments and plots a return distribution.

Usage

portfOptim(i, symbol, yield, vol, beta, 
  indexVol = 0.2, nStocks = 7, total = 1, balanceInt = 1, 
  C = 0.05, riskProportion = 1, riskfreeRate = 0, sim = FALSE)

Arguments

i	vector of the indices of the included risky investments
symbol	character vector of the symbols of the risky investments
yield	vector of expected yields (in euros)
vol	vector of volatilities
beta	vector of betas
indexVol	portfolio index volatility
nStocks	number of stocks in the portfolio
total	total sum invested (in euros)
balanceInt	balancing interval of the portfolio (in years)
C	expected portfolio return (in euros)
riskProportion	proportion of risky investments
riskfreeRate	risk-free interest rate
sim	is the return distribution simulated and plotted (logical value)?

Details

The arguments vol, beta, indexVol, riskProportion and riskfreeRate are given in decimals. The portfolio is optimized by minimizing the variance of the portfolio yield for a given expected yield. The returns are assumed to be log-normally distributed. The covariance matrix is computed using the single index model and the properties of the log-normal distribution.

Value

portfolio	numeric vector of allocations to each stock (in euros)
returnExpectation	expected value of the return distribution (in euros)
returnDeviation	standard deviation of the return distribution (in euros)
VaR	0.5%,1%,5%,10% and 50% percentiles of the return distribution (in euros)

Note

This function is usually called by drawFigure.

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

drawFigure

Examples

data(stockData, package="RcmdrPlugin.RiskDemo")
with(stockData,portfOptim(i=1:5,symbol=rownames(stockData),
  yield=divYield/100,vol=vol/100,beta=beta/100,total=100, sim=TRUE))

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