linreturn: Generate arithmetric returns and arithmetric covariance...

Description Usage Arguments Value Author(s) References

Description

Generate arithmetric returns and arithmetric covariance matrix given a distribution of log returns

Usage

1

Arguments

mu

a numeric containing the expected logarithmic returns for each security

sigma

a covariance matrix of log returns

Value

a list containing two elements:

arithmeticMean a numeric containing the mean arithmetic returns

arithmeticCovariance a variance-covariance matrix in simple arithmetic return terms

M_{ τ }^{i} = e^{ μ ^{τ} _{i} + \frac{1}{2} Σ^{ii} _{τ} }, \\ S^{ij} = e^{ μ ^{τ} _{i} + μ ^{τ} _{j} + \frac{1}{2} \big(Σ^{ii} _{τ} + Σ^{jj} _{τ}\big) } \big(e^{Σ^{ij} _{τ}} - 1\big)

Author(s)

Ram Ahluwalia ram@wingedfootcapital.com

References

# formula (7) and (8) on page 5 of Appendix to "Meucci - A Common Pitfall in Mean-Variance Estimation" http://www.wilmott.com/pdfs/011119_meucci.pdf


R-Finance/Meucci documentation built on May 8, 2019, 3:52 a.m.