demo/demo_proportional_cost.R

In R-Finance/PortfolioAnalytics: Portfolio Analysis, including Numerical Methods for Optimization of Portfolios

library(PortfolioAnalytics)
library(quadprog)

data(edhec)
N <- 4
R <- edhec[, 1:N]
colnames(R) <- c("CA", "CTAG", "DS", "EM")
funds <- colnames(R)

# Transaction costs are calculated using the optimal weights and initial set of weights.
# The initial set of weights is specified in the portfolio object. In the case
# below, the initial set of weights is an equally-weighted portfolio.

# set up initial portfolio specification object
pspec <- portfolio.spec(assets=funds)
pspec <- add.constraint(portfolio=pspec, type="full_investment")
pspec <- add.constraint(portfolio=pspec, type="long_only")
pspec <- add.constraint(portfolio=pspec, type="transaction", ptc=0.01)

# add var objective to minimize portfolio variance
minvar <- add.objective(portfolio=pspec, type="risk", name="var")

# Note that if a return target is not specified, the results may not make sense
optimize.portfolio(R=R, portfolio=minvar, optimize_method="ROI")

# Add a target return constraint
minvar <- add.constraint(portfolio=minvar, type="return", return_target=0.007)
optimize.portfolio(R=R, portfolio=minvar, optimize_method="ROI")

# Add return and risk objective for quadratic utility
# Note that target return can be specified as a constraint or in the return 
# objective as shown below
qu <- add.objective(portfolio=pspec, type="risk", name="var", risk_aversion=0.3)
qu <- add.objective(portfolio=qu, type="return", name="mean", target=0.007)
optimize.portfolio(R=R, portfolio=qu, optimize_method="ROI")

# Now use random portfolios
# set up portfolio with equally weighted portfolio for initial weights
pspec <- portfolio.spec(assets=funds)
pspec <- add.constraint(portfolio=pspec, type="leverage", min_sum=0.99, max_sum=1.01)
pspec <- add.constraint(portfolio=pspec, type="long_only")
pspec <- add.constraint(portfolio=pspec, type="transaction", ptc=0.01)

# There is no transaction cost, the penalty should be 0.
# constrained_objective(w=rep(1/4, 4), R=R, portfolio=pspec)
# wts <- c(0.2, 0.3, 0.25, 0.25)
# sum(abs(wts - pspec$assets)*pspec$constraints[[3]]$ptc)
# constrained_objective(w=wts, R=R, portfolio=pspec)

# add objective to minimize standard deviation
pspec <- add.objective(portfolio=pspec, type="risk", name="StdDev")

# This pushes the optimal portfolio to the initial weights
opt_rp <- optimize.portfolio(R=R, portfolio=pspec, optimize_method="random", search_size=2000, trace=TRUE)
opt_rp

# Now use random portfolios
# set up portfolio with initial weights
pspec <- portfolio.spec(assets=c(0.15, 0.15, 0.2, 0.5))
pspec <- add.constraint(portfolio=pspec, type="leverage", min_sum=0.99, max_sum=1.01)
pspec <- add.constraint(portfolio=pspec, type="long_only")
pspec <- add.constraint(portfolio=pspec, type="transaction", ptc=0.01)

# There is no transaction cost, the penalty should be 0.
# constrained_objective(w=rep(1/4, 4), R=R, portfolio=pspec)
# wts <- c(0.2, 0.3, 0.25, 0.25)
# sum(abs(wts - pspec$assets)*pspec$constraints[[3]]$ptc)
# constrained_objective(w=wts, R=R, portfolio=pspec)

# add objective to minimize standard deviation
pspec <- add.objective(portfolio=pspec, type="risk", name="StdDev")

# This pushes the optimal portfolio to the initial weights
opt_rp <- optimize.portfolio(R=R, portfolio=pspec, optimize_method="random", search_size=2000, trace=TRUE)
opt_rp