minvar_portfolio: Compute the minimum-variance portfolio

In yukai-yang/FE: Data Sets and Functions for the Course "Financial Econometrics"

Description

This function computes the minimum-variance portfolio given the expectations and covariance matrix of some asset returns.

Usage

minvar_portfolio(mu, Omega, mu_p = NULL)

Arguments

mu	a vector of returns of some assets.
Omega	a positive definite covariance matrix of the returns.
mu_p	a scalar of the expected return of some portfolio, by default NULL.

Details

If the expected return of the portfolio is not provided, the function finds the global minimum-variance portfolio. The restuls contain the expected return of the global minimim-variance portfolio, the corresponding weights of the portfolio, and the minimum-variance.

If the expected return of the portfolio is provided, the function finds the optimal portfolio which achieves the given expected return mu_p as well as the global one. The restuls contain the expected return of the optimal portfolio which achieves the expected return mu_p, the corresponding weights of the portfolio, and the minimum-variance.

Value

a list containing the following results:

w_g	the weights of the global minimum-variance portfolio.
mu_g	the expected return of the global portfolio.
var_g	the variance of the global portfolio.
w_p	the weights of the portfolio which achieves the return mu_p.
mu_p	the expected return of the portfolio.
var_p	the variance of the portfolio.

Author(s)

Yukai Yang, [e-mail]

Examples

Omega = crossprod(matrix(rnorm(25),5,5))
mu = runif(5,min=.05,max=.15)

minvar_portfolio(mu, Omega)

yukai-yang/FE documentation built on May 29, 2019, 12:19 p.m.