[R-SIG-Finance] portfolioMarkowitz function

Diethelm Wuertz wuertz at itp.phys.ethz.ch
Thu Nov 23 16:56:28 CET 2006

```Deb Midya wrote:

>Hi!,
>
>
>  I am using the example function provided in the library fPortfolio.
>
>  The example is:
>
>  library(fPortfolio)
>
>  ## SOURCE("fPortfolio.B2-MarkowitzPortfolio")
>  ## Not run:
>  ## berndtInvest -
>  data(berndtInvest)
>  # Exclude Date, Market and Interest Rate columns from data frame,
>  # then multiply by 100 for percentual returns ...
>  berndtAssets = berndtInvest[, -c(1, 11, 18)]
>  rownames(berndtAssets) = berndtInvest[, 1]
>
>  ## portfolioMarkowitz -
>  myPortfolio = portfolioMarkowitz(x = berndtAssets, targetReturn = 20/100/12)
>
>  I need to clarify the followings:
>
>  1. targetReturn = 20/100/12
>
>
targetReturn = 0.0167
20 devided by 100 devided by 12

>
>  I could not follow the format used for targetReturn. How can I explain the values 20, 100 and 12?
>
>  2. What is the objective function?
>
Mean-variance Portfolio Problem ...

>and
>
>  3. What are the constraints?
>
>
no short selling bigger than 0 smaller than 1 for each asset ....

>
>  I am looking forward for your response.
>
>  Regards,
>
>  Debabrata (Deb)
>
>
The result:

Title:
Mean-Variance Portfolio Optimization

Call:
portfolioMarkowitz(x = berndtAssets, targetReturn = 20/100/12)

Portfolio Weights:
2    5    7    9   10   13   14
0.53 0.03 0.15 0.08 0.08 0.02 0.12

Sum of Weights:
[1] 1

Target Return(s):
[1] 0.0167

Target Risk(s):
[,1]
[1,] 0.037

Description:
[1] "Thu Nov 23 16:49:18 2006"

The solution is for the Mean-Variance Portfolio optimization problem
according
to Markowitz, short selling forbidden. The target return is just
20/100/12 = 0.0167.
The investment in asset No 2 is 53%, in asset no 7 15% and so on.

Diethelm Wuertz

>
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```