[R-SIG-Finance] portfolio optimization questions

Brian G. Peterson brian at braverock.com
Wed Jun 18 04:30:35 CEST 2008

Alexander Moreno wrote:
> Hi,
> I have a general finance question, rather than an R-specific question.  In
> trading currencies, should the weights always add up to 1, or 0, or can
> they add up to anything?  What determines this?

If you have no leverage (long-only), and are fully invested, then your
weighting vector will add to 1.  If you are 1:1 long/short, then your
weighting vector would add to 0, if you are 50% levered long-only, then
you would have a weighting vector total of 1.5, and so on. Make sense?

> Also, I have an Splus nuopt
> question.  If anyone knows a better place to post this, it would be
> appreciated, but in the meantime I'll ask it here.  In NuOPT, when I set
> mu.target for solveQP to be very low (used as in page 9 of introduction to
> modern portfolio optimization with NuOPT, S-PLUS, and S+Bayes), I see poor
> portfolio returns, but if I set it to be high, I get an error message
> <<SIMPLE 193>> Error in solve():
>        <<NUOPT 2>> infeasible(linear constraints and variable bounds)

This most likely means that there is no portfolio with the target mu.


  - Brian

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