[R-SIG-Finance] [R] portfolio optimization problem - use R

Christian Prinoth Christian.Prinoth at epsilonsgr.it
Tue Jul 22 09:48:58 CEST 2008

This problem can be solved with quadprog. You just  have to introduce a few auxiliary variables. Have a look at this paper:


-----Original Message-----
From: r-sig-finance-bounces at stat.math.ethz.ch [mailto:r-sig-finance-bounces at stat.math.ethz.ch] On Behalf Of markleeds at verizon.net
Sent: Monday, July 21, 2008 19:22
To: fzp2008; r-sig-finance at stat.math.ethz.ch
Subject: Re: [R-SIG-Finance] [R] portfolio optimization problem - use R

  Hi: Patrick Burns POP software solves the problem below. I don't think quadprog does because of the transaction cost term but you can check out quadprog to confirm. I'm ccing sig-finance because someone over there may say/know more ?

On Mon, Jul 21, 2008 at 10:56 AM, fzp2008 wrote:

> How to use R to solve the optimisaton problem
> Minimize:
> ½*w^T*omega*w+mu^T*w+c^T(w-w0) for w>w0 long position
> ½*w^T*omega*w+mu^T*w-c^T(w-w0) for w<w0 short position
> W: is the update weight of portfolio
> Wo is the initial weight of portfolio
> Omega is the variance covariance matrix mu is the vector of return
> rate of stocks in the portfolio
> C is the vector coefficient of transaction cost  Is it a quandratic
> programming problem? Then how to write the objective function? Or any
> other method to solve this?
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