[R-SIG-Finance] portfolio.optim and error in solve.QP: matrix D not positive definite
Arun.stat
arun.kumar.saha at gmail.com
Thu Jan 27 05:30:40 CET 2011
Hi Lui, I never worked with such kind of portfolio optimization problem but
in Risk management practice it often comes as estimated VCV matrix is not a
PD, hence it is not a truly VCV matrix. Root of this problem might be many,
most importantly, it is incomplete and inconsistent return values.
In such case, common practice is to disturb this estimated VCV matrix
slightly, so that you would get **nearest** VCV matrix which is PD. Here you
might be interested in:
http://eprints.ma.man.ac.uk/232/01/covered/MIMS_ep2006_70.pdf
Therefore I guess, what you need to do is perhaps debug the underlying codes
and do some reverse-engineering to modify the underlying matrix to a nearest
PD.
HTH
_____________________________________________________
Arun Kumar Saha, FRM
QUANTITATIVE RISK AND HEDGE CONSULTING SPECIALIST
Visit me at: http://in.linkedin.com/in/ArunFRM
_____________________________________________________
--
View this message in context: http://r.789695.n4.nabble.com/portfolio-optim-and-error-in-solve-QP-matrix-D-not-positive-definite-tp3241430p3241453.html
Sent from the Rmetrics mailing list archive at Nabble.com.
More information about the R-SIG-Finance
mailing list