Hi,

 

I am trying to come up with a value for liquidity where I define
liquidity as the ability to rebalance your portfolio.  My thought at how
to do this is to start with a set of assets.  Given their expected
returns, volatilities, and correlations I will pick an efficient
portfolio.  I will then run a Monte-Carlo simulation using the efficient
weights, expected returns, vols, and correlations to look at the
expected distribution of returns.  I will compare this to the return
distribution from a Monte-Carlo simulation in which my I rebalance my
portfolio to the efficient weights every year.  Eventually I'd like to
allow or disallow rebalancing to a select subset of the assets in the
portfolio (say private equity and absolute return) while rebalancing to
optimal weights (as much as possible) the remaining assets.  I'm really
new to Monte-Carlo simulation so my question has three parts.  First, is
this idea completely crazy?  Second, is their a preexisting R package
that is designed to be used for portfolio asset allocation?  Third, if
no package exists to do this what is the data generating process I
should use to model portfolio returns for a portfolio with multiple,
correlated, underlying assets?   I hope this is the right forum for this
and that a similar issue had not already been addressed.  Thanks in
advance for any suggestions you can provide.

 

Ben


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