[R-SIG-Finance] fPortfolio target risk optimization?

[Thomas Etheber]

Hi,

as far as I know the usual way to do this kind of calculation is,
solving the quadratic problem with linear restrictions, as it seems to
be done in fPortfolio. The other way, solving for a return, is a linear
optimisation problem with quadratic restrictions and you wont be able to
guarantee to find a global optimum, except you check for global optimality.
I'm not that deep in the numeric stuff, but I can imagine, that you wont
be much faster that way, since you will have to double check for global
optimality. I have seen some very strange effects in this sort of things
(although not in R) and the optimality is really sensitive to the input
parameters. If there are no real time-critical tasks, I would just
iterate over the efficient line as you described it...


Hth, although the mathematicians on this list might provide you with
much better answers.

Bye for now
Thomas



Bengoechea Bartolomé Enrique (SIES 73) wrote:
> Hi,
>  
> Does anybody know whether is it possible to optimize with fPortfolio (I'm using v260.72 under R 2.7.2) defining the target risk? I know it is possible to set the target return and obtain the minimum variance portfolio, but is it possible to solve the dual problem of setting the target (volatility) risk and getting the point on the efficient frontier that maximizes the return given that risk?
>  
> The only way I've found is an indirect one: compute the whole efficient frontier, then select the point with the risk closest to the target. But this seems inefficient and depends on the actual search grid used... 
>  
> Hints appreciated. Session info copied below.
>  
> Best,
>  
> Enrique
>  
>  
>   
>> sessionInfo()
>>     
> R version 2.7.2 (2008-08-25) 
> i386-pc-mingw32 
>  
> locale:
> LC_COLLATE=Spanish_Spain.1252;LC_CTYPE=Spanish_Spain.1252;LC_MONETARY=Spanish_Spain.1252;LC_NUMERIC=C;LC_TIME=Spanish_Spain.1252
>  
> attached base packages:
> [1] datasets  grDevices graphics  stats     utils     methods   base     
>  
> other attached packages:
>  [1] PaRiS_1.0-1        Defaults_1.1-1     zoo_1.5-4          fPortfolio_260.72  fAssets_260.72     fRegression_260.72 fMultivar_260.72  
>  [8] sn_0.4-4           mnormt_1.2-1       fTrading_260.72    polspline_1.0.15   nnet_7.2-44        mgcv_1.4-1         fBasics_260.72    
> [15] fImport_260.72     lpSolve_5.6.3      quadprog_1.4-11    fSeries_260.73     fCalendar_270.75   fEcofin_270.73     fUtilities_270.73 
> [22] MASS_7.2-44        robustbase_0.2-8   R2HTML_1.59        RDCOMClient_0.92-0 chron_2.3-24       RODBC_1.2-3        rcom_1.5-2.2  
>  
>
> 	[[alternative HTML version deleted]]
>
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