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minvar

Minimum-Variance Portfolios


Description

Compute minimum-variance portfolios, subject to lower and upper bounds on weights.

Usage

minvar(var, wmin = 0, wmax = 1, method = "qp",
       groups = NULL, groups.wmin = NULL, groups.wmax = NULL)

Arguments

var

the covariance matrix: a numeric (real), symmetric matrix

wmin

numeric: a lower bound on weights. May also be a vector that holds specific bounds for each asset.

wmax

numeric: an upper bound on weights. May also be a vector that holds specific bounds for each asset.

method

character. Currently, only "qp" is supported.

groups

a list of group definitions

groups.wmin

a numeric vector

groups.wmax

a numeric vector

Details

The function uses solve.QP from package quadprog. Because of the algorithm that solve.QP uses, var has to be positive definit (i.e. must be of full rank).

Value

a numeric vector (the portfolio weights) with an attribute variance (the portfolio's variance)

Author(s)

Enrico Schumann

References

Gilli, M., Maringer, D. and Schumann, E. (2019) Numerical Methods and Optimization in Finance. 2nd edition. Elsevier. https://www.elsevier.com/books/numerical-methods-and-optimization-in-finance/gilli/978-0-12-815065-8

Schumann, E. (2012) Computing the global minimum-variance portfolio. http://enricoschumann.net/R/minvar.htm

Schumann, E. (2019) Financial Optimisation with R (NMOF Manual). http://enricoschumann.net/NMOF.htm#NMOFmanual

See Also

Examples

## variance-covariance matrix from daily returns, 1 Jan 2014 -- 31 Dec 2013, of
## cleaned data set at http://enricoschumann.net/data/gilli_accuracy.html

if (requireNamespace("quadprog")) {

    var <- structure(c(0.000988087100677907, -0.0000179669410403153, 0.000368923882626859,
                       0.000208303611101873, 0.000262742052359594, -0.0000179669410403153,
                       0.00171852167358765, 0.0000857467457561209, 0.0000215059246610556,
                       0.0000283532159921211, 0.000368923882626859, 0.0000857467457561209,
                       0.00075871953281751, 0.000194002299424151, 0.000188824454515841,
                       0.000208303611101873, 0.0000215059246610556, 0.000194002299424151,
                       0.000265780633005374, 0.000132611196599808, 0.000262742052359594,
                       0.0000283532159921211, 0.000188824454515841, 0.000132611196599808,
                       0.00025948420130626),
                     .Dim = c(5L, 5L),
                     .Dimnames = list(c("CBK.DE", "VOW.DE", "CON.DE", "LIN.DE", "MUV2.DE"),
                                      c("CBK.DE", "VOW.DE", "CON.DE", "LIN.DE", "MUV2.DE")))

    ##            CBK.DE     VOW.DE    CON.DE    LIN.DE   MUV2.DE
    ## CBK.DE   0.000988 -0.0000180 0.0003689 0.0002083 0.0002627
    ## VOW.DE  -0.000018  0.0017185 0.0000857 0.0000215 0.0000284
    ## CON.DE   0.000369  0.0000857 0.0007587 0.0001940 0.0001888
    ## LIN.DE   0.000208  0.0000215 0.0001940 0.0002658 0.0001326
    ## MUV2.DE  0.000263  0.0000284 0.0001888 0.0001326 0.0002595
    ##

    minvar(var, wmin = 0, wmax = 0.5)

    minvar(var,
           wmin = c(0.1,0,0,0,0), ## enforce at least 10% weight in CBK.DE
           wmax = 0.5)

    minvar(var, wmin = -Inf, wmax = Inf)   ## no bounds
    ## [1] -0.0467  0.0900  0.0117  0.4534  0.4916

    minvar(var, wmin = -Inf, wmax = 0.45)  ## no lower bounds
    ## [1] -0.0284  0.0977  0.0307  0.4500  0.4500

    minvar(var, wmin =  0.1, wmax = Inf)   ## no upper bounds
    ## [1] 0.100 0.100 0.100 0.363 0.337

    ## group constraints:
    ##   group 1 consists of asset 1 only,   and must have weight [0.25,0.30]
    ##   group 2 consists of assets 4 and 5, and must have weight [0.10,0.20]

    ##   => unconstrained
    minvar(var, wmin = 0, wmax = 0.40)
    ## [1] 0.0097 0.1149 0.0754 0.4000 0.4000

    ##   => with group constraints
    minvar(var, wmin = 0, wmax = 0.40,
           groups = list(1, 4:5),
           groups.wmin = c(0.25, 0.1),
           groups.wmax = c(0.30, 0.2))
    ## [1] 0.250 0.217 0.333 0.149 0.051
}

NMOF

Numerical Methods and Optimization in Finance

v2.4-1
GPL-3
Authors
Enrico Schumann [aut, cre] (<https://orcid.org/0000-0001-7601-6576>)
Initial release
2021-04-09

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