Financial Toolbox

Portfolio Optimization Functions

The portfolio optimization functions assist portfolio managers in constructing portfolios that optimize risk and return.

Capital Allocation
portalloc	Computes the optimal risky portfolio on the efficient frontier, based on the risk-free rate, the borrowing rate, and the investor's degree of risk aversion. Also generates the capital allocation line, which provides the optimal allocation of funds between the risky portfolio and the risk-free asset.

Efficient Frontier Computation
frontcon	Computes portfolios along the efficient frontier for a given group of assets. The computation is based on sets of constraints representing the maximum and minimum weights for each asset, and the maximum and minimum total weight for specified groups of assets.
portopt	Computes portfolios along the efficient frontier for a given group of assets. The computation is based on a set of user-specified linear constraints. Typically, these constraints are generated using the constraint specification functions described below.

Constraint Specification
portcons	Generates the portfolio constraints matrix for a portfolio of asset investments using linear inequalities. The inequalities are of the type A*Wts' <= b, where Wts is a row vector of weights. The capabilities of portcons are also provided individually by the following functions.
	pcalims	Asset minimum and maximum allocation. Generates a constraint set to fix the minimum and maximum weight for each individual asset.
	pcgcomp	Group-to-group ratio constraint. Generates a constraint set specifying the maximum and minimum ratios between pairs of groups.
	pcglims	Asset group minimum and maximum allocation. Generates a constraint set to fix the minimum and maximum total weight for each defined group of assets.
	pcpval	Total portfolio value. Generates a constraint set to fix the total value of the portfolio.

Analyzing Portfolios

Portfolio Construction Examples