Financial Toolbox

portopt

Portfolios on constrained efficient frontier

Syntax

• [PortRisk, PortReturn, PortWts] = portopt(ExpReturn, ExpCovariance,    
  NumPorts, PortReturn, ConSet)
  

Arguments

ExpReturn	1 by number of assets (NASSETS) vector specifying the expected (mean) return of each asset.
ExpCovariance	NASSETS-by-NASSETS matrix specifying the covariance of the asset returns.
NumPorts	(Optional) Number of portfolios generated along the efficient frontier. Returns are equally spaced between the maximum possible return and the minimum risk point. If NumPorts is empty (entered as []), computes 10 equally spaced points.
PortReturn	(Optional) Expected return of each portfolio. A number of portfolios (NPORTS) by 1 vector. If not entered or empty, NumPorts equally spaced returns between the minimum and maximum possible values are used.
ConSet	(Optional) Constraint matrix for a portfolio of asset investments, created using portcons. If not specified, a default is created.

Description

[PortRisk, PortReturn, PortWts] = portopt(ExpReturn, ExpCovariance, NumPorts, PortReturn, ConSet) returns the mean-variance efficient frontier with user-specified covariance, returns, and asset constraints (ConSet). Given a collection of NASSETS risky assets, computes a portfolio of asset investment weights that minimize the risk for given values of the expected return. The portfolio risk is minimized subject to constraints on the total portfolio value, the individual asset minimum and maximum allocation, the asset group minimum and maximum allocation, or the asset group-to-group comparison.

PortRisk is an NPORTS-by-1 vector of the standard deviation of each portfolio.

PortReturn is an NPORTS-by-1 vector of the expected return of each portfolio.

PortWts is an NPORTS-by-NASSETS matrix of weights allocated to each asset. Each row represents a portfolio. The total of all weights in a portfolio is 1.

If portopt is invoked without output arguments, it returns a plot of the efficient frontier.

Examples

Plot the risk-return efficient frontier of portfolios allocated among three assets. Connect 20 portfolios along the frontier having evenly spaced returns. By default, choose among portfolios without short-selling and scale the value of the portfolio to 1.

• ExpReturn = [0.1 0.2 0.15]; 
  
  ExpCovariance = [0.005   -0.010    0.004 
                  -0.010    0.040   -0.002 
                   0.004   -0.002    0.023];
   
  NumPorts = 20;
  portopt(ExpReturn, ExpCovariance, NumPorts)
  
  
  

Return the two efficient portfolios that have returns of 16% and 17%. Limit to portfolios that have at least 20% of the allocation in the first asset, and cap the total value in the first and third assets at 50% of the portfolio.

• ExpReturn = [0.1 0.2 0.15]; 
  
  ExpCovariance = [0.005   -0.010    0.004 
                  -0.010    0.040   -0.002 
                   0.004   -0.002    0.023];
  
  PortReturn = [0.16 
                0.17];
  
  NumAssets = 3;
  
  AssetMin = [0.20 NaN NaN]; 
  
  Group    = [1    0   1];
  
  GroupMax = 0.50;
  
  ConSet = portcons('Default', NumAssets, 'AssetLims', AssetMin,... 
  NaN,'GroupLims', Group, NaN, GroupMax);
  
  [PortRisk, PortReturn, PortWts] = portopt(ExpReturn,... 
  ExpCovariance, [], PortReturn, ConSet)
  
  PortRisk =
  
      0.0919
      0.1138
  
  PortReturn =
  
      0.1600
      0.1700
      
  PortWts =
  
      0.3000    0.5000    0.2000
      0.2000    0.6000    0.2000
  

See Also

ewstats, frontcon, portcons, portstats

portcons

portrand