Documentation

Obtaining CVaR Portfolio Risks and Returns

Given any portfolio and, in particular, efficient portfolios, the functions estimatePortReturn and estimatePortRisk provide estimates for the return (or return proxy), risk (or the risk proxy). Each function has the same input syntax but with different combinations of outputs. Suppose that you have this following portfolio optimization problem that gave you a collection of portfolios along the efficient frontier in pwgt:

m = [ 0.05; 0.1; 0.12; 0.18 ];
C = [ 0.0064 0.00408 0.00192 0;
0.00408 0.0289 0.0204 0.0119;
0.00192 0.0204 0.0576 0.0336;
0 0.0119 0.0336 0.1225 ];
m = m/12;
C = C/12;

AssetScenarios = mvnrnd(m, C, 20000);

p = PortfolioCVaR;
p = setScenarios(p, AssetScenarios);
p = setDefaultConstraints(p);
p = setProbabilityLevel(p, 0.95);

pwgt0 = [ 0.3; 0.3; 0.2; 0.1 ];

p = setInitPort(p, pwgt0);
pwgt = estimateFrontier(p);

Given pwgt0 and pwgt, use the portfolio risk and return estimation functions to obtain risks and returns for your initial portfolio and the portfolios on the efficient frontier:

prsk0 = estimatePortRisk(p, pwgt0);
pret0 = estimatePortReturn(p, pwgt0);
prsk = estimatePortRisk(p, pwgt);
pret = estimatePortReturn(p, pwgt);

display(prsk0)
display(pret0)
display(prsk)
display(pret)

prsk0 =

    0.0591


pret0 =

    0.0067


prsk =

    0.0414
    0.0453
    0.0553
    0.0689
    0.0843
    0.1006
    0.1193
    0.1426
    0.1689
    0.1969


pret =

    0.0050
    0.0060
    0.0070
    0.0080
    0.0089
    0.0099
    0.0109
    0.0119
    0.0129
    0.0139

Obtaining Portfolio Standard Deviation and VaR

The PortfolioCVaR object has functions to compute standard deviations of portfolio returns and the value-at-risk of portfolios with the functions estimatePortStd and estimatePortVaR. These functions work with any portfolios, not necessarily efficient portfolios. For example, the following example obtains five portfolios (pwgt) on the efficient frontier and also has an initial portfolio in pwgt0. Various portfolio statistics are computed that include the return, risk, standard deviation, and value-at-risk. The listed estimates are for the initial portfolio in the first row followed by estimates for each of the five efficient portfolios in subsequent rows.

m = [ 0.0042; 0.0083; 0.01; 0.15 ];
C = [ 0.005333 0.00034 0.00016 0;
0.00034 0.002408 0.0017 0.000992;
0.00016 0.0017 0.0048 0.0028;
0 0.000992 0.0028 0.010208 ];

pwgt0 = [ 0.3; 0.3; 0.2; 0.1 ];

p = PortfolioCVaR('initport', pwgt0);
p = simulateNormalScenariosByMoments(p, m, C, 20000);
p = setDefaultConstraints(p);
p = setProbabilityLevel(p, 0.9);

pwgt = estimateFrontier(p, 5);

pret = estimatePortReturn(p, [pwgt0, pwgt]);
prsk = estimatePortRisk(p, [pwgt0, pwgt]);
pstd = estimatePortStd(p, [pwgt0, pwgt]);
pvar = estimatePortVaR(p, [pwgt0, pwgt]);

[pret, prsk, pstd, pvar]

ans =

    0.0207    0.0464    0.0381    0.0283
    0.1009    0.0214    0.0699   -0.0109
    0.1133    0.0217    0.0772   -0.0137
    0.1256    0.0226    0.0849   -0.0164
    0.1380    0.0240    0.0928   -0.0182
    0.1503    0.0262    0.1011   -0.0197