Working with Conditional Budget Constraints Using PortfolioCVaR Object

The conditional budget constraint supports the Undertakings for Collective Investment in Transferable Securities (UCITS) directive for PortfolioCVaR objects. The UCITS asset allocation regulation states that funds can only invest up to 10% in a single issuer, and that investments in excess of 5% must not exceed 40% of the total portfolio. This is known as the 5/10/40 rule.

Setting Conditional Budget Constraints Using the `PortfolioCVaR` Function

The properties for the conditional budget constraint can also be set using the PortfolioCVaR object. Suppose that you have an asset universe with many risky assets and a riskless asset and you want to ensure that your portfolio never holds more than 1% cash, that is, you want to ensure that you are 99–100% invested in risky assets. The conditional budget constraint for this portfolio can be set with:

p = PortfolioCVaR('ConditionalBudgetThreshold', 0.99, 'ConditionalUpperBudget', 1);
disp(p.ConditionalBudgetThreshold)
disp(p.ConditionalUpperBudget)

 0.9900

 1

Setting Conditional Budget Constraints Using the `setConditionalBudget` Function

You can also set the properties for a conditional budget constraint using setConditionalBudget. Suppose that you have a fund that permits up to 10% leverage which means that your portfolio can be from 100% to 110% invested in risky assets. Given a PortfolioCVaR object p, use setConditionalBudget to set the conditional budget constraints:

p = PortfolioCVaR;
p = setConditionBudget(p, .40, 1.5);
disp(p.threshold)
disp(p.upperBudget)

 .40

 1.500o