How To Optimize Portfolio With Target Risk And Return Constraints With Weight Constraints Together

Question

Mahir Cangökçe 2022-6-3

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https://ww2.mathworks.cn/matlabcentral/answers/1733435-how-to-optimize-portfolio-with-target-risk-and-return-constraints-with-weight-constraints-together

回答： Shivam Lahoti 2024-1-9

symbol=timur.Properties.VariableNames(1:end)               
monthlyReturn=timur(2:end,1:end)                           
P=Portfolio('AssetList',symbol,'RiskFreeRate',0.0008)      
P=estimateAssetMoments(P,monthlyReturn)                    
P=setDefaultConstraints(P)                                 
targetRetn = 0.15;                                         
pwgt = estimateFrontierByReturn(P, targetRetn)             
targetRisk = 0.10;                                        
pwgt=estimateFrontierByRisk(P,targetRisk)                  
P = setMinMaxNumAssets(P, 1, 3)                            
disp(P.NumAssets)                                          
disp(P.bInequality)                                       
LowerBound = [0.1; 0.1; 0.1]                               
UpperBound=  [0.5; 0.5; 0.5]                               
P = setBounds(P, LowerBound, UpperBound)                   
optimalweight=estimateMaxSharpeRatio(P)                    
[optrisk,optret]=estimatePortMoments(P,optimalweight)      
display=(optret)     

My code is working but we get 2 solutions first solution is withuot target risk and return optimization second one just target risk and return optimization without other constraints . Target risk and return not working with MaxSharpeRatio estimation.

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nick 2023-9-27

Hi Mahir Cangökçe,

I want to confirm if you are looking for a way to include target risk and target return as constraints while using MaxSharpeRatio estimation.

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Answer 1

Shivam Lahoti 2024-1-9

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此回答的直接链接

https://ww2.mathworks.cn/matlabcentral/answers/1733435-how-to-optimize-portfolio-with-target-risk-and-return-constraints-with-weight-constraints-together#answer_1385971

Hi Mahir,

I understand that you want to optimize your portfolio while keeping constraints like target risk return constraints along with keeping weight constraints intact.

The code provided by you uses ‘estimateMaxSharpeRatio’ to get the weights of assets in the portfolio. Though it is a powerful function for portfolio optimization, it does not allow for the direct inclusion of target return or target risk constraints. To incorporate such constraints, you would need to use a more general optimization function that MATLAB provides. Please have a look at the below documentation to understand different approaches.

https://www.mathworks.com/products/optimization.html

Apart from this, if you want to narrow down the constraint to one parameter, you shall consider using ‘estimateFrontierByReturn’ and ‘estimateFrontierByRisk’. These functions estimate points on the efficient frontier corresponding to a target return or risk. Please find the documentation for these functions below:

https://www.mathworks.com/help/finance/portfolio.estimatefrontierbyreturn.html

https://www.mathworks.com/help/finance/portfolio.estimatefrontierbyrisk.html

I hope this was helpful.

Regards,

Shivam Lahoti.