r0Strategy {DOSPortfolio}

Computes the relative loss of the target portfolio used

Description

The function computes the initial value of the relative loss in the variance of the target portfolio as given in Eq. (2.10) of Bodnar et al. (2021).

Usage

r0Strategy(data, target_portfolio, c)

Arguments

data

an n by p matrix of asset returns. Columns represent different assets rows are observations, where n>p, containing, for instance, log-returns.

target_portfolio

a vector which determines the weights of the target portfolio used when the shrinkage estimator of the global minimum variance portfolio is constructed for the first time.

c

a numeric which is the concentration ratio.

Value

vector

References

Bodnar T, Parolya N, Thorsén E (2021). “Dynamic Shrinkage Estimation of the High-Dimensional Minimum-Variance Portfolio.” arXiv preprint arXiv:2106.02131. https://arxiv.org/abs/2106.02131.

Examples

n <- 200*2
p <- 80
data <- 5/3 * matrix(rt(n*p, df=5), ncol=p, nrow=n)
# set a target portfolio, such as equally weighted
b <- rep(1,p)/p
r0Strategy(data, b, p/n)