PERC {FRAPO}

Equal risk contributed portfolios

Description

This function solves for equal risk contributed portfolio weights.

Usage

PERC(Sigma, par = NULL, percentage = TRUE, optctrl = ctrl(), ...)

Arguments

Sigma

Matrix, the variance-covariance matrix of asset returns

par

Vector, the initial values of the weights.

percentage

Logical, whether the weights shall be returned as decimals or percentages (default).

optctrl

Object of class Rcpp_CTRL.

...

Ellipsis argument is passed down to nlminb().

Details

The objective function is the standard deviation of the marginal risk contributions, which is minimal, i.e. zero, if all contributions are equal. The weights are rescaled to sum to unity.

Value

An object of formal class "PortSol".

Note

The optimisation is conducted by calling nlminb(). Hereby, the arguments lower = 0 and upper = 1 have been specified.

Author(s)

Bernhard Pfaff

References

Maillard, S. and Roncalli, T. and Teiletche, J.: The Properties of Equally Weighted Risk Contribution Portfolios, Journal of Portfolio Management, Vol. 36, No. 4, Summer 2010, 60–70.

See Also

"PortSol"

Examples

data(MultiAsset)
Rets <- returnseries(MultiAsset, method = "discrete", trim = TRUE,
                     percentage = TRUE)
V <- cov(Rets)
ERC <- PERC(V)
ERC
w <- Weights(ERC)
w * V