MATLAB: Formula for calculating marginal risk contributions (video MATLAB for Advanced Portfolio Construction and Stock Selection Models)

marginal risk contributionmathematicsMATLABportfolio constructionrisk paritystock selection

Hi, i just watched the video https://nl.mathworks.com/videos/matlab-for-advanced-portfolio-construction-and-stock-selection-models-120626.html?elqsid=1485902640730&potential_use=Commercial

In slide number 7, there is a formula for calculating the marginal risk contribution for an asset i, given a weights vector and the covariance matrix MC(i) = sum(w(j) * cov(i,j)) / stdev(portfolio returns) – loop j from 1:n

However, after 5min5sec in the video, it shows the m-file marginalRiskContribution. There it seems that the denominator of that formula is replaced by stdev(asset i returns).

Can anyone tell me which formula is correct to calculate the marginal risk contribution for asset i?

thanks so much.

Best Answer

Hi, correct formula is in slide number 7.

Related Solutions

MATLAB: Efficient portfolios constraints, how can I add a particular constraint

The first constraint is easy to implement.

ConSet = protcons('PortValue', 1, NumAssets, 'AssetLims', -1, AssetMax)

where NumAssets is the number of assets and AssetMax is a vector with the upper boundary for the portoflio weights.

The two other constraints are a bit of a problem. You cannot order the optimizing function to use only a certain amount of assets. So there is no Matlab function for your problem. If your number of assets is small you could loop through all possible combinations of assets, optimize a portfolio and chosse the portfolio with the highest return for a certain amount of risk. Afterwards yoou repeat that process for the other portfolios of your efficient frontier, but you omit certain assets (according to your third constraint).

MATLAB: Riskless assets and Financial toolbox

This link may be of some help Optimal Risky Portfolio Example

Post what you've done so far for further help.

EDIT

Then you can call portalloc rigth after frontcon, as outlined in the example from the link I posted, supplying an average risk free rate.

Doesn't come into my mind how to implement a stochastic risk-free rate into a mean-variance framework.

The suggestion by David also considers a scalar risk free rate.

Best Answer

Related Solutions

MATLAB: Efficient portfolios constraints, how can I add a particular constraint

MATLAB: Riskless assets and Financial toolbox

Related Question