estimateMaxSharpeRatio

Class: Portfolio

Estimate efficient portfolio to maximize Sharpe ratio

Syntax

[pwgt,pbuy,psell] = estimateMaxSharpeRatio(obj)

Description

[pwgt,pbuy,psell] = estimateMaxSharpeRatio(obj) estimates an efficient portfolio that maximizes the Sharpe ratio.

Tips

You can also use dot notation to estimate an efficient portfolio that maximizes the Sharpe ratio.

[pwgt,pbuy,psell] = obj.estimateMaxSharpeRatio;

Input Arguments

obj

Portfolio object [Portfolio].

    Note:   The risk-free rate is obtained from the property RiskFreeRate in the Portfolio object. If you leave the RiskFreeRate unset, it is assumed to be 0.

Output Arguments

pwgt

A portfolio on the efficient frontier with a maximum Sharpe ratio [NumAssets vector].

pbuy

Purchases relative to an initial portfolio for a portfolio on the efficient frontier with a maximum Sharpe ratio [NumAssets vector].

psell

Sales relative to an initial portfolio for a portfolio on the efficient frontier with maximum Sharpe ratio [NumAssets vector].

Definitions

Sharpe Ratio

The Sharpe ratio is the ratio of the difference between the mean of portfolio returns and the risk-free rate divided by the standard deviation of portfolio returns. This method maximizes the Sharpe ratio among portfolios on the efficient frontier.

Attributes

Accesspublic
Staticfalse
Hiddenfalse

To learn about attributes of methods, see Method Attributes in the MATLAB® Object-Oriented Programming documentation.

Examples

expand all

Estimate Efficient Portfolio that Maximizes the Sharpe Ratio

Estimate the efficient portfolio that maximizes the Sharpe ratio.

p = Portfolio('AssetMean',[0.3, 0.1, 0.5], 'AssetCovar',...
[0.01, -0.010,  0.004; -0.010,  0.040, -0.002;  0.004, -0.002,  0.023]);
p = setDefaultConstraints(p);
plotFrontier(p, 20);
weights = estimateMaxSharpeRatio(p);
[risk, ret] = estimatePortMoments(p, weights);
hold on
plot(risk,ret,'*r');

Algorithms

The maximization of the Sharpe ratio is accomplished by a one-dimensional optimization using fminbnd to find the portfolio that minimizes the negative of the Sharpe ratio. The method takes only a fully qualified Portfolio object as its input and uses all information in the object to solve the problem.

Was this topic helpful?