How does the function quadprog() work?
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Hi all, I have tried many things but the definitions for the input of the function quadprog() is different at different sources. Can somebody help me how I should use this function?
I defined the nr of assets. input_matrix equals the covariance matrix. And the mu_matrix the expected return. Both matrices with daily data. The inverse of the covariance matrix. The expected return of each asset daily which is also a matrix. nr_assets=k;
T= size(input_matrix,1);
weight_matrix=zeros(T,nr_assets);
i_vector = ones(k,1);
for i = 1:T
data_i = input_matrix(i,:);
cov_matrix_i = Vech2Sym(k,data_i);
mu_vector_i = mu_matrix (i,:)';
inverse_cov_matrix_i = inv(cov_matrix_i);
With these data I created 3different matrices:
A= i_vector' * inverse_cov_matrix_i*i_vector;
B= i_vector' * inverse_cov_matrix_i*mu_vector_i;
C=mu_vector_i'*inverse_cov_matrix_i*mu_vector_i;
And weight_1 = (C-q*B)/(A*C-B^2)
weight_2 = (q*A-B) / (A*C-B^2);
weight_matrix(i,:) = quadprog (inverse of covariance matrix, ???,???, ???,1,0,1). lb =0 because no short selling aloud.
(I also defined a function which puts vech of A into A. )
Is anyone able to help me? All help is appreciated.
--
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