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Monte Carlo Simulation for Portfolio Assets
by Wilson Amoretty Palmeiro
Simulate sample path allow us to see the pattern that assets price will face. Crucial to hedge risk.
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| PortfolioMontecarlo.m |
Stock1=[BAC]; %Matrix of prices (2012)
Stock2=[GE]; %Matrix of prices (2012)
RetStock1=ret2price(Stock1);
RetStock2=ret2price(Stock2);
Returnone=[Mean(RetStock1); Mean(RetStock2)];%We need aggregate the data
SigmaStock1=std(RetStock2);
SigmaStock2=std(RetStock2);
Sigmas=[SigmaStock1; SigmaStock2];% Aggregate the data
Correlation=corrcoef(RetStock1, RetStock2);
Covariance=corr2cov(Sigmas, Correlation);
startprice=[20.65; 11.59];
numobs=249; % 1 calendar year
numsim=1000;% Num Simulation
numassets=2; %Only Two asset
retintervals=1; %One day Trading on Exchange Market
RetExact=portsim(ExpReturn, ExpCovariance, Numobs, Retintervals, Numsim, 'Exact');
ReturnExact=RetExact(:,:,1)/100;%Convert Chart into Numeric (we need convert) and divide return by 100%
Weights=ones(Numassets,1)/Numassets;
PortReturn=ReturnExact*Weights; %Portret=Sum(Xi*Weights)
plot(PortPrices, '-b');
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