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I am trying to solve a portfolio optimisation problem where I want to maximise the risk / return of 4 assets under constraints of no short sales and the sum of the weights should be equal to 1. As two of those assets are S&P500 (w1) and Nikkei 225 (w2) currency hedged into British pound and the two others are also S&P500 (w3)and Nikkei 225 (w4) but this time currency un-hedged into British pound. What I would like to find out is the weights that define the level of currency hedge and that maximise the return/risk for each assets. So the weights shoudl obey the following constraints: w1+w3 = 0.5, w2+w4=0.5 , w1+w2+w3+4=1 , w1=(1-w3) , w2=(1-w4) and w1 to w4 >=0. I have been using quadprog in the past and have a few lines of code to maximise the risk/return under no short sales and min max range from a previous post/question Portfolio Optimisation Under Constraint . So I understand how to program most of this bu I am unsure how to properly code the sumplementary constraints in bVec , namely w1=(1-w3) & w2=(1-w4) ). I assume it can be done by reprograming bVec <- c(1,min_A,0,-max_A,-1) in the code but am unsure on how to do this.... Any help / clues appreciated...

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  • If you really want help, try to format your question and be more precise about your current model / changes wanted (formal description; not text). As of now: this is very very ugly to read and process... – sascha Jun 06 '16 at 12:26
  • Hi Sascha , thank you for your comments. I though it was unecessary since I linked my text to a previous post & answer but I can copy paste for sake of clarity. – user3690243 Jun 06 '16 at 16:00

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