Package webcab.lib.finance.portfolio

Apply the Markowitz and Capital Asset Pricing Model (CAPM) to analyze and construct the optimal portfolio with/without asset weight constraints with respect to Markowitz Theory by giving the risk, return or investors utility function; or with respect to CAPM by given the risk, return or Market Portfolio weighting.

See:
Description

Class Summary

AssetParameters	Within this class we provide procedures for the evaluation of various quantities which are required within the application of this Component.
CapitalMarket	This class applies the Capital Asset Pricing Model (CAPM) to analyze the construction and qualitative nature of a portfolio's risk-return characteristics.
EasyOptimal	This class presents the key functionality made available from the Markowitz Theory and Capital Asset Pricing Model (CAPM) within this product in an easy to use and quickly understandable form.
Interpolation	Within this class we offer methods by which the Efficient Frontier can be constructed from a finite set of known points.
Markowitz	This class applies the Markowitz Model to analyze the construction and qualitative nature of a portfolio's risk-return characteristics.
OptionsConstants	This class defines constants used by the Options class methods.
PerformanceEvaluation	Within this class we offer a number of procedures which assist in accessing the return and risk-adjusted return on an investment portfolio.
PointsOnEfficientFrontier	This class encapsulates/represents the points of the efficient frontier.
SolveFrontier	Within this class we provide methods by which the optimal portfolio can be selected from the Efficient Frontier when the investor describes his investment preferences.
TwoAssetPortfolio	Here we present a number of methods which enables the evaluation of risk/return characteristics of portfolios which consist of two assets.
Volatility	This class consists of a collection of methods for estimating and rescaling the volatility.

Exception Summary

AboveException	The `AboveException' exception is thrown when the investors utility function does not select an optimal portfolio from the Efficient Frontier because for all values of the expected return considered the Utility function is greater than the Efficient Frontier.
AssetParametersDemoException	This exception is thrown by the demo version of the AssetParameters class after the number of maximum method calls has been reached.
BelowException	The `BelowException' exception is thrown when the investors utility function does not select an optimal portfolio from the Efficient Frontier because for all values of the expected return considered the Utility function is less than the Efficient Frontier.
CapitalMarketDemoException	This exception is thrown by the demo version of the CapitalMarket class after the number of maximum method calls has been reached.
EasyOptimalDemoException	This exception is thrown by the demo version of the EasyOptimal class after the number of maximum method calls has been reached.
EfficientFrontierNotCalculatedException	This exception is thrown if the efficient frontier has not been properly calculated using the calculateEfficientFrontier() method.
InterpolationDemoException	This exception is thrown by the demo version of the Interpolation class after the number of maximum method calls has been reached.
InterpolationException	This exception will be thrown to indicate errors in input values for any of the implemented methods.
MarkowitzDemoException	This exception is thrown by the demo version of the Markowitz class after the number of maximum method calls has been reached.
NoSolutionException	This exception is thrown to indicate that there are no portfolios with the expected return as requested in one of the methods.
OptionsException	Exception usually thrown to indicate error in input values.
PerformanceEvaluationDemoException	This exception is thrown by the demo version of the PerformanceEvaluation class after the number of maximum method calls has been reached.
PortfolioException	This is the base exception class for all other exceptions thrown by the Portfolio class.
ReferencedServiceException	This exception is thrown if an error occurs while invoking methods of another class.
SolveFrontierDemoException	This exception is thrown by the demo version of the SolveFrontier class after the number of maximum method calls has been reached.
SolveFrontierException	This is the Solve Frontier class exception which is known if no solution is found for the given input parameters.
TooManyPortfoliosException	This exception is thrown if the number of optimal portolios found exceeds 100.
TwoAssetPortfolioDemoException	This exception is thrown by the demo version of the TwoAssetPortfolio class after the number of maximum method calls has been reached.
UtilityFunctionNotInitializedException	This exception is thrown to indicate that the utility function has not been properly set using the setUtilityFunctionPoly() and setUtilityFunctionInterp() methods.
VolatilityDemoException	This exception is thrown by the demo version of the Volatility class after the number of maximum method calls has been reached.

Package webcab.lib.finance.portfolio Description

Apply the Markowitz and Capital Asset Pricing Model (CAPM) to analyze and construct the optimal portfolio with/without asset weight constraints with respect to Markowitz Theory by giving the risk, return or investors utility function; or with respect to CAPM by given the risk, return or Market Portfolio weighting. Also includes Performance Evaluation, extensive auxiliary classes/methods including equation solve and interpolation procedures, analysis of Efficient Frontier, Market Portfolio and CML.

What problems does this Components address

The principle aim of this component is to provide a through and flexible implementation of the Markowitz Theory and Capital Asset Pricing Model of Portfolio Theory. The main questions where are addressed by these theories which can be answered using our Component are as follows:

• Markowitz Theory - Allows the `optimal' portfolio constructed from a collected of assets to be selected when the risk, expected return or investors utility function is known.
1. What is the portfolio which can be constructed from a given set of assets which has the lowest risk for a given value of the expected return? (See Markowitz.efficientFrontier(double, int) and Markowitz.efficientFrontier(double, double[][], double[], double)).
2. What is the portfolio which can be constructed from a given set of assets which has the greatest expected return for a given value of the total risk? (See SolveFrontier class and in particular SolveFrontier.findReturn(double, double[], double[]) and SolveFrontier#findReturn(double[], double[], double[], double[], double)
3. What is the portfolio(s) which can be constructed from a given set of assets which is optimal with respect to the investors risk/reward utility function? (See Markowitz.optimalPortfolio and Markowitz.optimalPortfolioMaxExpected).
• Capital Asset Pricing Model (CAMP) - Allows the `optimal' portfolio constructed from a collection of assets with the option of either lending or borrowing cash, to be selected when the risk, expected return, weighting of the Market Portfolio are known.
1. What is the portfolio which can be constructed from a given set of assets with the option of borrowing or lending cash at the prevailing market rate, such that the total risk is minimized for a given value of the expected return? (See CapitalMarket.weightCML to construct the optimal portfolio and CapitalMarket.riskCML to evaluate its total risk).
2. What is the portfolio which can be constructed from a given set of assets with the option of borrowing or lending cash at the prevailing market rate, such that expected return is maximized for a given value of the total risk? (See CapitalMarket.returnCML class to evaluate associated expected return and then CapitalMarket.weightCML to construct the optimal portfolio).
3. What is the weighting of the Market Portfolio (i.e. non-cash part) within the optimal portfolio given by its expected return when the portfolio can be constructed from a given set of assets with the option of borrowing or lending cash at the prevailing market rate? (See CapitalMarket.weightCML in order to evaluate the weighting and then CapitalMarket.riskCML to evaluate its risk).

An Overview of the classes of this Component

This component contains the following business classes:

1. AssetParameters - Auxiliary class which offers methods to assist in the evaluation and estimation of various parameters which are then used within the methods of the main classes.
2. CapitalMarket - Implements the Capital Asset Pricing Model (CAPM). The CAPM is an extension of the Markowitz theory in that in the construction of an optimal portfolio along with (risky) assets you may borrow or lend (zero risk) cash at the prevailing market rate.
3. Interpolation - Offers methods by which the Efficient Frontier can be constructed from a finite set of points.
4. Markowitz - Implements the Markowitz model, that is, we offer method which allow the portfolio with the least return to be constructed from a collection of assets.
5. PerformanceEvaluation - Offers a number of procedures for accessing the return and risk adjusted return (Treynors Measure, Sharpes Ratio).
6. SolveFrontier - This class complements the methods found within the Markowitz class which allow you to find for a given expected return the corresponded portfolio on the Efficient Frontier. Here we also allow you to provide the value of the total risk and we will find the corresponding values of the expected return of the portfolio on the efficient frontier.
7. TwoAssetPortfolio - Evaluation of the optimal weighting of a portfolio with two assets. This functionality can be used to analyze the effect of a single purchase or sale from an arbitrary portfolio.
8. Volatility - Auxiliary class which offers methods to assist in the evaluation of the volatility, variance and covariance of the assets.