For Asset Allocation in R using Portfolio Analytics, is there a way to set risk as constant number, then optimize portfolio returns? For example, to maintain VaR always at 5% (conservative), how do weights of 8 assets change in portfolio to max return? In contrast, how do the weights change compared to a risky (VaR =20%) portfolio? In the Portfolio Analytics package, we can only set min risk as objective, but not set risk as a constant number. (Different from Equal Risk Contribution)
1 Answer
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You can use the ‘portfolio.optimization' Package with this you can optimize your portfolio with a VaR set at 5% Max target and try to find the right allocation by using the function :
optimal.portfolio.expected.shortfall
or you can optimize by CVaR:
optimal.portfolio.expected.shortfall.long.short
... this is quite straight forward!!
