Optimization with custom objective function
This exercise builds on the previous exercise and we will run the optimization with the custom objective function that computes portfolio annualized standard deviation. Because an objective function can be any valid R function, we add a risk objective for the pasd() function. The set.portfolio.moments() function will not recognize the pasd() objective name, so we need to create a custom moment function to calculate the second moment, sigma. We will solve the problem using random portfolios as the optimization method.
This exercise is part of the course
Intermediate Portfolio Analysis in R
Exercise instructions
- Add the custom objective function you created in the previous exercise to the portfolio specification object.
- Print the portfolio specification object to see the constraints and objective.
- Run the optimization. The name of the custom moment function is
set_sigma. - Print the results of the optimization.
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
# Add custom objective to portfolio specification
port_spec <- add.objective(portfolio = ___, type = ___, name = ___)
# Print the portfolio specificaton object
# Run the optimization
opt <- optimize.portfolio(R = ___, portfolio = ___, momentFUN = ___, optimize_method = "random", rp = rp)
# Print the results of the optimization