Does the Portfolio class have an equivalent to ABS2ACTIVE (in PORTOPT) to set constraints in the Financial Toolbox 5.0 (R2012b)?

I would like to set active constraints on my portfolio. Using the function PORTOPT, one can do that by passing the output of ABS2ACTIVE to the input argument 'ConSet'.

How can I do this using the Portfolio class instead of PORTOPT?

Answer 1

[MathWorks Support Team]

There are two approaches to this problem:

Method 1: Using the ‘setInequality’ method.

If you have A and b matrices such that "Ax <= b" with portfolio "x" (i.e. weights) and a reference portfolio "x0", the active constraint has the form

     A*y <= b - A*x0

where "y" are the active portfolio weights. These must satisfy a budget constraint defined as:

     sum(y) = 0

The sum of the active weights "y" is zero because y = x - x0, and the sum of the weights for both "x" and "x0" is 1.

The constraints can be set up directly in the Portfolio object with

    p = Portfolio;

    p = p.setInequality(A, b - A*x0);

    p.setBudget(0, 0);

and then you set up your additional information to form a proper portfolio optimization problem (means, covariances, etc.)

Method 2: Using the output of ABS2ACTIVE

When you use the output from ABS2ACTIVE to determine the constraints, the procedure would be

    p = Portfolio;

    c = abs2active([A, b], x0);

    p = p.setInequality(c(:,1:end-1),c(:,end));

    p = p.setBudget(0, 0);