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jmbejara / comp-econ-sp18

Main Course Repository for Computational Methods in Economics (Econ 21410, Spring 2018)
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Are we allowed to have negative weights in our portfolio optimization? #4

Closed NihilistOkapi closed 6 years ago

NihilistOkapi commented 6 years ago

I do not see anything specific about non negative weights in our portfolio optimization. Is that allowed?

jmbejara commented 6 years ago

Hi. Yeah, negative weights are allowed here. The negative weights correspond to "shorting" a security (https://en.wikipedia.org/wiki/Short_(finance) ). I considered adding an additional part to the assignment that required the additional constraint that weights be non-negative, since it's an interesting exercise that people often use in this kind of analysis, but I didn't in the end. Also, as a side note, the case without the "no-short-sale" constraint can be solved analytically. The case with the constraint cannot and requires that we use an numerical optimizer like we are doing in the HW.