MTH305: MATLAB Project – Portfolio Risk Analysis
Instructons:
1. This project is to use MATLAB software to conduct portfolio composition analysis,
return-risk calculations, and plot the efficient frontier for the given portfolio of
financial assets.
2. In the project, Matrix operations need to be used to do analysis. A review of
relevant MATLAB commands in this regard would be very helpful.
3. You may refer to the lecture notes and tutorial questions/solutions especially the
notes published in Weeks 4 and 5 on ICE for formulas/equations.
4. You need to copy/paste MATLAB commands and results (i.e. things required by the
project including graphs but omit unnecessary intermediate results) into Microsoft
word, and save as a Word file. You need to print out the file and submit your work in
hardcopy with your name and ID number. As usual, you’ll submit your work using the
Submission Box.
Project - Part I
Consider the following four securities and their returns, standard deviations, and
correlation coefficients. Use MATLAB to do the tasks given below.
𝝁𝟒 = 𝟎.𝟑𝟎, 𝝈𝟒 = 𝟎.𝟑𝟎, 𝝆𝟏𝟒 = 𝝆𝟒𝟏 = 𝟎.𝟐,
𝝆𝟐𝟒 = 𝝆𝟒𝟐 = −𝟎.𝟑,
𝝆𝟑𝟒 = 𝝆𝟒𝟑 = −𝟎.𝟒.
Project - Part II
Then, compute the weights of the securities for the minimum variance portfolio given
that the expected return 𝜇𝑃=10%. Also, compute the corresponding variance of the
portfolio.
Project - Part III
Compute the capital market portfolio M consisting of the above four risky securities
and a risk-free security F with return 𝜇𝐹=5%.
Project - Part IV
Compute the capital market line for the above question consisting of those four risky
securities and the risk-free security. Plot the line and the efficient frontier of the assets
on the return-risk plane using MATLAB.