WebCab Portfolio for .NET v5.0 Demo

CapitalMarket.MarketPortfolioExpectedReturn Method (Double[], Double[][])

Evaluates the expected return of the Market Portfolio when the asset weights of the Market Portfolio are known.

public double MarketPortfolioExpectedReturn(
   double[] weights,
   double[][] historicalReturns
);

Parameters

weights
The (possibly constrained) weights of the (risky) assets from which the Market Portfolio was constructed. These weights can be evaluated by using the method MarketPortfolio.
historicalReturns
historicalReturns[i][t] is the return (in absolute or relative percentage terms) of the i-th asset of the collect in the tth period. Note that if the absolute (resp. percentage) returns are used then the estimated expected return will be expressed in absolute (resp. relative percentage) terms. Moreover, if the daily returns are used then the estimated return will be an estimate of the daily return and so on.

Return Value

A double equal to the expected return of the Market Portfolio.

Remarks

The (possibly constrained) asset weights of the market portfolio should be evaluated prior to the application of this method user MarketPortfolio.

Remark: The historical returns of the assets used here will correspond to the historical returns of the asset which was used in the evaluation of the (possibly constrained) Efficient Frontier.

Approach used here and other options

Within this method we evaluate the expected returns of the assets from there historical values using a historical approach. That is, the present expected return is estimated to be the arithmetic average of the previous historical expected returns. A weighted average is then used in order to estimate the expected return. This should be the default means by which the (present) expected return of the Market Portfolio is estimated. However, there are a number of competing approaches which you may wish to use; these include:

  1. Scenario Approach as provided within ExpectedReturn

See Also

CapitalMarket Class | WebCab.Libraries.Finance.Portfolio Namespace | CapitalMarket.MarketPortfolioExpectedReturn Overload List