How do I remove short-selling constraints from a portfolio?

I need to calculate an efficient frontier for a Markowitz portfolio using the integrated Portfolio class. If I use the function "setDefaultConstraints", I set short-selling restrictions. The only restriction I need is that the portfolio weights sum to one, how can I thus removed the short-selling restriction? I have tried to "setBounds", but it is not possible to use infinite bounds.

Answer 1

[Aman]

Hi MLB,

As per my understanding, you just want to find an efficient frontier with the condition that there should be no bound on the short-selling and your budget constraints sum to one.

In order to achieve this, you need to follow the below steps:

1. Instead of using "setDefaultConstraints," use the "setBound" method and set the lower limit and upper limit to negative infinite and positive infinite, respectively.
2. Once you have set the bounds, you can utilize the "setBudget" method for putting constraints on your portfolio object.
3. When the above two steps are done, you can use the "estimateFrontier" method for calculating the efficient frontier.

You can refer to the below documentation to learn more about the mentioned method:

• "setBound": https://in.mathworks.com/help/finance/portfolio.setbounds.html
• "setBudget": https://in.mathworks.com/help/finance/portfolio.setbudget.html
• "estimateFrontier": https://in.mathworks.com/help/finance/portfolio.estimatefrontier.html

I hope this helps you to proceed ahead with your workflow!