1. The problem we just solved has two special features. One is that we considered transaction costs explicitly. Another feature is that we considered the weights of the existing portfolio. To examine the effects of these two features, let us solve the problem again find portfolio (1) after setting c to zero, and portfolio (2) after setting wb to zero.
Compare the portfolio weights we obtained earlier with portfolio (1) weights we obtain when c is zero. Also, compare the portfolio weights we obtained earlier with portfolio (2) weights we obtain when wb is zero.
2. Compare the risk-adjusted return (Sharpe ratios and information ratios) of the given portfolio to that of alternative portfolios. Examine two alternative portfolios: (1) a portfolio that is equally weighted initially without rebalancing in later periods, (2) a portfolio that is equally weighted with monthly rebalancing to maintain equal weighting every month. Which portfolio has a better risk-adjusted return?
3.The sample code of Project 1 was provided on Canvas. Compare the procedure in the sample code (method 1 and method 2)What’s the difference between the two implementations
Write the work in a word file and attach the code to the word file.
