Group Coursework
Part 1: Optimal Portfolio with Two Assets
1. Calculate the optimal allocation of assets , Hong Kong Hang Seng Index and S&P500, in a
portfolio for a given risk-free rate using daily data. Assume the risk-free rate is 2.5%. (20
points)
a. You need to download the historical daily closing prices for the Hang Seng Index
and S&P500 Index through Wind API using WindPy package from January 1, 2000
to December 31, 2023. The ticker for S&P500 is SPX.GI and ticker for Hang Seng
Index is HSI.HI. When you submit your code, please ensure data can be correctly
extracted through WindPy.
b. Calculate return and covariance matrix and plot the efficient frontier of these two
assets.
c. Find the optimal portfolio weights that maximize the Sharp Ratio when risk-free
rate is 2.5%. The portfolio only consists S&P500 and Hang Seng Index.
You can use trading floor to access WindPy. Please ask trading floor assistant for WindPy access.
The TF assistant will help you install WindPy API.
2. Find the Fed Funds rate data and divide the sample period into rising Fed Funds rate
period and declining Fed Funds rate period. Recalculate the optimal allocation for each
sub-period using the same risk-free rate, 2.5%. Analyze how changing interest rate
environments impact the optimal allocation. (20 points)
Part 2: Adding a Third Asset
3. Add a third asset like gold into your portfolio. (The ticker in Wind for gold is
S
PTAUUSDOZ.IDC) Plot the efficient frontier for these three assets. Compare with the
two assets case, explain how adding another asset changes the efficient frontier. (20
points)
4. Find the optimal portfolio allocation with the same risk-free rate, 2.5%. Conduct your
analysis based on full sample period without dividing your sample into two sub periods.
(20 points)
Part 3: Yale Endowment Funds
5. David F. Swensen was the chief investment officer at Yale University from 1985 to May
2021. Mr. Swensen was responsible for managing and investing Yale's endowment assets
and investment funds, which totaled $25.4 billion as of September 2016. Mr. Swensen
pioneered the alternative investments. Please explain the benefit of alternative
investments. (20 points) (Notice you can use graphs to help your explanations, please
keep your answer less than 300 words.)
Marking Rubric
Replicability (30%):
1. Code clarity, correctness, and proper documentation.
2. Clear instructions for code execution and clear instructions for replication.
3. Functionality can be reproduced by the instructor.
The WindPy package should enable the instructor to replicate your results without
downloading your dataset.
Soundness & Quality of Analysis (70%):
4. Calculations & Technique: Accurate returns, covariance calculations, optimal portfolio
weights, Sharp ratio of optimal portfolio, and optimization methodologies.
5. Interpretations: Explanations on the impact of interest rates, diversification benefits,
and the role of alternative investments.
6. Communication: Clear report structure, explanations, and visualizations.
7. Complaints of free-riding problems by other team members will be investigated and
the points awarded to a verified free-rider will be adjusted according to the severity of
the problem.
