R Finance: Monte Carlo Simulations

In this video, we discuss the quantmod package in R, and use data from the package to run a Monte Carlo simulation. This simulation helps us to identify the downside risks of holding a certain portfolio.
#R #datascience #finance #montecarlo

[@War4Skills]

Thanks a lot for this video! Currently doing a course Mathematical Finance and this video really helped with the practical side of implementing Monte Carlo Simulation!

[@chessability.]

Awesome, happy to hear! Good luck with the course!

[@furkanbostanci8882]

Thank you so much for this great video ! It was clear and very informative.

[@chessability.]

Thanks for watching!

[@bahramshahrooz4213]

Thank you for posting an excellent video. I learned so much!!!
I'm trying to come up with a return of my portfolio that has several mutual funds. At least one of them doesn't have all the data (e.g., it starts on 2020-01-02 whereas the others start on 2007-01-03). As a result, I can't combine the returns. Do you've a suggestion for how to solve this issue?

[@chessability.]

Thanks for watching!
Yes, there are a few options... you could 'backfill' the data from 2007 - 2020 for that mutual fund by sampling the 2020-2024 data over and over. This gives you a sense of what the returns 'would have been'
But I don't think I would recommend that, especially because 2020/2021 had pretty extreme performance, and so the backfill might be skewed. Instead, I would just recommend assigning a weight of 0 to that mutual fund from 2007-2020, and then increasing the weight once the mutual fund 'comes online'. That's the most realistic way: you had zero weight in the fund beforehand! Does that make sense?

[@bahramshahrooz4213]

@@chessability. Thanks for getting back to me. Yes, your suggestion makes a lot of sense. I'm somewhat familiar with R but don't know to elegantly add 0 weigh for 2007-2020. I appreciate your help.

[@chessability.]

@@bahramshahrooz4213 For sure! If your weight vector is called w, and you want to set the first 100 elements to 0, just try w[1:100]

[@bahramshahrooz4213]

@@chessability. Thanks for your help. I've learned so much in the last 24 hours by watching your video and getting your responses. I really appreciate it.

[@chessability.]

@@bahramshahrooz4213 Of course! Let me know if I can help with anything else!

[@derHamster007]

Hi, really enjoyed your video and have used it to model different portfolio ideas!
I was wondering if you had an idea on how to incorporate monthly drip-feeding into the model? For example estimating S&P 500 returns in dollar terms when investing $500 per month.

[@caitlinmccormick8135]

Hiya, what Monte Carlo Simulation method would you say you used here?

[@chessability.]

Hello! I think the proper terminology is that this is just a "Monte Carlo simulation." In this specific case we're looking at a Monte Carlo simulation to test for portfolio downside. Does that help?