# MVT
## Description
For investors concerned with both absolute and relative performance, the mean-variance tracking-error (MVT) objective function maximizes a portfolio’s expected return while minimizing both risk and tracking error. This function also allows for the robust specifications of linear and nonlinear constraints.
## Syntax
The following describes the function signature for use in Microsoft Excel's formula bar.
```excel-formula
=MVT(mu, sigma, rho, λ1, λ2, wBenchmark, wInitial, tc, lb, ub, constraints, nonlincons)
```
### Input(s)
| Argument | Description |
| --------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **mu** | Required. Vector of expected returns. |
| **sigma** | Required. Vector of expected risk. |
| **rho** | Required. Correlation matrix. |
| **λ1** | Optional. Scalar value for risk aversion. If not specified, it defaults to 1. |
| **λ2** | Optional. Scalar value for tracking aversion. If not specified, it defaults to 1. |
| **wBenchmark** | Optional. Vector of benchmark weights. If not specified, the function assumes a vector of zeros. |
| **wInitial** | Optional. Vector of initial weights (or your current weights). If not specified, the function assumes a vector of zeros. |
| **tc** | Optional. Vector of transaction costs. If not specified, the function assumes a vector of zeros. |
| **lb** | Optional. Vector of lower bound limits. If not specified, it defaults to a vector of zeros. |
| **ub** | Optional. Vector of upper bound limits. If the argument is not specified, it defaults to a vector of ones. |
| **constraints** | Optional. Matrix of constraints, operator enumeration, and values: \begin{bmatrix}A & op \&b\end{bmatrix}
The operator enumeration is represented by op \in \begin{cases} 0: & \leq \1: & = \ 2: & \geq \end{cases}
If the argument is not specified, it will default to a fully-funded constraint.
i.e. \begin{bmatrix}1,1,…,1\_N,1,1\end{bmatrix}
|
| **nonlincons** | Optional. Matrix to specify nonlinear constraint enumeration, operator enumeration, and values: \begin{bmatrix}nonlinType & op & value\end{bmatrix}
The nonlinType enumeration is
nonlinType \in \begin{cases} 0: & \text{off} \1: & \text{same risk} \ 2: & \text{same tracking-error} \end{cases}
|
### Output(s)
The function returns a vector of optimal weights $$w$$ across $$N$$assets and appends the corresponding optimization's exit flag.
$$\text{output}=\begin{bmatrix}w\_1 & w\_2 & \ldots & w\_N & \text{exitFlag}\end{bmatrix}$$
The output matrix follows the vector orientation of mu (column / row). If you have specified your inputs as column-vectors, the corresponding output matrix will be transpose of the above.
| exitFlag | Description |
| :------: | --------------------------------------------------------------------------------------------------- |
| **-2** | No feasible solution found. Check your constraints and problem definition. |
| **-1** | Unexpected interruption. |
| **0** | Number of iterations exceeded. |
| **1** | First-order optimality measure is less than tolerance threshold and the constraints were satisfied. |
| **2** | Delta in optimal weights is less than the configured numerical step size. |
| **3** | Change in the expected utility value is less than the tolerance threshold. |
| **4** | Magnitude of search direction was less than the configured threshold. |
| **5** | Magnitude of directional derivative in the search direction was less than the configured threshold. |
## Example
{% file src="" %}
Example Workbook: MVT
{% endfile %}
## Further Reading
{% embed url="" %}
Insights into Windham's Multi-goal Optimization approach
{% endembed %}