Abstract
This paper suggests a framework for building an Asset Allocation tool and comes with about 300 lines of R code that implements its building blocks, which are calculation of Excess Returns including FX effects, as well as FX Forward Hedging, Optimization and Risk Decomposition. It draws on data from public sources and references the R code in the relevant passages of the text. All data and the R code are available for download. Four use cases are discussed: 1) drawing Efficient Frontiers based on different risk measures, like standard deviation or Expected Tail Loss; 2) studying the impact of varying FX Forward Hedge Ratios; 3) changing the Base Currency; and 4) Risk Decomposition. The examples are chosen with a view on practical implementation, reproducibility, and self-study.
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