I am looking to create a Monte Carlo generator in Excel to plot correlated asset paths for a portfolio containing 1 to 10 assets. I have the correlation matrix for all 10 assets and have performed the Cholesky Decomposition to obtain the lower NXN matrix output using some VBA code.
I am looking for some guidance on when/how to incorporate the asset weights of the portfolio into my path generation.
As an example for a three asset portfolio I generate three separate series of random variables using the NORMSINV(RAND()) = RN function to return the sigma. Then multiply each random variable by the corresponding cholesky output and sum the series to get a correlated random variable.
CRV (correlated ran. variables) = =RN1*chol1 + RN2*chol2 + RN3*chol3
I then found instruction on setting up your drift and volatility terms to generate a series of the log of prices factoring in the above input.
Log of Prices=LN(Starting Price)+(Drift-0.5*volatility * volatility) + volatility*CRV
Where do I factor in my asset weights? Let's say 20/30/50 for a three asset portfolio?