Abstract

http://ssrn.com/abstract=1371320
 
 

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Mr. Madoff's Amazing Returns: An Analysis of the Split-Strike Conversion Strategy


Carole Bernard


University of Waterloo

Phelim P. Boyle


Wilfrid Laurier University - School of Business & Economics; University of Waterloo

May 14, 2009

Journal of Derivatives, Vol. 17, No. 1, 2009

Abstract:     
It is now known that the very impressive investment returns generated by Bernie Madoff were based on a sophisticated Ponzi scheme. Madoff claimed to use a split-strike conversion strategy. This strategy consists of a long equity position plus a long put and a short call. In this paper we examine Madoff's returns and compare his investment performance with what could have been obtained using the split-strike conversion strategy based on the historical data. We also analyze the split-strike strategy in general and derive expressions for the expected return, standard deviation, Sharpe ratio and correlation with the market of this strategy. We find that the Madoff's returns lie well outside their theoretical bounds and should have raised suspicions about Madoff's performance.

Number of Pages in PDF File: 30

Keywords: Madoff, split-strike conversion strategy, performance measurement

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Date posted: April 1, 2009 ; Last revised: May 23, 2011

Suggested Citation

Bernard, Carole and Boyle, Phelim P., Mr. Madoff's Amazing Returns: An Analysis of the Split-Strike Conversion Strategy (May 14, 2009). Journal of Derivatives, Vol. 17, No. 1, 2009. Available at SSRN: http://ssrn.com/abstract=1371320 or http://dx.doi.org/10.2139/ssrn.1371320

Contact Information

Carole Bernard
University of Waterloo ( email )
waterloo, Ontario N2L 3G1
Canada
Phelim P. Boyle (Contact Author)
Wilfrid Laurier University - School of Business & Economics ( email )
Waterloo, Ontario N2L 3C5
Canada
519 884 1970 (Phone)
519 888 1015 (Fax)
University of Waterloo
Waterloo, Ontario N2L 3G1
Canada
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