Quant Nugget 5: Return Calculations for Leveraged Securities and Portfolios
ARPM - Advanced Risk and Portfolio Management
September 10, 2010
GARP Risk Professional, pp. 40-43, October 2010
How can we report returns for a swap that has zero value? How can we perform return optimization for a zero-value long-short portfolio? By introducing a suitable "basis", it is possible to extend the definition of returns to leveraged products in such a way that performance attribution and portfolio optimization are feasible. Risk-adjusted performance attribution and connections of performance attribution with probability theory are also discussed.
Number of Pages in PDF File: 7
Keywords: Leverage, portfolio weights, swaps, futures, risk-adjusted performance attribution, hierarchical portfolios, conditional probability
JEL Classification: C1, G11
Date posted: September 12, 2010 ; Last revised: November 15, 2010
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