Quant Nugget 5: Return Calculations for Leveraged Securities and Portfolios

GARP Risk Professional, pp. 40-43, October 2010

7 Pages Posted: 12 Sep 2010 Last revised: 15 Nov 2010

Attilio Meucci

ARPM - Advanced Risk and Portfolio Management

Date Written: September 10, 2010

Abstract

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.

Keywords: Leverage, portfolio weights, swaps, futures, risk-adjusted performance attribution, hierarchical portfolios, conditional probability

JEL Classification: C1, G11

Suggested Citation

Meucci, Attilio, Quant Nugget 5: Return Calculations for Leveraged Securities and Portfolios (September 10, 2010). GARP Risk Professional, pp. 40-43, October 2010 . Available at SSRN: https://ssrn.com/abstract=1675067

Attilio Meucci (Contact Author)

ARPM - Advanced Risk and Portfolio Management ( email )

HOME PAGE: http://www.arpm.co/

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