Have a look at this note: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1675067 This may help Dave
On 01/06/2011 01:28 PM, Guy Green wrote: > In any realistic portfolio you will have some starting equity, and you would > also have the costs/proceeds of your long & short positions. The portfolio > value would then be: > > Starting equity + $(m1-m2-m3) -cost(pos1) +proceeds(pos2) +proceeds(pos2) > > or to put it another way: > > Starting equity +/- unrealised gains/losses on your positions. > > Your position sizes will be linked to your starting equity, both in the > sense that your starting equity is a real-world constraint on the sizes of > the positions that your broker will allow you to enter into, and also in the > more theoretical (but still real-world) sense that the relative sizes of > your starting equity and your positions contribute to the likelihood of your > strategy exhausting all your equity at some point in the future, even if it > is a winning one over the long term. > > Guy > > > Megh Dal wrote: >> Hi all, can somebody suggest me on what is the correct way to calculate >> value of a portfolio (i.e. mark-to-market value) with having both long and >> short position? For example, suppose I have 3 positions in my portfolio >> pos1, po2, and pos3 and type of transaction is long, short, short >> respectively. >> >> Say, m2m value of those 3 positions are m1, m2 and m3 in money term. Then >> should m2m value of this portfolio be $(m1-m2-m3)? >> >> If this is correct I feel there are some practical problem with this >> approach. Let say I calculated the volatility of this portfolio assuming >> some normal distribution of return, let say it is $X. Then if I want to >> answer, what is the volatility for per unit value of my entire portfolio >> the >> answer would be : $X/$(m1-m2-m3). However if it happenes that $(m1-m2-m3) >> = >> 0 then above calculation becomes undefined. >> >> This approach also may be problametic if I have all short, in this case >> unit >> SD for my portfolio becomes obviously negative. >> >> Or should I go with $(abs(m1)+abs(m2)+abs(m3)) to avoid above scenario? >> >> Any explanation would be highly appreciated. >> >> Thanks >> _______________________________________________ [email protected] mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance -- Subscriber-posting only. If you want to post, subscribe first. -- Also note that this is not the r-help list where general R questions should go.
