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Let's assume you start out with 50000 dollars and no SPY, i.e. the position is (cash,spy) = (50000,0). After the first trade the position is (50000-100*127,100) = (37300,100) and the value is still 50000. After the second trade the position is (37300+87*125,100-87) = (48175,13) which has a value 48175+125*13 = 49800. So you have a loss of 200. And so on and ...


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The arithmetic average of +100% in Year 1 and -100% in Year 2 is 0%, but I we all know the result is not a 0% return. So arithmetic returns are absurd to use in any real life context. Maybe in another universe they can serve some purpose.


2

It's French for bound or limit (the authors are French) and it means whatever they define it to be ;) I'm was not aware of this concept before and so I don't know a description or definition in English of the same.



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