9 votes
Accepted

What is the appropriate benchmark for a Long/Short VIX futures strategy?

If your strategy truly has no directional bias, then the benchmark should be cash (ie whatever you would earn using the capital in your trading account and taking no risk).
Chris Taylor's user avatar
  • 5,901
6 votes

What is the appropriate benchmark for a Long/Short VIX futures strategy?

You could compare it, over the historical period of interest, to 1000 randomly generated VIX strategies which are: Flat on 60 Percent of days (randomly chosen days) Long VIX futures on 20% of days ...
nbbo2's user avatar
  • 11.2k
5 votes

What is the appropriate benchmark for a Long/Short VIX futures strategy?

If you are developing this strategy to use personally, I would benchmark it against your next best option. If the strategy has been developed to attempt to manage other peoples money I would ...
user89135's user avatar
  • 284
4 votes
Accepted

Is there a difference between JPY TONA and JPY TONAR?

This document from Japanese bank Mitsubishi UFJ states they are one and the same rate, see page 3 $-$ my emphasis: TONAR (Tokyo Overnight Average Rate), the RFR for JPY also called TONA, is a pre-...
Daneel Olivaw's user avatar
3 votes

Best practice when computing beta coefficient

A widely accepted method to estimate Beta is the Vasicek (1973) method, which computes a preliminary estimate of Beta by linear regression and then "shrinks it" (adjusts it) towards 1 to compensate ...
nbbo2's user avatar
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3 votes
Accepted

What's the most accurate benchmark index for US corporate and treasury bonds

AGG tracks the Bloomberg Barclays US Aggregate Bond Index, which goes back to the early 1980s. Daily data is available on Bloomberg (ticker: LBUSTRUU). As for publicly available data, FRED has some ...
J-F's user avatar
  • 321
2 votes

AUD Swap Reference Rate?

A 5 year AUD swap, for example, references a short term rate such as 3month BBSW. There is no such thing as 5 year BBSW or 5 year AUD Libor. The maturity of an interest rate swap is not the same ...
dm63's user avatar
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2 votes
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How to compute returns of a Pairs Trading Strategy with different holding periods?

A more appropriate approach is to sum your PNL each day across all of your positions and calculate the return for the book as a whole (assuming I understand your question correctly). Return should be ...
user42108's user avatar
  • 2,252
2 votes

Can alpha be positive if cumulative returns underperform the benchmark?

The best example of an underperforming strategy with big alpha, is insurance. Every year you pay a premium to insure your house. That strategy has negative expected return, negative beta, but super ...
phdstudent's user avatar
  • 8,306
2 votes

Can alpha be positive if cumulative returns underperform the benchmark?

Yes, this is absolutely possible. Here is a simple thought experiment to show how. We want to benchmark to the S&P 500. We allocate 90% of our capital to an index tracking strategy and 10% to some ...
kurtosis's user avatar
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2 votes
Accepted

Custom benchmark construction (S&P500 + add-on)

So, you: 1- take your daily return series. I've used the SPY ETF including divis 2- take a log return series, ln(1) 3- add ln(1.015)/261 to 2, given 261 trading days on average each year 4- do a ...
demully's user avatar
  • 5,061
1 vote

Allow drift in weights in a risk benchmark?

Good question. It isn't so common that the volatilities are recalculated based on estimated drifts, it is more about adjusting for those drifts as time goes on. It also depends on how actively you ...
Xenarc's user avatar
  • 46
1 vote

Benchmark of a Dollar Neutral Strategy

The initial passage you quoted https://www.quora.com/Whats-the-difference-between-market-neutral-and-dollar-neutral-strategy (by Martin Fröhler on Quora) explains the difference between dollar-neutral ...
nbbo2's user avatar
  • 11.2k
1 vote

How to interpret the French-Fama SMB factor?

There could be a number of reasons, let go over this. First, your sample (the 10 portfolios) might differ from the sample FF used to compute the SMB factor. May be you're using a smaller market or ...
Tim 's user avatar
  • 337
1 vote

Benchmark value for American Options under stochastic volatility

Well, I guess the OP is done with this by now, but the answer is finite difference methods. Not that easy to implement for Heston, but not terribly difficult either. Those are so efficient that they ...
Yian Pap's user avatar
  • 521
1 vote
Accepted

What is a definition of "Benchmark"?

Some use the acronym SAMURAI: a benchmark should be S - Specified in Advance A - Appropriate M - Measurable U - Unambiguous R - Reflective of Current Investment Thinking A - Accountable I - ...
nbbo2's user avatar
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