4 votes

What does "Gamma profit/loss" mean?

Think of this in terms of Taylor series. Let's say the option price today is $C\left(S,t\right)$ where S is the underlying price and t time. Let's say the underlying price changes by $\Delta S$ in a ...
Magic is in the chain's user avatar
4 votes

Portfolio VaR of a hedge portfolio (long index, short future): What total exposure to take to calculate VaR?

Firstly, your portfolio volatility of 0.74% is the variance, as the vol will be 8.6% relative your equity position. This is the Case 2 below. I will try to give you a derivation that you hopefully can ...
Pontus Hultkrantz's user avatar
4 votes

In FX trading, is the risk for long positions higher than for short positions, or vice versa?

I you take a long position in a stock the worst that can happen is the stock goes to zero, and you lose your investment. If you take a short position in a stock, you have the potential for unlimited ...
Chris Taylor's user avatar
  • 5,911
3 votes

Gamma squeeze - mathematical explanation

Your questions on gamma squeeze are nicely answered here and/or here. Pnl of options book We will assume that the risk-free rate $r$ is zero. Assume that you hold a book $V(t,S)$ consisting of options ...
Pontus Hultkrantz's user avatar
3 votes

EuroStoxx50: long index and short futures

Small details accumulated over 10 years will explain the discrepancy. You need to simulate the actual strategy i.e. include cost of funding the long index leg, cost of margining the futures leg, ...
Ivan's user avatar
  • 1,386
2 votes

If by selling short assets, you get extra capital for your longs, can you actually be dollar neutral?

You should have bought your (long) stocks with the proceeds of the ETF sell.
FFF's user avatar
  • 176
2 votes
Accepted

In FX trading, is the risk for long positions higher than for short positions, or vice versa?

[Your] analysis is correct. The long trade is worth 100 - 100/FX, and the short trade is worth 100/FX -100, where FX=ending EURUSD exchange rate. The first expression has unlimited downside as FX -> 0,...
Alex C's user avatar
  • 9,372
2 votes

Compute allocation given long-short portfolio weights

The long short portfolio you created is highly leveraged. That means it requires investing much more than the amount of capital you have, the additional capital would have to be borrowed. In your ...
Alex C's user avatar
  • 9,372
2 votes
Accepted

How to combine different strategies in a backtest (and IRL)

There are quite a few different possible approaches to assigning weights for different strategies in a portfolio. Probably the first most important differentiating question is, do you have equal ...
MGL's user avatar
  • 516
2 votes

Return Attribution for Long/Short Fund

You may want to use a technique I learned on this forum from Enrico Schumann, who referenced the book by Bruce Feibel (specifically the Chapter 2 on Portfolio Contribution). See this answer https://...
nbbo2's user avatar
  • 11.3k
2 votes

2 methods for estimating factor return - differences between those 2 methods

You are confusing two different things. Let's say you have a factor that you identified, call it: $\lambda_t$. There are also other factors out there that are widely know. Let me call them: $F_t$ (...
phdstudent's user avatar
  • 8,306
2 votes
Accepted

calculating portfolio weight for long short

The first one. Your net weight is zero. This is a self financing strategy. Think of it this way: if apple goes up by 10% and google goes down by 5% your return will be: $r_p = 1 \times 10\% - 1 \times ...
phdstudent's user avatar
  • 8,306
1 vote
Accepted

Value at Risk for a dollar neutral relative trades

But your exposure is not zero! You have an exposure to the price of stock A equal to 20, and another exposure to the price of stock B equal to -20. Since they are different stocks, albeit highly ...
Dimitri Vulis's user avatar
1 vote

Interpreting Statistically Significant (or Insignificant) Difference in Alpha Between Two Portfolios

No, your logic is not correct. As a disclosure note, I am an opponent of the method you are using. Let us assume that you run a Frequentist regression of any kind on phenomena $A$ and $B$. You are ...
Dave Harris's user avatar
  • 4,299
1 vote

Return Attribution for Long/Short Fund

It is no surprise that the value resulting strays from the true performance since in most cases, $$(1+a+b)^n ≠ (1+a)^n * (1+b)^n $$ The financial intuition behind this is that the portfolio compounds ...
Lsvob's user avatar
  • 166
1 vote

When / how do I vol-scale portfolio weights when optimizing the portfolio?

You can try $$ \min \frac{1}{2}w^T\Sigma w \quad \mathrm{s.t.} \quad w^T\mu=\mu_c $$ and subject to your other constraints. Then, trace out $\mu_c$ until the optimal solution reaches your target risk ...
Kermittfrog's user avatar
  • 6,553
1 vote

long short portfolio sharpe ratio

Let's assume stock "A" yields a 5% return and stock "B" yields a 6% return, they both have standard deviations of 10% (per annum) and a correlation factor of 0.5. You decide to ...
Quant_in_becoming's user avatar
1 vote

How to calculate long-short performance using CFDs?

The usual approach is to measure the CFD's contribution to total portfolio returns. So if you put on: a long that cost you 1000 (or was marked-to-market as such at period-end) a long that made you ...
demully's user avatar
  • 5,061
1 vote

Long Short excess returns?

You're right, there is no difference between the long-short (LS) portfolio between two returns or two excess returns, the risk-free rate cancels out. But there is an economic reason why we consider ...
Kevin's user avatar
  • 15.9k
1 vote
Accepted

calculate portfolio return with one long position and one short position

While it is of course possible to apply standard definitions of returns, one needs to bear in mind that a long/short portfolio may end up having a net negative value. Thus: i) You cannot use ...
ZRH's user avatar
  • 1,671
1 vote

calculate portfolio return with one long position and one short position

What seems to be your problem? Which calculations do you do that will not give you a decent answer? Your portfolio value is NAV = 98.87 and the next day it is: <...
Sanjay's user avatar
  • 1,657
1 vote

Compute allocation given long-short portfolio weights

If the sum of weights is 1 (or 100%) just multiply them by the notional or starting cash of your portfolio. Allocation = W*Notional. Eg. W = [0.5 0.5] N = 10.000, Allocation = [5000 5000]
TomDecimus's user avatar
1 vote

EuroStoxx50: long index and short futures

From a mathematical perspective and under the capital market assumptions of finance theory, you would be right. However in real life, there are a number of risks that remain that keep this from being ...
AlRacoon's user avatar
  • 6,492
1 vote
Accepted

Standard deviation of a long-short portfolio with net position zero

I think the question refers to a rather simpler problem. It is difficult to calculate portfolio returns when the net value of the portfolio is 0. The concept of return involves the change in value ...
Tim Wilding's user avatar
  • 1,406
1 vote

How to trade the FTSE index long and short

I would have a look at ETFs tracking the FTSE 100. There will still be a small tracking error due the the way ETFs work. At a starting point have a look at this list: FTSE 100 Index ETFs - ETFdb.com
chjortlund's user avatar
1 vote
Accepted

volatilty and Sharpe Ratio of long-short portfolio

You calculate them the same way that you would for any other pnl stream. First calculate the excess returns, i.e. the P&L after accounting for financing (for a long-short portfolio, your financing ...
Chris Taylor's user avatar
  • 5,911
1 vote
Accepted

Can the net portfolio's beta be different from the sum of long and short betas of the portfolio?

You can actually show by construction that the beta of the portfolio is the weighted sum of all the underlyings betas. Assume the return of the benchmark and some asset $a$ at time $t$ are ...
SRKX's user avatar
  • 11.1k

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