9
votes
Accepted
Gamma PnL from Itô's Lemma derivation
$$ \frac{1}{2} \frac{\partial^2 f}{\partial S^2} dS^2 \approx \frac{1}{2} \sigma^2 S^2\frac{\partial^2 f}{\partial S^2} dt$$
(for small $dt$, ignoring $(dt)^2$ terms )
$\sigma$ is embedded in $dS = \...
- 5,173
8
votes
Good references on PNL explain?
I'm not aware of any great reference. However Peter Nash Effective product control: controlling for trading desks. Wiley (2018) chapter 10 Review of Mark-to-Market P&L is a good start. Andrew ...
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5
votes
Gamma PnL Formula and Break-Even volatility
Good question! The answer to this is no. Let us work through a simple example to see why. Assume that the Gamma is $10$ and that the break-even move is $1$. For simplicity, also assume that, these are ...
5
votes
What is the P&L
Can’t be calculated precisely from the information given, but we can make an approximation:
-first, assume that you delta hedged your call so we start with a delta neutral portfolio
-second, note that ...
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4
votes
Return on a CDS portfolio
There are a number of ways you might consider it:
1) As an investor (speculator) you may be required to post collateral that permits the holding of the position. What is your return relative to the ...
- 12.1k
4
votes
Accepted
PnL with FIFO and LIFO
You are right that the Total P&L (or as you call it the Net P&L) must be the same for the two methods, so something went wrong. In addition, by a strange coincidence, the realized P&L's ...
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4
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What is "swimming delta" as a risk attribute in pnl explain?
Delta is the partial derivative of Call price C with respect to Stock price S, i.e $\frac{\partial C}{\partial S}$.
In the BSM model implied vol $\sigma$ is constant, in particular it does not depend ...
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4
votes
How to determine what's driving the VaR?
If you have a covariance matrix, $Q$ the VaR is a measure of the standard deviation of the portfolio,
ie. $$VaR, V \propto \sqrt{S^T Q S}$$
and,
$$ \frac{\partial V}{\partial S} = \frac{QS}{V} $$
...
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4
votes
Good references on PNL explain?
References
https://www.bis.org/publ/bcbs265.pdf
This one is directly used by banks for programs such as FRTB.
https://assets.kpmg/content/dam/kpmg/xx/pdf/2018/10/frtb-white-paper-july-2018.pdf. This ...
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4
votes
Accepted
Why using mid price to compute mark-to-market P&L if it is less accurate than using bid/offer price?
This is an excellent philosophical question.
Recall that the goal of mark to market is to predict the P&L if we unwound this position in an orderly market.
Suppose that you're in a very convinient ...
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3
votes
Why using mid price to compute mark-to-market P&L if it is less accurate than using bid/offer price?
Most banks use mid market to compute daily MTM p/l whilst maintaining a reserve to account for liquidation costs. The latter is usually recalculated periodically and is indeed a function of market ...
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3
votes
How to determine what's driving the VaR?
It sounds like the P&L's you are given are not really the historical P&L's.
Rather, you have some portfolio and market data currently; you have 260 days of historical market data changes; and ...
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3
votes
How to determine what's driving the VaR?
One way to look at answering this question is VaR Contribution.
Evaluate VaR of the Portfolio, and then evaluate VaR of the Portfolio without the asset. The largest difference of VaR with the asset - ...
- 6,672
3
votes
Accepted
Continuous Percentage Profit and Loss calculation
There is more than one way to approach this. Given your comment that this is a small strategy in a larger account, I assume that you are testing it and, if it bears enough fruit, you may want to scale ...
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3
votes
Accepted
Calculating PnL on Swap Spread Trade
The fundamental underlying PnL you have is PnL on a bond and PnL on a swap, but you can choose to arbitrarily allocate this in different perspectives.
Say you have the following DV01s: Bond +102, Swap ...
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3
votes
Accepted
How does a Short position impact the PnL?
Lots of ways to do this. Below is a pretty simple example:
...
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3
votes
Calculating PnL on Eurodollar futures trading
This document may be helpful Understanding Eurodollar futures
The value of a 1 point price change (for example from 98 to 99) is equal to 2500 USD per contract (this is $1000000\frac{90}{360}1\%$ ...
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3
votes
Accepted
Explain daily P&L by risk factor for a portfolio of bonds and FX forwards
It makes sense to calculate P&L due to passage of time, and to try to separate it into carry and rolldown. What would the P&L be if all the rates today were the same as they were yesterday, ...
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3
votes
FX Swap PnL and NPV
While the near leg is settled, in order to get the full PnL of the trade, you will value the remaining leg of the swap, as well as asset from the settled leg. However, there is a short cut as the ...
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3
votes
Accepted
Trading desk P&L analysis: why does it makes losses?
Were the structured notes and their hedges meant to have zero P&L? An example of this not being true, the desk has large positive P&L when it sells a note to a client, then during the life of ...
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2
votes
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Calculating PnL on Eurodollar futures trading
First, I would say that it is realized PnL because with futures, you always have to settle up at the end of the day in the margin accounts. If you bought the futures at 98.51, then you only post ...
2
votes
Accepted
Can we rewrite the pnl of a continuous hedge option as the time average of the volatility weighted by the square gamma?
The result you're referring to is actually
$$ P\&L_{[0,T]} = \int_0^T \frac{1}{2} \Gamma(t,S_t,\sigma) S_t^2 \left( (\sigma_t^r)^2 - \sigma^2\right) dt $$
which is the total P&L of a ...
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2
votes
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performance measure using pnl series
Adding to Attack68 answer- you can do a few things:
calculate total and average pnl over a given time.
calculate skew, kurtosis etc. as suggested above.
calculate hit rate.
calculate max drawdown.
...
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2
votes
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Delta Hedged PnL on Call Spread
If the actual dynamics are those of Black Scholes and if the vol used in the delta hedge is the actual vol, then the P&L will be 10 cents i.e. not random
and not dependent on the path.
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2
votes
Accepted
Question about using Ito's lemma in Gamma PnL
Hope this answers your qs, Denote $C_{model}(S,t)=e^{-rT}E_{{model}}[(S_T-K)^+]$
We model the spot dynamics $S$ with different models, e.g.
In BS,
$$\frac{dS}{S}=rdt+\sigma dW$$
$dC_{BS}(S,t)=\frac{...
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2
votes
Structured Trade / Hedge consistency
I'll try to give some views on this, I hope it helps bringing some closure to your question.
You seem to relate consensus to "theoretical prices". I think this is a bit misleading. I view ...
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2
votes
How to attribute daily options P&L between Greek sensitivities
I'm not sure what you mean by "cross" effects - the only correlation is that they both are functions of the change in underlying ($\Delta S$)
Delta PnL is $\Delta * (\Delta S)$
Gamma PnL is $...
- 1,530
2
votes
Accepted
compute Expected Shortfall / Conditional VaR from distribution
Generally, VaR and ES can been seen from two different points of view:
$R_t$ are portfolio returns. Then VaR is left quantile (e.g. 0.05) and ES is expected return below this quantile.
$L_t = -R_t$ ...
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2
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How to calculate daily returns when the cumulative PnL can become negative?
Why don't you use an absolute return series, e.g. 100, -120 and 50, based on your given figures? White's reality check, permutation checks etc. will work with this type of return series just as well ...
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2
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Interest rate swap Profit and loss attribution
Regarding the P&L impact of
daily change in yield curve
For a linear product, you want to view this in multiple ways:
1- for each hedging/fitting instrument, you had this much delta to this ...
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