Incremental Sharpe and Other Performance Ratios
Copyright policy )Incremental Sharpe and Other Performance Ratios
We present a new methodology of computing incremental contribution for performance ratios for portfolio like Sharpe, Treynor, Calmar or Sterling ratios. Using Euler's homogeneous function theorem, we are able to decompose these performance ratios as a linear combination of individual modified performance ratios. This allows understanding the drivers of these performance ratios as well as deriving a condition for a new asset to provide incremental performance for the portfolio. We provide various numerical examples of this performance ratio decomposition.
18 pages
- Paris Dauphine University France
FOS: Computer and information sciences, C.C1.C12, 330, Sharpe, Statistics - Applications, 519, FOS: Economics and business, recovery, Portfolio Management (q-fin.PM), Applications (stat.AP), G11, Quantitative Finance - Portfolio Management, C12, portfoliodiversification, G.G1.G11, Statistical Finance (q-fin.ST), Quantitative Finance - Statistical Finance, Probabilités et mathématiques appliquées, incremental Sharpe ratio, Risk Management (q-fin.RM), Treynor, Quantitative Finance - Risk Management
FOS: Computer and information sciences, C.C1.C12, 330, Sharpe, Statistics - Applications, 519, FOS: Economics and business, recovery, Portfolio Management (q-fin.PM), Applications (stat.AP), G11, Quantitative Finance - Portfolio Management, C12, portfoliodiversification, G.G1.G11, Statistical Finance (q-fin.ST), Quantitative Finance - Statistical Finance, Probabilités et mathématiques appliquées, incremental Sharpe ratio, Risk Management (q-fin.RM), Treynor, Quantitative Finance - Risk Management
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