A new decomposition of portfolio return
Mathematical Finance
2016-06-21 v1
Abstract
For a functionally generated portfolio, there is a natural decomposition of the relative log-return into the log-change in the generating function and a drift process. In this note, this decomposition is extended to arbitrary stock portfolios by an application of Fisk-Stratonovich integration. With the extended methodology, the generating function is represented by a structural process, and the drift process is subsumed into a trading process that measures the profit and loss to the portfolio from trading.
Cite
@article{arxiv.1606.05877,
title = {A new decomposition of portfolio return},
author = {Robert Fernholz},
journal= {arXiv preprint arXiv:1606.05877},
year = {2016}
}
Comments
4 pages