Implementation Shortfall - Benchmark Price

Has anyone figured out whether there’s a simple rule to figure out what the benchmark price is? I have come acorss different types of questions wherein the benchmark price is left in the gray area… and then it hurts my feelings when I look at the solution and it tells me my benchmark choice is incorrect.

For e.g., a manager is pondering buying a stock on Friday at $20. He asks his trader pre-market on Monday to buy the stock at $20.50. The question doesn’t say whether $20 or $20.50 is the benchmark. So I make a gut call and use $20.50. Of course, the official solution uses $20 as the benchmark. In another itemset, the situation was flipped.

I really hope they tell us what the benchmark price is on the exam. Otherwise, very easy to lose a few points just based on the choice of benchmark.

I thought the benchmark price is always the last available market price (i.e. last close or mkt price at time of decision).

Unless specified go with this I’d say.

Benchmark price is that of the paper portfolio :slight_smile:

I believe that the benchmark price must be a closing price. Same as delay cost, it must be the difference between two closing prices, benchmark price and profit/loss price. The profit/loss must be the transaction price and the other delay price. They all connect.

The benchmark price is the closing price on the day before you place your order.

The decision price is the closing price on the day before your order is (partially or totally) filled.

The closing price is the closing price on the day that your order is (totally) filled, or that you cancel the remainder of your order.

Thanks for the clarification, guys.

You’re welcome.

But suppose the close on previous day no trade was executed and next day they chnage the limit order, wht should be the BP- previous close or the new limit order price?

Derswap - benchmark price would be the closing price the day no trades were executed, if the following day there will be another order submitted. Think of it as - the following day, you are making another decision to fill the order, even though the price changed the previous day (when no trades were executed). So, in continuing to work the order, BP will be the previous day’s closing price.


The benchmark price is the closing price on the day before you place your order.- is this the original decision price?

A better description is that the original decision price is the last market price that they give you before your decision to place an order.

Historically, CFA Institute has tended to use the previous day’s close in their exam questions, but there’s no reason that it couldn’t be the opening price the day you place the order, or even an intra-day price. If they give you yesterday’s close, today’s open, and today’s price at 11:13AM and you place your order at 11:46AM, the original decision price is the 11:13AM price.

@S2000magician Thanks very much!

The revised decision price is the closing price on the day before your order is (partially or totally) filled right?

It could be.

It’s the last market price you’re given before you place an order that ends up being partially or totally filled. If they give you yesterday’s close and no prices today, then it’s yesterday’s close. If they give you today’s opening, but no later prices, then it’s today’s opening. If they give you the market price five minutes before you place your order, then that’s it.