I can calculate the total implementation shortfall using Paper Portfolio Return vs Actual Portfolio Return, but get really confused when calculating the individual components (Delay, Missed Opportunity, Realized Profit, etc.).
Haha. And I thought I was the only one!
Anyone else have some tips on how to remember the individual components formulas?
blackscholesvol:
I can calculate the total implementation shortfall using Paper Portfolio Return vs Actual Portfolio Return, but get really confused when calculating the individual components (Delay, Missed Opportunity, Realized Profit, etc.).
Hey Blackscholes,
This can be tricky, but it seems alot of candidates seem to have some sort of trouble.
What really works for me, is drawing a timeline and separating the order into 2 rows.
1st row is the amount of the order filled (Delay Costs, and Realized Gains and Losses).
2nd row is only for the amount of the order not filled (Missed Trade Opportunity) This one is a bit easier, take your initial decision price and your final decision price and multiply by the # of shares.
Having them separated really allow me to read through the case to identify which prices are relevant which item.
Just my 2 cents, but I hope it helps.
pachstar:
blackscholesvol:
I can calculate the total implementation shortfall using Paper Portfolio Return vs Actual Portfolio Return, but get really confused when calculating the individual components (Delay, Missed Opportunity, Realized Profit, etc.).
Hey Blackscholes,
This can be tricky, but it seems alot of candidates seem to have some sort of trouble.
What really works for me, is drawing a timeline and separating the order into 2 rows.
1st row is the amount of the order filled (Delay Costs, and Realized Gains and Losses).
2nd row is only for the amount of the order not filled (Missed Trade Opportunity) This one is a bit easier, take your initial decision price and your final decision price and multiply by the # of shares.
Having them separated really allow me to read through the case to identify which prices are relevant which item.
Just my 2 cents, but I hope it helps.
Thanks this helps. I can remember that Missed Opportunity cost is Cancelation Price - Initial Decision Price
I guess for Realized/Profit Loss it’s Execution Price - Most recent decision price
And Delay Cost = Most recent Decision Price - Initial Decision Price
blackscholesvol:
pachstar:
blackscholesvol:
I can calculate the total implementation shortfall using Paper Portfolio Return vs Actual Portfolio Return, but get really confused when calculating the individual components (Delay, Missed Opportunity, Realized Profit, etc.).
Hey Blackscholes,
This can be tricky, but it seems alot of candidates seem to have some sort of trouble.
What really works for me, is drawing a timeline and separating the order into 2 rows.
1st row is the amount of the order filled (Delay Costs, and Realized Gains and Losses).
2nd row is only for the amount of the order not filled (Missed Trade Opportunity) This one is a bit easier, take your initial decision price and your final decision price and multiply by the # of shares.
Having them separated really allow me to read through the case to identify which prices are relevant which item.
Just my 2 cents, but I hope it helps.
Thanks this helps. I can remember that Missed Opportunity cost is Cancelation Price - Initial Decision Price
I guess for Realized/Profit Loss it’s Execution Price - Most recent decision price
And Delay Cost = Most recent Decision Price - Initial Decision Price
Yeah so using this timeline, for each purchase order: Delay cost starts, and realized P/L picks up where it ends.
If there are multiple purchases, this changes slightly but the idea is the same.
I remember it this way
1 - Explicit costs like brokerage or commissions. ( no confusion on this ).
2 - Costs on trades missed. Calculated on unfilled trades and uses the no of shares not purchased/sold in the given set.
3 - Cost on trades completed. This has two components - delay costs & impact costs. Delay cost is the first level and impact cost is second level. This is calculated on the basis of actual shares purchased.
pachstar:
blackscholesvol:
pachstar:
blackscholesvol:
I can calculate the total implementation shortfall using Paper Portfolio Return vs Actual Portfolio Return, but get really confused when calculating the individual components (Delay, Missed Opportunity, Realized Profit, etc.).
Hey Blackscholes,
This can be tricky, but it seems alot of candidates seem to have some sort of trouble.
What really works for me, is drawing a timeline and separating the order into 2 rows.
1st row is the amount of the order filled (Delay Costs, and Realized Gains and Losses).
2nd row is only for the amount of the order not filled (Missed Trade Opportunity) This one is a bit easier, take your initial decision price and your final decision price and multiply by the # of shares.
Having them separated really allow me to read through the case to identify which prices are relevant which item.
Just my 2 cents, but I hope it helps.
Thanks this helps. I can remember that Missed Opportunity cost is Cancelation Price - Initial Decision Price
I guess for Realized/Profit Loss it’s Execution Price - Most recent decision price
And Delay Cost = Most recent Decision Price - Initial Decision Price
Yeah so using this timeline, for each purchase order: Delay cost starts, and realized P/L picks up where it ends.
If there are multiple purchases, this changes slightly but the idea is the same.
Thanks, you rock man!! Visually I can see it now. The end of one is the beginning of the other. It’s hard to explain but basically
----Initial Decision Price -------Decision Price #2 -------------Execution Price ---------------Cancelation Price
I noticed that there are no many tricks in official material. Tricks appear in Schweser. Just read what they say. If they say decision price of an order is XY or trader wants to buy stock at XY than XY is decision price and all components are calculated related to this DP.