[R-SIG-Finance] Convert Daily PnL to Returns

Brian G. Peterson brian at braverock.com
Fri May 15 19:12:38 CEST 2009

Oops, my code line is wrong. Sorry.

I wasn't thinking clearly about what you said. You need to add the 
capital number to the series.

if you have $1000, and your PnL series is in $, then you would do


to create your wealth index from which you can calculate returns.

if the capital changes, you have to take into account the addition or 
withdrawal from the capital account in your series.

Sorry for the confusion,

- Brian

Brian G. Peterson wrote:
> Convert them to a wealth index. Add 1 to your first PnL number, and 
> cumsum. This creates a fake "price series" that can then be turned 
> into a return series for all the other analysis you need to do.
> if 'PnL' is your data variable:
> cumsum(PnL+1)
> Regards,
> - Brian
> Subhrangshu Nandi wrote:
>> I'm using R to optimize our portfolio. However, I do not have a return
>> series, as required in most of the portfolio optimization packages. I 
>> have
>> daily PnLs (regular profit/loss numbers) of several products. In 
>> order to be
>> able to use PerformanceAnalytics or RMetrics, how should I about 
>> converting
>> them to returns? Also, my objective of optimizing the portfolio is to
>> maximize the return, constrained on some risk parameter like 
>> VAR/CVAR/etc
>> and then decide how much to trade each product.
>> Any headstart in solving this problem will be helpful.
>> Thanks a lot,
>> -Nandi

Brian G. Peterson
Ph: 773-459-4973
IM: bgpbraverock

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