[R-SIG-Finance] A question on portfolio value calculation

Brian G. Peterson brian at braverock.com
Thu Jan 6 14:01:50 CET 2011

On 01/06/2011 05:26 AM, Megh Dal wrote:
> Hi all, can somebody suggest me on what is the correct way to calculate
> value of a portfolio (i.e. mark-to-market value) with having both long and
> short position? For example, suppose I have 3 positions in my portfolio
> pos1, po2, and pos3 and type of transaction is long, short, short
> respectively.
> Say, m2m value of those 3 positions are m1, m2 and m3 in money term. Then
> should m2m value of this portfolio be $(m1-m2-m3)?
> If this is correct I feel there are some practical problem with this
> approach. Let say I calculated the volatility of this portfolio assuming
> some normal distribution of return, let say it is $X. Then if I want to
> answer, what is the volatility for per unit value of my entire portfolio the
> answer would be : $X/$(m1-m2-m3). However if it happenes that $(m1-m2-m3) =
> 0 then above calculation becomes undefined.
> This approach also may be problametic if I have all short, in this case unit
> SD for my portfolio becomes obviously negative.
> Or should I go with $(abs(m1)+abs(m2)+abs(m3)) to avoid above scenario?
> Any explanation would be highly appreciated.

See the CFTC's guidelines and calculations for the '13 column report'. 
This is a widely used and copied format for portfolio reporting.

Typically, both net and gross exposures are calculated.


   - Brian

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

More information about the R-SIG-Finance mailing list