[R-SIG-Finance] validation of DrawdownPeak in PerformanceAnalytics package

[Peter Carl]

Charles,

DrawdownPeak probably shouldn't be in the namespace - thanks for 
pointing it out.  You might be looking for 
PerformanceAnalytics:::Drawdowns, which probably *should* be in the 
namespace.  Let me know if that works for you.

pcc

On 03/23/2015 06:05 PM, Charles Duranceau wrote:
> Hi,
> I'm looking at the results returned by the function DrawdownPeak and struggle to understand the calculation.
> In the following example, I recalculate the return from drawdown and for the third period I found a difference (I'm aware the formula I'm using is only local for the example).
> I expect using "geometric" rule for aggregating returns but cannot match the calculations
>
> In this example the peak is 10% and the returns for the next 2 period are -2% and -1% which should lead to a cumulative return of (1.1 / 1.078 / 1.06722)
>
> Q1. The return for the 3rd period from Peak should then be : 1.06722 / 1.10 -1 = 2.98% and not 2.9998%. Is the result I should expect? (it looks like the it does not compound when "geometric=TRUE")
> Q2. I noticed that "geometric=TRUE" option does not make any difference. Is this expected?
> Q3. Finally I was not able to standardized the decimal with  options(digits=4). Is this normal?
>
> Code for replication
>
> library("PerformanceAnalytics")
> ret_num<-c(0.10,-0.020,-0.010)                                                            # simulated returns - the peak is the first observations
> ret_test<-xts(ret_num, Sys.Date()-3:1)                                     # return in xts class
> ddtp_test<-DrawdownPeak(ret_test,geometric=TRUE)            # results for return for drawdowns  to validate
> cret_num<-cumprod(1+ret_num)-1                                          # validation by cumulative returns
> ddtp_vet<-(1+cret_num)/(1+cret_num[1])-1                # replication of cumulative returns for drawdowns
> cbind(ddtp_test,ddtp_vet)                                             # to compare results - differences
>
> The third row shows a difference - look small bu
>       ddtp_test ddtp_vet
> [1,]  0.000000   0.0000
> [2,] -0.020000  -0.0200
> [3,] -0.029998  -0.0298
>
>
> This looks small (not related to rounding)  but in other cases the difference was more important and lead to  difference in the drawdown period.
> I reproduced the same values with version 3.1 and version 3.1.3
>
>
> Package PerformanceAnalytics (1.4.3579) loaded.
>
> version.string R version 3.1.3 (2015-03-09)
>
>
>
>
>
>
>
> Thank you
> Best Regards,
>
> Charles
>
>
>
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-- 
Peter Carl
312.307.6346