New Measures for Performance Evaluation

Alexander Cherny and Dilip Madan

Review of Financial Studies, 2009, vol. 22, issue 7, pages 2371-2406

Abstract: This paper characterizes performance measures satisfying a set of proposed axioms. We develop four new measures consistent with the axioms and show that they improve on the economic properties of the Sharpe Ratio and the Gain-Loss Ratio. In our treatment, the performance measures, or the indexes of acceptability, are linked to positive expectations resulting from a stressed sampling of the cash-flow distribution. Theoretically, it is shown that the level of acceptability varies directly with the amount of stress tolerated. In an empirical application, the performance measures are applied to cash flows generated by writing options on the SPX and the FTSE. This exercise reveals that acceptability levels are U-shaped in the strike direction. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Date: 2009

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhn081 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:oup:rfinst:v:22:y:2009:i:7:p:2371-2406

Ordering information: This journal article can be ordered from
http://www4.oup.co.uk/revfin/subinfo/

Access Statistics for this article

Review of Financial Studies is edited by Maureen O'Hara

More articles in Review of Financial Studies from Oxford University Press for Society for Financial Studies
Address: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().