A new decomposition of portfolio return

Robert Fernholz

Papers from arXiv.org

Abstract: For a functionally generated portfolio, there is a natural decomposition of the relative log-return into the log-change in the generating function and a drift process. In this note, this decomposition is extended to arbitrary stock portfolios by an application of Fisk-Stratonovich integration. With the extended methodology, the generating function is represented by a structural process, and the drift process is subsumed into a trading process that measures the profit and loss to the portfolio from trading.

Date: 2016-06
New Economics Papers: this item is included in nep-net
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