G. BARONE ADESI: Performance e Derivati, pericoli nascosti.
Salve a tutti, gentili lettori!
Oggi ho l’onore di ospitare, sulle pagine di questo blog, un articolo scritto da un’importante esponente della finanza globale. Si tratta di Giovanni Barone Adesi. Per me è un vero onore ricevere questo articolo sulla gestione del rischio di portafoglio e pubblicarlo integralmente.
Chiaramente spero di poter ricevere in futuro ulteriori scritti del Prof. Barone Adesi, una voce indipendente e competente in un mercato sicuramente difficile da interpretare ma, come dico spesso, sempre molto affascinante.
Come potrete vedere, il testo è in inglese ma, per chi non è molto pratico con la lingua anglosassone, consiglio di usare il traduttore di Google che (per fortuna!) permette una traduzione abbastanza precisa dello scritto. Non vado oltre. Vi ricordo solo il link per la traduzione.
CLICCATE QUI PER ACCEDERE AL TRADUTTORE.
Prima dell’articolo, mi sono permesso di scrivere 2 righe di presentazione, basandomi su quanto scritto sul sito della Swiss Finance Institute. Buona lettura e, ovviamente, grazie al Professor B. Adesi per il contributo!
Chi è il professore Giovanni Barone Adesi
È professore ordinario di teoria finanziaria presso la nostra Facoltà dall’ottobre 1998. Dirige la sezione ticinese dello Swiss Finance Institute. È stato professore ordinario di finanza (Pocklington Chair) presso l’Università dell’Alberta in Canada. Dopo la laurea in ingegneria elettronica a Padova ha proseguito gli studi all’Università di Chicago, dove ha conseguito MBA e PhD con Myron Scholes nella Business School. Ha insegnato anche all’Università del Texas a Austin, alla Wharton School, University of Pennsylvania e alla City University di Londra. La sua ricerca verte principalmente sui titoli finanziari derivati e la gestione del rischio. È coautore del modello più usato nella valutazione delle opzioni americane e collabora con varie istituzioni finanziarie e organi di regolamentazione nella gestione dei rischi. È associate editor o referee di numerose riviste scientifiche internazionali. Ma ora, l’articolo….
Performance and Derivatives: Hidden Dangers
The evaluation of stock performance becomes unreliable for portfolios containing derivatives.
Prof. Giovanni Barone Adesi, Dean of Economics, University of Lugano (USI)
The performance and risk of a portfolio containing derivatives cannot be judged observing only its return history over a few years: statistical inferences commonly used for stock portfolios become very misleading. It is possible to choose a portfolio of options that duplicates the results of a manager with the ability for perfect market timing or perfect stock selectivity. Such a portfolio typically contains a short position that may lead to huge losses without forewarning after several years. Only a detailed knowledge of the portfolio composition may reveal its hidden dangers.
Cloning high performance. An important element in the selection of investment vehicles is the analysis of their track record. A variety of measures, such as Jensen’s alphas and Sharpe ratios are commonly used in this selection. Unfortunately these measures are rooted in the properties of stock returns. They are misleading in the presence of derivatives. It is possible to use derivatives to build portfolios which appear to achieve perfect timing or perfect selectivity without cost for a number of years. However the hidden risk may reveal itself suddenly with dramatic consequences.
There are infinite ways to clone performance. To illustrate it in a simple and extreme way consider the following portfolios A and B. They have reported the following percentage returns in recent years:
Portfolio A tracks an index, portfolio B does the same avoiding all the losses, showing perfect timing ability. Any statistical measure of risk based only on the above returns leads to the choice of portfolio B. The timing ability of its manager has the value of a put option on the index at the money, about 5% at the beginning of each year.
Risk Analysis. The real issue boils down to the composition of portfolio B. Has the manager really timed the market correctly? A possible alternative is that the manager of portfolio B has three components in his portfolios: the index (long), a protective put (long) and a binary option on a different asset (short). Both options are replaced by a new couple of similar options each year when they expire: the proceeds from the sale of the binary option finance the purchase of the put. The binary option pays zero at maturity 95% of times. However one year out of twenty on average the binary option pays twenty times its cost at expiration (interest rate is taken to be zero for ease of computation).
If the binary option expires in the money portfolio B goes bankrupt. It is impossible to predict this from the series of recent returns: of course the case would be different if we had one hundred years of returns, assuming that the portfolio investment policy has not changed, or if we could at least mark to market portfolio B each day. However these opportunities are not available for most investment vehicles.
Performance cloning is not limited to the cloning of timing ability. Similar results to clone selectivity can be obtained by replacing the protective put with a rainbow option. The manager of fund B would appear to guess correctly which investment vehicles outperform the market each year. Again the danger of the short position would be revealed only too late.
Remedies. How can investors protect themselves from the kinds of misrepresentations of fund performance described above? Aside from the old adage that if something is too good to be true probably it isn’t, only the knowledge of portfolio composition through time would reveal the danger. Such knowledge could not be based exclusively on audited financial statement, because under current standards they simply photograph portfolio composition at a given date.
Some organisations reveal the profile of their risk through time. If that is accurate, it certainly would show the risk. Not all the risk management systems in use today would reveal the risk of portfolio B. Actually portfolios of this kind may be useful to test risk monitoring systems.
The confidence investors can have in the accuracy of risk reporting depends eventually on the reputation of the investment manager. If the manager has a substantial portion of his personal wealth invested in the portfolio, chances for reckless behaviour are reduced. However the manager’s personal investment is no substitute for good analytical skills in the management of complex portfolios.