Conditional Drawdown alpha

The difference between the actual rate of return and the rate of return of the instrument estimated via the conditional drawdown beta is called \(CDaR.alpha\) and it is the equivalent of the typical CAPM alpha but focusing on market drawdowns.

Positive \(CDaR.alpha\) implies that the instrument performed better than it was predicted, and consequently, \(CDaR.alpha\) can be used as a performance measure to rank instrument who overperform under market drawdowns.

Usage

CDaR.alpha(R, Rm, p = 0.95, weights = NULL, geometric = TRUE, type = NULL, ...)

Arguments

R: an xts, vector, matrix, data frame, timeSeries or zoo object of asset returns
Rm: an xts, vector, matrix, data frame, timeSeries or zoo object of benchmark returns
p: confidence level for calculation ,default(p=0.95)
weights: portfolio weighting vector, default NULL
geometric: utilize geometric chaining (TRUE) or simple/arithmetic chaining (FALSE) to aggregate returns, default TRUE
type: (Optional) Overrides the p parameter. If "average" then p = 0 and if "max" then p = 1
...: any passthru variable

Value

The annualized alpha (input data are assumed to be of monthly frequency)

References

Zabarankin, M., Pavlikov, K., and S. Uryasev. Capital Asset Pricing Model (CAPM) with Drawdown Measure.Research Report 2012-9, ISE Dept., University of Florida,September 2012.

Author

Tasos Grivas <tasos@openriskcalculator.com>, Pulkit Mehrotra

Examples

data(edhec)
CDaR.alpha(edhec[, 1], edhec[, 2])
#> [1] 0.1005086

CDaR.alpha(edhec[, 1], edhec[, 2], type = "max")
#>       max 
#> 0.1114534 

CDaR.alpha(edhec[, 1], edhec[, 2], type = "average")
#>   average 
#> 0.1217059