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A contingent claim approach to performance evaluation

Authors
Journal
Journal of Empirical Finance
0927-5398
Publisher
Elsevier
Publication Date
Volume
1
Issue
2
Identifiers
DOI: 10.1016/0927-5398(94)90001-9

Abstract

Abstract We show that valuing performance is equivalent to valuing a particular contingent claim on an index portfolio. In general the form of the contingent claim is not known and must be estimated. We suggest approximating the contingent claim by a series of options. We illustrate the use of our method by evaluating the performance of 130 mutual funds during the period 1968–82. We find that the relative performance rank of a fund is rather insensitive to the choice of the index, even though the actual value of the services of the portfolio manager depends on the choice of the index.

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