CFAI Mock-Alternative investment-Excess return

[h21]

this is regarding to the Permian case, why is excess return only spot return and roll return, what about collateral

 

[data storm]

collateral isn’t a part of excess return

 

[Frankliving]

its only part of total return

 

[tau281290]

By the way what is collateral return anyway.

 

[Nanman]

Total Return = spot return + roll return + collateral return + rebalancing return
(2 equations for for indicies):
Excess Return = spot return + roll return = futures return
Total Return = collateral return + futures return
I have collateral return noted down as interest on cash investments.

 

[abashtavy]

As a monkey that is currently working in futures settlements, I can tell you that when a futures contract is entered, the parties post the collateral, which is then used to mark to market. The collateral (it can be cash, can be securities) earns interest (coupons, dividends, appreciation - whatever) and it is collateral return. Since this collateral would have earned interest anyway, we cannot call it “excess return” and hence substract.
Nanman, see you on Saturday in Expo XXI I guess?