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- Dec 7, 2011
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The practice problem of 11 of Volume 3
Suppose 1,000 shares of Acme co. Stock are ordered to be bought on Monday with a benchmark price of $10. On Monday, 600 shares are purchased at $10.02 per share. Commission and fees are $20. On Tuesday, the benchmark price has fallen to $9.9 per share. On Tuesday, 100 more shares for Acme close on Tuesday at $10.01 per share. The remaining shares are not purchased, and the order is canceled on Wednesday just as the market closes at $10.05 per share
B. Calculate the components of the implementation shortfall for this trade
The answer of problem 11:
Delay cost
Monday: 600/1000 *[($10-$10)/$10] =0%
Tuesday: 100/1000 *[($9.9-$10)/$10] =-0.01%
Realized profit and loss cost
Monday: 600/1000 *[($10.02-$10)/$10] =0.12%
Tuesday: 100/1000 *[($10.08-$9.99)/$9.99 =-0.09%
Missed trade opportunity cost
300/1000 *[($10.05-$10)/$10 =0.15%
My questions are below:
1) Which benchmark should I use in calculating realized gain/loss and delayed costs?
2) No close prices for Monday and Tuesday? Just benchmark for Monday and Tuesday available ?
Any one can clear the concepts of realized gain/loss and delayed costs based on the practice above?
the followings are definitions of realized gain/loss and delayed costs based on Schweser note and CFAIII book
Schweser note
the formula of realized gain/loss = Execution price -previous day close/Benchmark * shares purchased/share ordered
the formula of delayed costs= previous day closing price - benchmark close/benchmark price * shares purchased/shares ordered
Volume 5 of CFAIII book
“Delay cost, reflecting the change in price (close-to-close price movement) over the day an order is placed when the order is not executed that day”. compared to the definition of Schweser, no benchmark is mentioned. Why?
Thanks!
Suppose 1,000 shares of Acme co. Stock are ordered to be bought on Monday with a benchmark price of $10. On Monday, 600 shares are purchased at $10.02 per share. Commission and fees are $20. On Tuesday, the benchmark price has fallen to $9.9 per share. On Tuesday, 100 more shares for Acme close on Tuesday at $10.01 per share. The remaining shares are not purchased, and the order is canceled on Wednesday just as the market closes at $10.05 per share
B. Calculate the components of the implementation shortfall for this trade
The answer of problem 11:
Delay cost
Monday: 600/1000 *[($10-$10)/$10] =0%
Tuesday: 100/1000 *[($9.9-$10)/$10] =-0.01%
Realized profit and loss cost
Monday: 600/1000 *[($10.02-$10)/$10] =0.12%
Tuesday: 100/1000 *[($10.08-$9.99)/$9.99 =-0.09%
Missed trade opportunity cost
300/1000 *[($10.05-$10)/$10 =0.15%
My questions are below:
1) Which benchmark should I use in calculating realized gain/loss and delayed costs?
2) No close prices for Monday and Tuesday? Just benchmark for Monday and Tuesday available ?
Any one can clear the concepts of realized gain/loss and delayed costs based on the practice above?
the followings are definitions of realized gain/loss and delayed costs based on Schweser note and CFAIII book
Schweser note
the formula of realized gain/loss = Execution price -previous day close/Benchmark * shares purchased/share ordered
the formula of delayed costs= previous day closing price - benchmark close/benchmark price * shares purchased/shares ordered
Volume 5 of CFAIII book
“Delay cost, reflecting the change in price (close-to-close price movement) over the day an order is placed when the order is not executed that day”. compared to the definition of Schweser, no benchmark is mentioned. Why?
Thanks!