Measuring Monthly Desk Performance with Capital and Income

Summary

The document considers how to measure a trading desk’s monthly performance when daily net banking income and credit risk capital are available. It contrasts dividing month-end income by month-end capital with calculating daily income-to-capital ratios and aggregating them, including a version using average capital.

The answer suggests viewing the desk as a leveraged investment: calculate daily profit relative to an appropriate capital base, then link the daily returns to obtain monthly performance. Capital requirement is one possible denominator, but the chosen measure depends on the intended purpose and reporting convention. The discussion offers no worked example or empirical comparison of the candidate metrics, and it does not specify how to handle changing capital, intraday exposure, or income timing. Those choices should be made consistently with the desk’s mandate and the performance measure stakeholders require.

Key ideas

• Desk performance can be framed as profit earned relative to a capital or financing base.
• Daily returns can be linked to produce a monthly return.
• Credit risk capital is one possible denominator, but the appropriate base depends on the measurement objective.
• Month-end ratios and aggregated daily ratios are different metrics and need not agree.

Tags

# desk's performance


# desk's performance












I need your point of view in evaluating the monthly performance of a desk.

I have the daily

- credit risk capital requirement (A);

- the net banking income or GNP (B).

What is the best measure of the performance:

- (B) at the end of the month / (A) at the end of the month

- sum( (B) daily /(A) daily)

- sum( (B) daily / average((A) daily))

- else?

## Answer by John (score 1)

https://quant.stackexchange.com/a/4655

Practically, the best metric is the one your boss wants you to use.

Alternately, you can think of the return of the desk like a leveraged security, as described here. This would suggest that the daily performance would be calculated as the profit divided by the basis. If you want to express the return in terms of the capital requirement, then that's one option but you have the flexibility to use others. Once you have the returns, link them together as you normally would to obtain the monthly performance.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.