four new graphs we have created four additional graphs to be published daily along with the
dpr :
return on var ( rovar )
curve shift p & l ( delta - gamma ) sharpe ratio
risk - return ( large )
risk - return ( small )
all of these graphs deal with the concept of risk - adjusted return . the
markets in which we operate have unlike risk characteristics . furthermore ,
enron ' s appetite for risk also differs in each market . as a result , it is
difficult to compare returns in absolute terms . therefore , the approach of
these graphs is to divide return by a measure of risk , in effect restating
return numbers into a standard base ( how many dollars we earn for every
dollar we put at risk ) .
for each business unit or commodity group , the rovar graph shows an average
of daily total p it shows an average of
daily curve shift p & l ( both delta and gamma ) divided by its standard
deviation . this sharpe ratio is uncomplicated by non - trading p & l ( like new
deals , reserves , and so forth ) . furthermore , whereas var is a forward
looking statistic ( the most we are likely to lose in one day with a given
probability ) , standard deviation is backward looking ( the actual volatility
of our returns over the period ) . this graph also has two bars for every
business unit or commodity group : a dark brown on the left showing the sharpe
ratio on a 4 week rolling basis , and a light brown on the right showing the
ratio on a 1 week basis .
the curve shift p & l sharpe ratio and the rovar graphs complement each other
well . they measure different things , but if our p & l is composed mostly of
curve shift , and if our var closely predicts curve shift volatility , the two
statistics should be very close .
sometimes it is interesting to see the actual magnitude of the p & l relative
to the risk . we therefore put together the risk - return graphs . on the
vertical axis , they show 4 week rolling average p & l . on the horizontal , they
show 4 week rolling average var . the various business units are plotted as
points on the graphs . these graphs are closely related to the 4 - week rovars ,
in that the vertical value of every point divided by its horizontal value is
the business unit ' s rovar ( average p & l / average var ) . another way of
looking at these graphs is that the slope of a line connecting the origin
( 0 , 0 ) with the plotted point of a business unit is its rovar . books with
small risks and returns ( < $ 2 million ) are plotted on the " small " graph , and
the rest , on the " large " .
these graphs are based on the dpr database that we built to standardize and
capture the information that is reported in the dpr . most , but not all of
the information in the dpr currently flows from the database . as a result ,
we do not have rovars or sharpe ratios for every business unit . as we
continue to set up exports into the database , we will fill in the missing
numbers .
we will e - mail you these graphs every day until we can publish them on the
intra - net . please remember to launch the file in excel , instead of using the
lotus notes viewer . the var limit usage graphs that we created last week are
already on the web . we hope that you find all of these useful .
regards ,
eugenio perez
four new graphs
we have created four additional graphs to be published daily along with the
dpr :
return on var ( rovar )
curve shift p & l ( delta - gamma ) sharpe ratio
risk - return ( large )
risk - return ( small )
all of these graphs deal with the concept of risk - adjusted return . the
markets in which we operate have unlike risk characteristics . furthermore ,
enron ' s appetite for risk also differs in each market . as a result , it is
difficult to compare returns in absolute terms . therefore , the approach of
these graphs is to divide return by a measure of risk , in effect restating
return numbers into a standard base ( how many dollars we earn for every
dollar we put at risk ) .
for each business unit or commodity group , the rovar graph shows an average
of daily total p it shows an average of
daily curve shift p & l ( both delta and gamma ) divided by its standard
deviation . this sharpe ratio is uncomplicated by non - trading p & l ( like new
deals , reserves , and so forth ) . furthermore , whereas var is a forward
looking statistic ( the most we are likely to lose in one day with a given
probability ) , standard deviation is backward looking ( the actual volatility
of our returns over the period ) . this graph also has two bars for every
business unit or commodity group : a dark brown on the left showing the sharpe
ratio on a 4 week rolling basis , and a light brown on the right showing the
ratio on a 1 week basis .
the curve shift p & l sharpe ratio and the rovar graphs complement each other
well . they measure different things , but if our p & l is composed mostly of
curve shift , and if our var closely predicts curve shift volatility , the two
statistics should be very close .
sometimes it is interesting to see the actual magnitude of the p & l relative
to the risk . we therefore put together the risk - return graphs . on the
vertical axis , they show 4 week rolling average p & l . on the horizontal , they
show 4 week rolling average var . the various business units are plotted as
points on the graphs . these graphs are closely related to the 4 - week rovars ,
in that the vertical value of every point divided by its horizontal value is
the business unit ' s rovar ( average p & l / average var ) . another way of
looking at these graphs is that the slope of a line connecting the origin
( 0 , 0 ) with the plotted point of a business unit is its rovar . books with
small risks and returns ( < $ 2 million ) are plotted on the " small " graph , and
the rest , on the " large " .
these graphs are based on the dpr database that we built to standardize and
capture the information that is reported in the dpr . most , but not all of
the information in the dpr currently flows from the database . as a result ,
we do not have rovars or sharpe ratios for every business unit . as we
continue to set up exports into the database , we will fill in the missing
numbers .
we will e - mail you these graphs every day until we can publish them on the
intra - net . please remember to launch the file in excel , instead of using the
lotus notes viewer . the var limit usage graphs that we created last week are
already on the web . we hope that you find all of these useful .
regards ,
eugenio perez