IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2504.07929.html
   My bibliography  Save this paper

Market-Based Portfolio Variance

Author

Listed:
  • Victor Olkhov

Abstract

The variance measures the portfolio risks the investors are taking. The investor, who holds his portfolio and doesn't trade his shares, at the current time can use the time series of the market trades that were made during the averaging interval with the securities of his portfolio and assess the current return, variance, and hence the current risks of his portfolio. We show how the time series of trades with the securities of the portfolio determine the time series of trades with the portfolio as a single market security. The time series of trades with the portfolio determine its return and variance in the same form as the time series of trades with securities determine their returns and variances. The description of any portfolio and any single market security is equal. The time series of the portfolio trades define the decomposition of the portfolio variance by its securities, which is a quadratic form in the variables of relative amounts invested into securities. Its coefficients themselves are quadratic forms in the variables of relative numbers of shares of its securities. If one assumes that the volumes of all consecutive deals with each security are constant, the decomposition of the portfolio variance coincides with Markowitz's (1952) variance, which ignores the effects of random trade volumes. The use of the variance that accounts for the randomness of trade volumes could help majors like BlackRock, JP Morgan, and the U.S. Fed to adjust their models, like Aladdin and Azimov, to the reality of random markets.

Suggested Citation

  • Victor Olkhov, 2025. "Market-Based Portfolio Variance," Papers 2504.07929, arXiv.org, revised Jul 2025.
  • Handle: RePEc:arx:papers:2504.07929
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2504.07929
    File Function: Latest version
    Download Restriction: no
    ---><---

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2504.07929. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.