Opinions wanted on math related questions e.g. Annualised volatility
Posted on 2011-09-09
I'm currently creating some policy frameworks and models relating to risk in the hedge fund landscape and have a few questions which I would like input from people in the mathematical background.
1. When talking about ANNUALISED VOLATILITY, what do people consider this to mean? Is this annualised VOL since inception of a fund, annual vol of the last x number of monthly returns, annualised vol of the last full year or annualised vol of current year to date? In nearly all situations I have seen, there have been no clarifications on the investment manager's data sheets, so it can be interpreted differently unless the definition is considered standardised.
2. What do people define as "draw-down"? I consider it to mean, if a fund has 12-months of returns and three of those (non consecutive months) were losing months, then I would say that the fund had 3 monthly drawdowns.
But then when I google search it, I see the some definitions are peak to trough which could mean 3 positive months to form a peak, two consecutive up month and then 4 down months. The highest to the lowest would then be the drawdown as a percentage. This seems odd to me.
I have even seen some people define drawdown as "only consecutive down months".