The drawdown calculation is pretty easy, (trough value - peak value)/Peak value.
However, when a fund has cash inflows and outflows, how do you adjust the drawdown reflecting the cash inflows/outflows? Thanks.
Oops, this should be a Level 3 question.
Dude what are you talking about?
You know when you calculate drawndowns in your portfolio, do you need to adjust it for cash inflows/outflows? If needed, how would you do that? thanks.
e.g.
day Portfolio value Cash Inflow(out) Drawdown
1 100 0 - 2 101 0 0 3 99 0 (99-101)/101 = -1.98% 4 100 1 (100-101)/101 = -0.99% But this is wrong, since there is 1 cash inflow
Do we need to adjust cash inflow/outflows for drawdowns?
This simplified example is quite easy to adjust but when you have a dynamic mark-to-market portfolio with millions of cash inflow/outflows per day, it gets so complicated. This is more like a question for portfolio managers and fund accountants.