Method 2 (two phases per valuation date)

We divide each valuation day into two hypothetical parts. We assume that no exogenous movements occur in the first part of the day, but that price changes do. In the second part of the day, the price of all securities is constant (close), but all movements of the day take place in this part.

The return on the first part is therefore based on price gains from the old portfolio and the return on the second part is based on price gains from the delivery.

Example with a security: Consider the period from _t1 to _t2. In _t2 , an exogenous movement with value E takes place. Stock changes (orders) can take place between _t1 and _t2 , but no exogenous movements in funds.

Designations: Let _b2 be the stock at time _t2 and _b2*the stock at time _t2 without taking into account the stock changes that took place on day _t2 .

Furthermore, let _k1, _k2 be the close rates at time _t1 and _t2 respectively and _C2* be the account balance (cash) at time _t2 without taking account movements on day _t2 (all account movements, not just exogenous ones!).

_W1,_W2: Value of the portfolio at time _t1 and _t2respectively

_K2: The amount of coupons distributed on day _t2

We calculate the size of the portfolio after the first part of the day as

_{w1∶=b2*k2+b2*Z2+C2*+K2}

and the return on the two parts of the delivery date as

and the return of the total interval as

R := (_r1+1)(_r2+1)-1

Properties:

• If E = 0, we get the normal performance.
• _r2 is the return with accumulated equity, but the price gain in _r1 is calculated against the portfolio value _W1 .
• In _r1 , all orders of day _t2 are ignored, but since every non-exogenous order has a counterpart entry, the units ordered in _t2 are effectively valued at the order price, while the old stock is valued at the end-of-day price.
• Coupon netting takes place in order to keep the calculation consistent with the attribution calculation (where coupons are recognized in current periods in the securities segment).
• The return from orders on day _t2 is calculated against the share capital modified by the exogenous movement in funds.

Problems:

1. This breakdown does not yet apply to performance attribution, which is why the performance from incoming and outgoing deliveries is not shown in the segment performance charts ("Owner" segmentation) until one day later.
2. If the exogenous movement changes the position, it can happen that the return on an order is entered in _r2 for which there is no longer any position in the share capital. Example: Stock at the beginning of day _t2: 0 pieces. On day _t2 , a purchase of 30 units takes place and then a delivery of 10 units. It is assumed here that the delivery takes place before the purchase, which is not really plausible.
3. Since the denominator in the calculation of _r2 is the sum of the value and the exogenous mean movement, _w1+E may be close to 0 in the case of deliveries. This makes the method unsuitable for dealing with intraday effects on deliveries.