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Joined: August 22nd, 2007, 3:14 pm

Holiday P&L

June 21st, 2022, 5:40 pm

Hi All,

If Im working at a Global Hedge fund, where our PMs trade all markets (Europe, LATAM, US, Asia) etc..., what are your thoughts on reporting the P&L when there is a holiday in the US or in the UK for example?

In other words, should we report P&L/Risk when it is a UK holiday?  For a Universal holiday like Xmas for example, its obvious you wouldnt report PL for the 25th, but what about Boxing Day (26th Dec) - the US is Open and the UK is closed - should we report P&L for the 26th (i.e. if the answer is Yes then what about RV trades UK v US - surely that would create Lop sided PL)

Please do let me know your thoughts - what factors should we look at in determining what is considered a Holiday and when should we report numbers?  Obviously for weekends and universal holidays you dont, but more so when there are Jurisdicational holidays..

Thanks v much!

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Joined: December 20th, 2021, 7:56 am

Re: Holiday P&L

August 28th, 2022, 7:57 am

I would say it pretty much depends on how you construct your curves and vol surfaces on that date. If your system does not have any extra logic and you simply take your eod market data snapshot from your market data provide the p&l may be pretty rubbish. Reason being that quotes of e.g. Libor curves are not reliable on UK holidays. In an ideal world the quotes would be the same as on the previous date but sometimes they are just completely off (the reason can be as stupid as some broker forgetting to close his excel sheet). A good system would allow you to always take the prior day curve for any such curve and roll it 1d forward. Then calculating a p&l on that day makes sense as it includes the market movement of all non-holiday curves and vol surfaces (plus the theta).

Interested to hear your thoughts on that.
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Re: Holiday P&L

August 30th, 2022, 6:16 pm

1. Do your clients care?
2. Have you just made life a living hell for your back-office?
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Re: Holiday P&L

September 1st, 2022, 3:32 pm

This is a perennial problem everyone with international operations faces - noise that eventually comes out in the wash.. A long time ago I shared a plane ride with an AIG higherup who told me they managed the problem by having a single profit centre. I didn’t see how that necessarily helped.
As a practical matter, one has to structure this work so as to not run afoul of their international tax minimization strategies. That might be the single biggest implicit consideration, and probably the real AIG single profit centre motivation, but is one not discussed in parlours without an apology, as Ralph Waldo Emmerson might have said.
The options for dealing with this issue include:
As already mentioned, revalue the book on the holiday using the previous day’s prices. This is probably the most common solution as it is probably the easiest. Decent trade reval systems should have this feature and in any event it is not difficult to effect.
Other strategies include:
Revalue the holiday date using the previous value date’s 1-business day ahead forward curves and surfaces.
Valuing inter-listed products on a secondary country exchange when the primary country exchange is closed and convert to reporting currency using spot FX. This is a slick solution that requires good business logic in systems.
Closing one’s eyes until the next good business day, then compute a 2-day P&L and split it in half for each day.
If one was really organized, one could internally transfer price their book holdings from a closed country markets to an open country, just as book management responsibilities can be transferred over holiday periods. The best and most complicated solution, all other things equal. But all other things are usually not equal.
For what it is worth, how much effort a regulated financial institution is expected to take to deal with this inconvenience is a function of its size. If your shop is small you have more degrees of freedom, just mull it over and decide what makes best sense for you. And never forget taxes.