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Long Term Behaviour of Leveraged ETF Calculator







Formula

The formula to calculate the compound daily growth rate of a leveraged ETF is:

R=kμ12k2σ21+kμ

Where:

What is the Rate of Convergence?

The rate of convergence refers to the speed at which a sequence of numbers approaches a certain value or limit. In the context of leveraged ETFs, it helps determine how many iterations (days) are needed to achieve a certain level of accuracy in returns.

Example Calculation

Let's assume the following values:

Step 1: Convert the mean daily return and daily volatility to decimals:

μ=0.0005andσ=0.01

Step 2: Calculate the compound daily growth rate:

R=2×0.00051222×0.0121+2×0.0005=0.0010.00021.0010.0010.0001998=0.0008002

Step 3: Convert to annualized percentage:

Annualized R=0.0008002×252×10020.16%

Therefore, the annualized compound daily growth rate is approximately 20.16%.

Resouce:https://www.ddnum.com/articles/leveragedETFs.php