MarketRiskAdjustedPerformanceCalculator.java

/**
 * Copyright (C) 2009 - present by OpenGamma Inc. and the OpenGamma group of companies
 *
 * Please see distribution for license.
 */
package com.opengamma.analytics.financial.riskreward;

/**
 * The market-risk-adjusted performance ($MRAP$) measure is analogous to the
 * risk-adjusted performance ratio (see {@link RiskAdjustedPerformanceCalculator}),
 * with the risk measure changed to be the beta of the asset or portfolio to
 * the market. 
 * <p>
 * This measure is defined as:
 * $$
 * \begin{eqnarray*}
 * MRAP_i = R_i + \left(\frac{1}{\beta_i} - 1\right)(R_i - R_f)
 * \end{eqnarray*}
 * $$
 * where $R_i$ is the asset return, $\beta_i$ is the beta of the asset with
 * respect to the market and $R_f$ is the risk-free return. 
 */
public class MarketRiskAdjustedPerformanceCalculator {

  /**
   * Calculates the market-risk-adjusted performance
   * @param assetReturn The return of the asset
   * @param riskFreeReturn The risk-free return
   * @param beta The beta of the asset with respect to the market
   * @return The market-risk-adjusted performance
   */
  public double calculate(final double assetReturn, final double riskFreeReturn, final double beta) {
    return assetReturn + (1. / beta - 1) * (assetReturn - riskFreeReturn);
  }
}