Carole Bernard University of Waterloo
Title: Mr Madoff's amazing returns: an analysis of the split-strike conversion strategy.
It is now known that the very impressive investment returns generated by Bernie Madoff were based on a sophisticated Ponzi scheme. Madoff claimed to use a split-strike conversion strategy.
We examine Madoff's returns and compare his investment performance with what could have been obtained using the split-strike conversion strategy based on the historical data.
We also analyze the split-strike strategy in general and derive expressions for its expected return, standard deviation, Sharpe
ratio and correlation with the market. A theoretical study shows that there is a maximum Sharpe ratio as well as a minimum correlation with the market for the split-strike strategy. This provides additional evidence supporting Madoff's returns were fictitious.
Anyone can attend. No finance or mathematical prerequisites are necessary to understand the talk. It is an example of where maths could have been useful and have helped to discover the Ponzi scheme much earlier than Dec 2008! This is joint work with Prof. Phelim Boyle (Wilfrid Laurier University).
