Add transaction costs to derivatives

utils.py

@@ -96,6 +96,7 @@ def performance_cumprod(returns: pd.Series) -> float:
 def simplified_lev_factor(
     daily_returns: pd.Series,
     expense_ratio: float,
+    rel_transact_costs: float,
     leverage: float = 1.0,
     percent: float = 100.0,
 ):
@@ -104,16 +105,24 @@ def simplified_lev_factor(
 
     :param daily_returns: pd.Series, daily returns of the underlying asset
     :param expense_ratio: float, expense ratio of the factor (in percent)
+    :param rel_transact_costs: float, cost ratio assumed for each buy and sell transaction (in percent)
     :param leverage: float | pd.Series, leverage of the factor
     :param percent: float, percentage factor used for expense ratio conversion
     :return: pd.Series, daily returns of the factor with leverage
     """
-    return daily_returns * leverage + gmean(-expense_ratio / percent)
+    daily_returns = daily_returns * leverage + gmean(-expense_ratio / percent)
+
+    # simplify: Assume the costs consist of only volume depend costs, neglecting fixed costs
+    daily_returns.iloc[0] -= rel_transact_costs / percent
+    daily_returns.iloc[-1] -= rel_transact_costs / percent
+
+    return daily_returns
 
 
 def simplified_knockout(
     price: pd.Series,
     expense_ratio: float,
+    rel_transact_costs: float,
     initial_leverage: float,
     percent: float = 100,
 ) -> pd.Series:
@@ -124,6 +133,7 @@ def simplified_knockout(
 
     :param price: pd.Series, price of the underlying asset
     :param expense_ratio: float, expense ratio of the knockout product (in percent)
+    :param rel_transact_costs: float, cost ratio assumed for each buy and sell transaction (in percent)
     :param initial_leverage: float, initial leverage factor of the knockout product
     :param percent: float, percentage factor used for expense ratio conversion
     :return: pd.Series, daily returns of the knockout product
@@ -145,6 +155,10 @@ def simplified_knockout(
     else:
         pass
 
+    # simplify: Assume the costs consist of only volume depend costs, neglecting fixed costs
+    pct_change.iloc[0] -= rel_transact_costs / percent
+    pct_change.iloc[-1] -= rel_transact_costs / percent
+
     return pct_change.fillna(0)
 
 

volatility_decay_app.py

@@ -361,6 +361,7 @@ def update_derivatives_performance_plot(
     risk_free_rate_ticker: float,
     leverage: float,
     expenses: float,
+    rel_transact_costs: float,
     time_window: int,
 ) -> go.Figure:
     # create the plotly figure
@@ -393,13 +394,20 @@ def update_derivatives_performance_plot(
     ]
     returns_lev = [
         performance_cumprod(
-            simplified_lev_factor(pct_change.iloc[date : date + 15], expenses, leverage)
+            simplified_lev_factor(
+                pct_change.iloc[date : date + 15],
+                expenses,
+                rel_transact_costs,
+                leverage,
+            )
         )
         for date in dates_iloc
     ]
     returns_ko = [
         performance_cumprod(
-            simplified_knockout(price.iloc[date : date + 15], expenses, leverage)
+            simplified_knockout(
+                price.iloc[date : date + 15], expenses, rel_transact_costs, leverage
+            )
         )
         for date in dates_iloc
     ]
@@ -743,7 +751,15 @@ def update_derivatives_performance_plot(
     )
     # Slider for the expenses of the derivatives
     derivative_expenses = st.slider(
-        "Yearly Expense Ratio of the Derivatives",
+        "Yearly Expense Ratio of the Derivatives [%]",
+        min_value=0.0,
+        max_value=5.0,
+        value=3.0,
+        step=0.25,
+    )
+    # Slider for the transaction costs of the derivatives
+    rel_transact_costs = st.slider(
+        "Transaction Costs for Buying and Selling Separately [%]",
         min_value=0.0,
         max_value=5.0,
         value=3.0,
@@ -764,6 +780,7 @@ def update_derivatives_performance_plot(
             risk_free_rate_ticker,
             derivative_leverage,
             derivative_expenses,
+            rel_transact_costs,
             look_back_window,
         ),
         use_container_width=True,