Leveraged ETF Returns Simulator

Background

• ETF - exchanged traded funds
• Leverage - derivatives and debt to magnify returns of an underlying index
• Funds typically target multipliers of 2x or 3x to amplify daily returns
• Long-term performance of leveraged ETFs is not well understood
• Over time, compounding effects and price decay due to volatility

Goal

• Simulate different scenarios to help undestand the effects of leverage on fund performance, utilizing R and Rmd for reproducible data processing and analysis.
• Allow users to interact with and visualize the long-term effect on performance of different leverage multipliers, utilizing Shiny.

  # calculate daily leveraged returns
  for(i in 2:nrow(df.daily)) { 
    previous <- df.daily[i - 1, ]$Simulated # previous value
    delta <- df.daily[i, ]$Delta # closing price delta
    df.daily[i, ]$Simulated = # calculated, next leveraged price
    previous + previous * delta * leverage
  }

R can be used to simulate leveraged daily returns

• by calculating price percent deltas based on historical closing prices
• applying the deltas (with leverage) to simulate daily ETF returns
• visualize cumulative leveraged vs. underlying (non-leveraged) returns over time

As a Shiny Application..

• Allows a user to...
  • Select from a variety of underlying securities
  • Load historical data for a date range of interest
  • Interactively modify the ETF leverage multipliers
  • Instantly see the simulated performance of leveraged vs. non-leveraged funds

Try It!

• shinyapps.io: etf-leverage-simulator

The Source Code

• github.com: pchuck/etf-leverage-simulator