Leverage Simulator
Backtests the durability condition against historical daily prices. The top section shows wealth paths and the empirical excess growth curve R(L) − R(1). The bottom section tests regime robustness: rolling excess CAGR across trailing windows, and the distribution of L* relative to the target leverage.
Model
- Jr daily return: L × rspot − (L−1) × (rf + s) / 252 − AUM / 252
- Financing is on borrowed capital: (L−1) dollars per dollar of Jr equity at rate rf + s
- AUM is a flat annual charge on Jr equity
Assumptions
- Historical daily prices with daily rebalancing to constant leverage L
- Time-varying rf from 13-week US Treasury bill yield
- No liquidation, no transaction costs
- Rolling windows use overlapping daily-stepped periods
- L* found by sweeping L from 1× to 4× in 0.1× increments