ABSTRACT
Th e Value-Added Monthly Index (VAMI) refl ects the performance of a hypothetical investment of $1000 over time. At inception t = 0 the VAMI is equal to $1000 and the monthly rate of return of the underlying asset
1 1
V V
is added:
VAMI0 = $1000 and
V V
⎛ ⎝⎜
⎞ ⎠⎟
Dividends and interest rates are reinvested via compounding into the VAMI. Th e VAMI provides an easy comparison between different assets with the same starting date and quantifi es the potential monetary risk and chances of a $1000 investment (Lackey, 2004). Th erefore, the VAMI is a simple kind of back testing the risk return characteristics of an asset. If the RORt are net of all fees then the index represents the value of the hypothetical $1000 investment before tax. For underlying assets with a non-U.S. Dollar denomination, the foreign exchange rate has to be considered.
