Methodology note
Gross versus net exposure
Gross exposure adds the absolute value of every long and short position, while net exposure lets shorts offset longs. A book with 1,400 long and 400 short on a NAV of 1,000 has gross exposure of 180% and net exposure of 100%. Leverage and risk limits use gross; limits on market direction use net.
gross_net_exposure · Gross exposure limitgross_exposure · Counterparty concentration limitcounterparty_concentrationThree measures
- Gross: the sum of absolute signed exposures, over NAV.
- Net: the signed sum, longs minus shorts, over NAV.
- Short: the absolute sum of the short positions, over NAV.
A limit must name which one it means. The registry's template requires the methodology to be named, never just "leverage".
Worked through
Take 1,400 long and 400 short, on a NAV of 1,000. Gross exposure is 1,800, or 180%, and short exposure is 400, or 40%.
Net exposure is 1,000, the same as NAV, so 100%. Against a 150% gross cap the book breaches, and against a 30% short cap it breaches too.
Pitfall: direction must be stated
Net and short measures need to know which positions are short. A position without a stated direction could be either, so a rule can treat it as a data gap rather than an assumed long.
The registry's worked case does exactly that. With direction required, one undirected holding leaves the rule not evaluated.
Pitfall: counterparties do not net
Exposure to a counterparty is gross by nature. A long and a short with the same bank both depend on that bank.
The counterparty template therefore sums absolute values, and nets only under an approved netting agreement.
Worked example
1,400 long and 400 short on a NAV of 1,000 sum to 1,800 in absolute terms: 180% gross exposure, over a 150% cap.
Rule template:gross_net_exposure methodology: gross_signedrequireDirection: false
Bounds: hard max 150%
| Holding | Long / short | Market value |
|---|---|---|
| Long positions | long | 1,400 |
| Short positions | short | -400 |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| Gross exposure (signed methodology) | Breach | 180% | ≤ 150% | -30% | ABOVE_HARD_MAXIMUM |
ABOVE_HARD_MAXIMUM: The measured value exceeds the approved hard maximum, beyond any stated tolerance.
Largest contributors: Gross exposure (signed methodology) → Long positions 140%, Short positions -40%
Computed at build time by the Acclimetry rule engine (backend commit 8197063); the same code runs in the product.
Questions
Does a short position reduce gross exposure?
No. Gross exposure adds the absolute value of shorts, so a short raises gross exposure while it lowers net exposure.
Which measure should a long-short policy cap?
Often both: gross to limit leverage, net to limit market direction. A short-exposure cap is a third option where shorting itself is the concern.