Introduction

Active Premium is the most basic measure of excess returns, or put simply the returns generated above that of the benchmark. A benchmark can be a risk-free rate, or more commonly a selected index.

Active Premium is simply calculated by subtracting the return of the market portfolio, from the return of the actively managed portfolio. โ€œActiveโ€ refers to the fact that the portfolio is actively-managed, as a passive portfolio can only acquire the same returns as the market.