Hedge Fund Tail Risk: Performance and Hedging Mechanisms

Hedge Fund Performance Evaluation:

We analyze hedge fund performance using the stochastic discount factor (SDF) approach and imposing the arbitrage-free requirement to correctly value the derivatives and dynamic trading strategies used by hedge funds. Using SDFs of many asset-pricing models, we evaluate hedge fund portfolios based on style and characteristics. Without the arbitrage-free requirement, pricing errors are relatively...

Hedge Fund Risk Modeling

Hedge fund systemic risk signals

In this paper we realize an early warning system for hedge funds based on specific red flags that help to detect symptoms of impending extreme negative returns and contagion effect. To do this we rely on regression trees analysis identifying a series of splitting rules which act as risk signals. The empirical findings prove that contagion, crowded-trade, leverage commonality and liquidity conce...

Active Risk Budgeting In Action: Understanding Hedge Fund Performance

Hedge Fund Performance: Sources and Measures

The concept of the gamma of a …nanced return as the highest level of stress that a return distribution can withstand is introduced. Stress is measured by positive expectation under a concave distortion of the return distribution accessed. Four distortions introduced in Cherny and Madan (2008) are employed in studying the distribution of returns available in the hedge fund universe. It is shown ...