Performance fees and hedge fund return dynamics

Valuing Hedge Fund Fees

This thesis applies a Partial Integral Differential Equation model, along with a Monte Carlo approach to quantitatively analyze the no arbitrage value of hedge fund performance fees. From a no-arbitrage point of view, the investor in a hedge fund is providing a free option to the manager of the hedge fund. The no-arbitrage value of this option can be locked in by the hedge fund manager using a ...

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...

How to Cut Hedge Fund Fees in Half

PART TWO: THE CORE-SATELLITE MODEL A recent note discussed a potential solution to excessive hedge fund fees, the Investor Aggregation Model, but highlighted near term obstacles, including industry structure and agency issues. This note discusses a more realistic alternative: a Core-Satellite Model that builds on the experience of the traditional asset management industry and recent development...

Replication Methods and Return Characteristics of Hedge Fund ETFs

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 ...