We examine the value of fund of funds (FoFs) using a new database of the funds’ hedge fund holdings. This data allows a first ever look at the types of hedge funds that FoFs select, as well the ability to gauge the FoFs’ skill at hiring and firing hedge fund managers. We find that FoFs hire larger, younger, and more illiquid hedge funds that have positive past performance. FoFs select hedge fun...

We propose an algebra of regular hedge expressions built on top of regular hedge grammars as a framework for the analysis and manipulation of hedge languages. We show how linear systems of hedge language equations (LS for short) can be used as an intermediate representation on which to perform the computation of quotient, intersection, product derivative, and factor matrix of regular hedge lang...

This paper investigates the hedging effectiveness of time-varying hedge ratios in the agricultural commodities futures markets based on four different versions of the GARCH models. The GARCH models applied are the standard bivariate GARCH, the bivariate BEKK GARCH, the bivariate GARCH-X and the bivariate BEKK GARCH-X. The GARCH-X and the BEKK GARCH-X models are uniquely different from the other...

We acknowledge the LBS Centre for Hedge Fund Research and Education for providing the hedge fund data used in this paper. Earlier versions of this paper were presented at Abstract This paper studies the risk in fixed-income hedge fund styles. Principal component analysis is applied to groups of fixed-income hedge funds to extract common sources of risk and return. These common sources of risk a...

The paper studies the benchmark approach for pricing and hedging in incomplete markets where the investor has to filter the incomplete information. We consider a jump diffusion Markov modulated market model and derive the growth optimal portfolio (GOP), by using the stochastic control method. Using GOP, we price and hedge European options where the existence of the equivalent martingale measure...

In previous papers, we introduced a new reasoning method based on quantifying linguistic domains, established a new fuzzy control algorithm, called hedge-algebras-based controller (HAC), and applied it to solve some fuzzy control problems. The HAC does not require fuzzy sets to provide the semantics of the linguistic terms used in the fuzzy rule system rather the semantics is obtained through t...

This paper provides an alternative formulation and proof of the conditions under which optimal hedge ratios are independent of risk preference and points out that the conditions are satisfied by a wide class of models of spot and futures returns.  2000 Elsevier Science S.A. All rights reserved.

We propose linear systems of hedge language equations (LSH) as a formalism to represent regular hedge languages. These linear systems are suitable for several computations in the algebra of regular hedge languages. We indicate algorithms to translate between representations by hedge automata and LSH, and for the computation of LSH for the intersection, quotient, left and right factors of regula...

Consider a firm whose stock returns are affected by market returns and an idiosyncratic market-orthogonal factor. The level of the firm’s cash flows depends on the level of the market and the level of the idiosyncratic factor multiplicatively because of compounding. Although a large hedge against the market index minimizes the variance of cash flows, such a hedge does not minimize the costs of ...

A market is described by two correlated asset prices. But only one of them is traded while the contingent claim is a function of both assets. We solve the mean-variance hedging problem completely and prove that the optimal strategy consists of a modi ed pure hedge expressible in terms of the obervation process and a Merton-type investment.