The fund manager always pronounces “the high returns from hedge fund are along with low risk. Is the performance of hedge fund manager really good? In this study, the market-timing ability and performance consistency on hedge fund manager are tested. The Sharpe ratio was employed to implement the consistency of performance for mutual fund in the previous literature. Due to the non-normally dist...

Life insurance products often contain embedded options in the form of profit sharing and guaranteed returns on premiums deposited by the customer. The value of these embedded options is exposed to market risks. This thesis describes a method to find good hedge portfolios of swaptions to hedge the market risks of the embedded options. In addition, a method is described to monitor and clarify the...

We present a high-frequency based method for analyzing a one-period futures hedging problem. The realized hedge ratio is constructed by applying the realized regression with the R-squared coefficient as an ex-post performance measure. The asymptotic theory enables us to assess the parameter estimation risk of the hedge ratios. An empirical study is conducted on the S&P 500 index and their hedgi...

The Sharpe ratio is adequate for evaluating investment funds when the returns of those funds are normally distributed and the investor intends to place all his risky assets into just one investment fund. Hedge fund returns differ significantly from a normal distribution. For this reason, other performance measures for hedge fund returns have been proposed in both the academic and practiceorient...

This paper presents a discrete-time option pricing model that is rooted in Reinforcement Learning (RL), and more specifically in the famous Q-Learning method of RL. We construct a riskadjusted Markov Decision Process for a discrete-time version of the classical Black-ScholesMerton (BSM) model, where the option price is an optimal Q-function, while the optimal hedge is a second argument of this ...

JOT YAU IS a professor of finance at Mbers School of Business .iiid Economics. Seattle University in Seattle, WA. ,[email protected] T he significant growth of the hedge funds industry in the past decade has heen supplemented by increased allocations to alternative investments by high-net-worth individuals as well as endowments and foundations. In recetit years, there has been a steady shift i...

This paper analyzes the performance of two hedging strategies on three different options when trading is limited to take place at discrete times. Specifically, we compare the mean, standard deviation, skewness, and kurtosis of the hedging error resulting from applying a delta hedge and mean square optimal hedge to a European call option, a digital call option, and a down-and-out barrier call op...

We consider the problem of hedging the loss of a given portfolio of derivatives using a set of more liquid derivative instruments. We illustrate why the typical mathematical formulation for this hedging problem is ill-posed. We propose to determine a hedging portfolio by minimizing a proportional cost subject to an upper bound on the hedge risk; this bound is typically slightly larger than the ...

Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Practitioner's Abstract The effectiveness of the Class III Milk futures market is analyzed in terms of the reduction in Value-at-Risk (VaR) for milk producers located in four regions: Wisconsin, Northeast, Florida and California. Constant he...