Who Needs Hedge Funds? A Copula-Based Approach to Hedge Fund Return Replication

Kat, Harry M.; Palaro, Helder P.

doi:10.2139/ssrn.855424

Cited by 51 publications

(48 citation statements)

References 10 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Having estimated the necessary distributions and copula function, one must now calculate the payoff's return function g. As deduced by Kat and Palaro (2005), its formula is given by…”

Section: The Payoff Functionmentioning

confidence: 99%

“…In order to circumvent the issue of identifying tradable risk factors, an interesting alternative approach was proposed by Amin and Kat (2003) and more recently extended by Kat and Palaro (2005). Based on earlier work by Dybvig (1988), the authors evaluate hedge fund performance not by identifying the return generating betas, but rather by attempting to replicate the distribution of the hedge fund returns.…”

Section: Introductionmentioning

confidence: 99%

“…So the real challenge is whether or not we can find a more efficient method to distort these distributions than by investing in hedge funds. Armed with their new efficiency measure, Kat and Palaro (2005) show that hedge fund returns are by no means exceptional and that for the majority of funds an alternative dynamic strategy would have provided investors with superior returns. This methodology not only provides a model free benchmark for evaluating hedge funds, it can also be used to create synthetic funds with predetermined distributional properties.…”

Section: Introductionmentioning

confidence: 99%

“…The efficiency measure as presented by Kat and Palaro (2005) is however subject to several shortcomings and inconsistencies. The most significant of these relates to the way that the daily trading strategies are derived from the distribution of monthly returns.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Replicating the Properties of Hedge Fund Returns

Papageorgiou¹,

Rémillard²,

Hocquard³

2008

JAI

View full text Add to dashboard Cite

In this paper, we implement a multi-variate extension of Dybvig (1988) Payoff Distribution Model that can be used to replicate not only the marginal distribution of most hedge fund returns but also their dependence with other asset classes. In addition to proposing ways to overcome the hedging and compatibility inconsistencies in Kat and Palaro (2005), we extend the results of Schweizer (1995) and adapt American options pricing techniques to evaluate the model and also derive an optimal dynamic trading (hedging) strategy. The proposed methodology can be used as a benchmark for evaluating fund performance, as well as to replicate hedge funds or generate synthetic funds.

show abstract

“…Having estimated the necessary distributions and copula function, one must now calculate the payoff's return function g. As deduced by Kat and Palaro (2005), its formula is given by…”

Section: The Payoff Functionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Replicating the Properties of Hedge Fund Returns

Papageorgiou¹,

Rémillard²,

Hocquard³

2008

JAI

View full text Add to dashboard Cite

show abstract

“…2,3 This paper develops a framework to assess the potential benefi t of using hedge fund of funds to replace some or all of the equity allocation in life cycle investment funds.…”

Section: Introductionmentioning

confidence: 99%

Using hedge funds to enhance asset allocation in life cycle pension funds

Lewis

2009

Pensions Int J

View full text Add to dashboard Cite

is the Managing Director of strategic research and risk management at the Teacher Retirement System of Texas. His current research is focused on asset allocation, semi-passive hedge fund replication, intelligent portfolio optimisation, alternative assets in life cycle investing and post-retirement optimal asset allocation.ABSTRACT Life cycle investment funds are one of the fastest growing segments in the defi ned contribution pension industry. Despite concerns over long-term investment performance, many life cycle products continue to remain focused on traditional core allocations to US stocks and US bonds, with very little exposure to alternative asset classes such as commodities or global real estate. This paper outlines a methodology for assessing the potential enhancement to long-term performance that may arise from the inclusion of hedge funds into life cycle investment products. The results indicate a potential role for hedge funds. It is argued that exposure can be most effi ciently gained via investable hedge fund of fund indices or by using widely available technology to replicate hedge fund returns via common risk factors. Because the approach developed in this paper can be easily modifi ed, it could prove useful to fi nancial planners, investors, portfolio managers and policy makers in assessing the risk and return characteristics of various life cycle asset allocation strategies.

show abstract

References

2012

Asymmetric Returns

View full text Add to dashboard Cite

Who Needs Hedge Funds? A Copula-Based Approach to Hedge Fund Return Replication

Cited by 51 publications

References 10 publications

Replicating the Properties of Hedge Fund Returns

Replicating the Properties of Hedge Fund Returns

Using hedge funds to enhance asset allocation in life cycle pension funds

References

Contact Info

Product

Resources

About