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Activity Number:
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84
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Type:
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Contributed
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Date/Time:
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Monday, August 9, 2004 : 8:30 AM to 10:20 AM
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Sponsor:
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Business and Economics Statistics Section
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| Abstract - #300376 |
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Title:
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Scenario-based Conditional Nonlinear Hedge Fund Model
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Author(s):
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Bernard Lee*+ and Youngju Lee
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Companies:
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Imperial College, London and Allianz Hedge Fund Partners
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Address:
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South Kensington Campus, London, SW72AZ, United Kingdom
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Keywords:
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hedge fund ; nonlinear conditional model ; hedge fund-style allocation ; bootstrap
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Abstract:
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Hedge fund strategies typically generate option-like returns. Linear-factor models using benchmark asset indices have difficulty explaining them. There were several attempts to explain hedge fund returns using traditional asset classes with nonlinear characteristics. Even though a hedge fund with a certain type of style will focus on the movement of equity markets, bond markets, currency markets, or commodity markets, we believe sophisticated hedge fund managers will consider the interactions between those traditional asset classes and those markets that interact with each other. Our research tries to model this traditional market interaction with consideration of nonlinear characteristics of hedge fund returns using conditional factor model which developed based on the previous work of Markowitz and Perold (1981). This model generates several different scenarios depending on market situation. Hedge funds have a short history and lack of data is one of most challenging parts of hedge fund research. We introduced a bootstrap method to test the hedge fund model in this research.
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