Generating a Target Payoff Distribution with the Cheapest Dynamic Portfolio: An Application to Hedge Fund Replication
AbstractThis paper provides a new method to construct a dynamic optimal portfolio for asset management. This method generates a target payoff distribution using the cheapest dynamic trading strategy. As a practical example, the method is applied to hedge fund replication. This dynamic portfolio strategy is regarded as an extension of a hedge fund replication methodology that was developed by Kat and Palaro (2005a, b) and Papageorgiou, Remillard and Hocquard (2008) to address multiple trading assets with both long and short positions. Empirical analyses show that such an extension significantly improves the performance of replication in practice.
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Bibliographic InfoPaper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-308.
Length: 39 pages
Date of creation: Jun 2009
Date of revision: Feb 2013
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