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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Philip H. Dybvig, 1988.
"Inefficient Dynamic Portfolio Strategies or How to Throw Away a Million Dollars in the Stock Market,"
Review of Financial Studies,
Society for Financial Studies, vol. 1(1), pages 67-88.
- Philip H. Dybvig, 1987. "Inefficient Dynamic Portfolio Strategies or How to Throw Away a Million Dollars in the Stock Market," Cowles Foundation Discussion Papers 826R, Cowles Foundation for Research in Economics, Yale University, revised Jan 1988.
- Fung, William & Hsieh, David A, 1997. "Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 275-302.
- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
- Akihiko Takahashi & Kyo Yamamoto, 2010. "A New Hedge Fund Replication Method With The Dynamic Optimal Portfolio," CARF F-Series CARF-F-211, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
- Fung, William & Hsieh, David A, 2001. "The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers," Review of Financial Studies, Society for Financial Studies, vol. 14(2), pages 313-41.
- Fung, William & Hsieh, David A., 2000. "Performance Characteristics of Hedge Funds and Commodity Funds: Natural vs. Spurious Biases," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(03), pages 291-307, September.
- Philip H. Dybvig, 1987.
"Distributional Analysis of Portfolio Choice,"
Cowles Foundation Discussion Papers
827R, Cowles Foundation for Research in Economics, Yale University, revised Jan 1988.
- Amin, Gaurav S. & Kat, Harry M., 2003.
"Hedge Fund Performance 1990–2000: Do the “Money Machines” Really Add Value?,"
Journal of Financial and Quantitative Analysis,
Cambridge University Press, vol. 38(02), pages 251-274, June.
- Gaurav Amin & Harry. M Kat, 2001. "Hedge Fund Performance 1990-2000- Do the "Money Machines" Really Add Value?," ICMA Centre Discussion Papers in Finance icma-dp2001-05, Henley Business School, Reading University, revised Sep 2001.
- Jakša Cvitanić & Vassilis Polimenis & Fernando Zapatero, 2008. "Optimal portfolio allocation with higher moments," Annals of Finance, Springer, vol. 4(1), pages 1-28, January.
- Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
- Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
- Akihiko Takahashi & Nakahiro Yoshida, 2004. "An Asymptotic Expansion Scheme for Optimal Investment Problems," Statistical Inference for Stochastic Processes, Springer, vol. 7(2), pages 153-188, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.