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On the tracking and replication of hedge fund optimal investment portfolio strategies in global capital markets in presence of nonlinearities, applying Bayesian filters: 1. Stratanovich – Kalman – Bucy filters for Gaussian linear investment returns distribution and 2. Particle filters for non-Gaussian non-linear investment returns distribution


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  • Ledenyov, Dimitri O.
  • Ledenyov, Viktor O.


The hedge fund represents a unique investment opportunity for the institutional and private investors in the diffusion-type financial systems. The main objective of this condensed article is to research the hedge fund’s optimal investment portfolio strategies selection in the global capital markets with the nonlinearities. We provide a definition for the hedge fund, describe the hedge fund’s organization structures and characteristics, discuss the hedge fund’s optimal investment portfolio strategies and review the appropriate hedge fund’s risk assessment models for investing in the global capital markets in time of high volatilities. We analyze the advanced techniques for the hedge fund’s optimal investment portfolio strategies replication, based on both the Stratonovich – Kalman - Bucy filtering algorithm and the particle filtering algorithm. We developed the software program with the embedded Stratonovich – Kalman - Bucy filtering algorithm and the particle filtering algorithm, aiming to track and replicate the hedge funds optimal investment portfolio strategies in the practical cases of the non-Gaussian non-linear chaotic distributions.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51046.

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Date of creation: 29 Oct 2013
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Handle: RePEc:pra:mprapa:51046

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Keywords: hedge fund; investment portfolio; investment strategy; global tactical asset allocation investment strategy; investment decision making; return on investments; value at risk; arbitrage pricing theory; Sharpe ratio; separation theorem; Sortino ratio; Sterling ratio; Calmar ratio; Gini coefficient; value at risk (VaR); Ledenyov investment portfolio theorem; stability of investment portfolio; Kolmogorov chaos theory; Sharkovsky chaos theory; Lyapunov stability criteria; bifurcation diagram; nonlinearities; stochastic volatility; stochastic probability; Markov chain; Bayesian estimation; Bayesian filters; Wiener filtering theory; Stratonovich optimal non-linear filtering theory; Stratonovich – Kalman – Bucy filtering algorithm; Hodrick-Prescott filter; Hirose - Kamada filter; particle filtering methods; particle filters; multivariate filters; Gaussian linear distribution; non-Gaussian nonlinear distribution; Monte-Carlo simulation; Brownian motion; diffusion process; econophysics; econometrics; global capital markets.;

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