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 CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-624.
Length: 39 pages
Date of creation: Jun 2009
Date of revision:
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
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