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Performance and Risk Measurement Challenges For Hedge Funds: Empirical Considerations

  • Peter Blum


  • Michel Dacorogna


  • Lars Jaeger

    (Partners Group)

Hedge funds are said to be rewarding investments because they have favourable risk-return characteristics on a standalone basis, and because they offer valuable diversification with respect to traditional stock and bond markets. On the other hand, hedge fund returns have a number of characteristics that make their quantitative analysis difficult: distributions are often asymmetric and have an increased tendency towards extreme outcomes ("heavy tails"), and dependence structures with respect to traditional markets are often complex. Moreover, quality and quantity of available data may be limited. In this study, we survey and present a number of quantitative analysis techniques that are able to cope with the particular characteristics of hedge funds, including methods for extreme value analysis and non- standard dependence models.

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Paper provided by EconWPA in its series Risk and Insurance with number 0311001.

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Length: 20 pages
Date of creation: 05 Nov 2003
Date of revision:
Handle: RePEc:wpa:wuwpri:0311001
Note: Type of Document - Acrobat PDF; prepared on Win2000; to print on HP A4; pages: 20
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  1. H. A. Hauksson & M. Dacorogna & T. Domenig & U. Mller & G. Samorodnitsky, 2001. "Multivariate extremes, aggregation and risk estimation," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 79-95.
  2. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
  3. Peter Blum & Michel Dacorogna, 2003. "Dynamic Financial Analysis - Understanding Risk and Value Creation in Insurance," Risk and Insurance 0306002, EconWPA.
  4. Michel M. Dacorogna, & Ulrich A. Muller & Olivier V. Pictet & Casper De Vries,, . "The Distribution of Extremal Foreign Exchange Rate Returns in Extremely Large Data Sets," Working Papers 1992-10-22, Olsen and Associates.
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