Abstract

http://ssrn.com/abstract=1113042
 
 

References (16)



 
 

Citations (1)



 


 



A Conditional Approach to Hedge Fund Risk


Jerome Teiletche


Unigestion

FLORENT POCHON


affiliation not provided to SSRN

January 2006


Abstract:     
In this study, we apply a two-step conditional Bayesian approach to hedge fund risk. In the first step, a mixture of two normal distributions is estimated for a core asset, one distribution being identified as linked to a "quiet" regime, the other one to a "hectic" regime. The conditional probabilities of each regime are then inferred and a mixture of distributions is deduced for peripheral assets. In our application, the core asset is alternatively chosen as the S&P index or the Baa/Treasuries yield spread and the peripheral assets are the major hedge funds strategies over the period 1990-2004. The methodology has several advantages given specific features of hedge funds returns, notably non- linear exposure to standard assets returns and short sample history. We identify significant changes in the distribution (mean and standard deviation) of hedge fund returns across regimes. Results are less clear-cut for the correlation with standard assets, as modifications can be imputed to a certain extent to a form of selection bias. We finally present an application of the methodology for stress tests on hedge funds portfolios.

Number of Pages in PDF File: 28

Keywords: hedge funds, risk, mixture models, stress tests

JEL Classification: G00

working papers series





Download This Paper

Date posted: March 25, 2008  

Suggested Citation

Teiletche, Jerome and POCHON, FLORENT, A Conditional Approach to Hedge Fund Risk (January 2006). Available at SSRN: http://ssrn.com/abstract=1113042 or http://dx.doi.org/10.2139/ssrn.1113042

Contact Information

Jerome Teiletche (Contact Author)
Unigestion ( email )
8c, avenue de Champel CP 387
CP 387
Genève 12, CH 1211
Switzerland
FLORENT POCHON
affiliation not provided to SSRN
Feedback to SSRN


Paper statistics
Abstract Views: 1,380
Downloads: 268
Download Rank: 66,614
References:  16
Citations:  1

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.406 seconds