Abstract

http://ssrn.com/abstract=641702
 
 

References (15)



 
 

Citations (4)



 


 



Measuring Loss Potential of Hedge Fund Strategies


Marcos Lopez de Prado


Guggenheim Partners, LLC; Lawrence Berkeley National Laboratory; Harvard University - RCC

Achim Peijan


UBS Wealth Managment Research


Journal of Alternative Investments, Vol. 7, No. 1, pp. 7-31, Summer 2004

Abstract:     
We measure the loss potential of Hedge Funds by combining three market risk measures: VaR, Draw-Down and Time Under-The-Water. Calculations are carried out considering three different frameworks regarding Hedge Fund returns: i) Normality and time-independence, ii) Non-normality and time-independence and iii) Non-normality and time-dependence.

In the case of Hedge Funds, our results clearly state that market risk may be substantially underestimated by those models which assume Normality or, even considering Non-Normality, neglect to model time-dependence. Moreover, VaR is an incomplete measure of market risk whenever the Normality assumption does not hold. In this case, VaR results must be compared with Draw-Down and Time Under-The-Water measures in order to accurately assess about Hedge Funds loss potential.

Number of Pages in PDF File: 25

Keywords: Hedge Fund, Value-at-Risk, risk, performance, drawdown, under-the-water, normal returns, non-normal returns, time-dependence, ARMA, Monte Carlo, skewness, kurtosis, mixture of gaussian distributions, survival probability, styles, investment strategies

JEL Classification: G0, G1, G2, G15, G24, E44

Accepted Paper Series





Download This Paper

Date posted: January 4, 2005  

Suggested Citation

Lopez de Prado, Marcos and Peijan, Achim, Measuring Loss Potential of Hedge Fund Strategies. Journal of Alternative Investments, Vol. 7, No. 1, pp. 7-31, Summer 2004. Available at SSRN: http://ssrn.com/abstract=641702

Contact Information

Marcos Lopez de Prado (Contact Author)
Guggenheim Partners, LLC ( email )
330 Madison Avenue
New York, NY 10017
United States
HOME PAGE: http://www.QuantResearch.info
Lawrence Berkeley National Laboratory ( email )
One Cyclotron Road
Berkeley, CA 94720
United States
HOME PAGE: http://www.lbl.gov
Harvard University - RCC ( email )
26 Trowbridge Street
Cambridge, MA 02138
United States
HOME PAGE: http://www.rcc.harvard.edu
Achim Peijan
UBS Wealth Managment Research ( email )
Zurich, CH-8098
Switzerland
Feedback to SSRN


Paper statistics
Abstract Views: 9,603
Downloads: 5,980
Download Rank: 526
References:  15
Citations:  4

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.360 seconds