Abstract

http://ssrn.com/abstract=900006
 
 

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Efficient Fund of Hedge Funds Construction Under Downside Risk Measures


David Morton


University of Texas at Austin - College of Engineering

Ivilina Popova


Texas State University - San Marcos

Elmira Popova


University of Texas at Austin


Journal of Banking and Finance, Forthcoming

Abstract:     
We consider portfolio allocation in which the underlying investment instruments are hedge funds. Benchmarks and conditional-value-at-risk motivate a family of utility functions involving the probability of outperforming a benchmark and expected shortfall from another benchmark. Non-normal return vectors with prescribed marginal distributions and correlation structure are modeled and simulated using the normal-to-anything method. A Monte Carlo procedure is used to obtain, and establish the quality of, a solution to the associated portfolio optimization model. Computational results are presented on a problem in which we construct a fund of 13 CSFB/Tremont hedge-fund indices.

Number of Pages in PDF File: 23

Keywords: Portfolio choice, expected regret, hedge funds, fund of funds, portfolio optimization, Monte Carlo simulation

JEL Classification: C15, C61, G11

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Date posted: May 4, 2006  

Suggested Citation

Morton, David and Popova, Ivilina and Popova, Elmira, Efficient Fund of Hedge Funds Construction Under Downside Risk Measures. Journal of Banking and Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=900006

Contact Information

David Morton
University of Texas at Austin - College of Engineering ( email )
1 University Station
Austin, TX 78712-1179
United States
Ivilina Popova (Contact Author)
Texas State University - San Marcos ( email )
601 University Drive
San Marcos, TX 78666-4616
United States
HOME PAGE: http://www.business.txstate.edu/users/ip12/
Elmira Popova
University of Texas at Austin ( email )
Austin, TX 78712
United States
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