Table of Contents

Does Gold Glitter in the Long-Run? Gold as a Hedge and Safe Haven Across Time and Investment Horizon

Don Bredin, University College Dublin
Thomas Conlon, University College Dublin
Valerio Potì, Dublin City University Business School, University College Dublin (UCD) - School of Business, Catholic University S.C. Piacenza

Hedge Fund Seeding Via Fees-for-Seed Swaps Under Idiosyncratic Risk

Christian-Oliver Ewald, University of Glasgow, Center for Dynamic Macroeconomic Analysis, University of St. Andrews - School of Economics and Finance
Hai Zhang, University of Glasgow - Adam Smith Business School

Comparison of Least Squares Monte Carlo Methods with Applications to Energy Real Options

Selvaprabu Nadarajah, University of Illinois at Chicago - College of Business Administration
Francois Margot, Carnegie Mellon University - David A. Tepper School of Business
Nicola Secomandi, Carnegie Mellon University - David A. Tepper School of Business


FINANCIAL ENGINEERING eJOURNAL

"Does Gold Glitter in the Long-Run? Gold as a Hedge and Safe Haven Across Time and Investment Horizon" Free Download

DON BREDIN, University College Dublin
Email:
THOMAS CONLON, University College Dublin
Email:
VALERIO POTÌ, Dublin City University Business School, University College Dublin (UCD) - School of Business, Catholic University S.C. Piacenza
Email:

During times of market turmoil, investors often seek to mitigate the risk associated with traditional investment assets such as equities and debt. The hedging, safe-haven and downside risk reduction properties of gold are examined in this paper for investors with short- and long-run horizons. Utilizing wavelet analysis, we find that gold acts as a short-run hedge for a variety of international equity and debt markets. The safe haven properties of gold during financial crises are further established, with gold shown to act as a safe haven for equity and debt investors across all horizons. Finally, gold is shown to reduce portfolio downside risk in the short-term but may actually contribute to increased long horizon downside risk during recessionary periods.

"Hedge Fund Seeding Via Fees-for-Seed Swaps Under Idiosyncratic Risk" Free Download

CHRISTIAN-OLIVER EWALD, University of Glasgow, Center for Dynamic Macroeconomic Analysis, University of St. Andrews - School of Economics and Finance
Email:
HAI ZHANG, University of Glasgow - Adam Smith Business School
Email:

We develop a dynamic valuation model of the hedge fund seeding business by solving the consumption and portfolio-choice problem for a risk-averse manager who launches a hedge fund through a seeding vehicle. This vehicle, i.e. fees-for-seed swap, specifies that a strategic partner (seeder) provides a critical amount of capital in exchange for participation in the funds revenue. Our results indicate that the new swap not only solves the serious problems of widespread financing constraints for new and early-stage funds (ESFs) managers, but can be highly beneficial to both the manager and the seeder if structured properly. We also find that the ESFs manager's risk aversion can over-turn the risk-shifting incentives when the fund is likely to default while a cash-out option gives the ESF manager a higher incentive to hit the targets when the assets under management (AUM) are nearing the prescribed cash-out boundary. We find that it is more likely for a more risk-averse ESF manager to engage in risk-shifting when the cash-out option is about to be exercised while less likely if the fund has higher probability to be liquidated.

"Comparison of Least Squares Monte Carlo Methods with Applications to Energy Real Options" Free Download

SELVAPRABU NADARAJAH, University of Illinois at Chicago - College of Business Administration
Email:
FRANCOIS MARGOT, Carnegie Mellon University - David A. Tepper School of Business
Email:
NICOLA SECOMANDI, Carnegie Mellon University - David A. Tepper School of Business
Email:

The least squares Monte Carlo (LSM) approach is a useful tool for valuing options of the American/Bermudan type, a typical feature of real options. The standard (regress-now) LSM method approximates the option continuation function as a linear combination of basis functions. A nonstandard (regress-later) LSM variant instead approximates the option value function. This variant is particularly attractive when its induced approximate continuation function can be evaluated exactly in closed form, which is the case for common basis functions and price/term-structure evolution models. We numerically compare the standard and nonstandard LSM methods (LSMC and LSMV, respectively) applied to two energy real options -- the swing and storage options. LSMC and LSMV estimate similarly accurate (near optimal) and precise lower and (dual) upper bounds, but LSMV converges sooner than LSMC and is two to three orders of magnitude faster than LSMC when estimating upper bounds. We also perform a theoretical bounding analysis that supports the relative observed quality of the LSMC/V estimated bounds given a number of regression samples. Our research has relevance for the valuation of other real options.

^top

About this eJournal

This eJournal distributes working and accepted paper abstracts related to development and employment of quantitative techniques to further our understanding of financial markets, instruments, and strategies. The eJournal welcomes research with a focus on advancing the theory or practice of financial engineering in endowments, hedge funds, insurance firms, investment and commercial banks, pension funds, and personal financial and retirement planning. Topics of interest include, but are not limited to, econometric analysis of financial data, enterprise risk management, investment and consumption models, optimal portfolio, pricing and hedging of financial instruments, as well as innovative empirical studies, analytical models, and mathematical algorithms in credit, energy, fixed-income and other markets.

Submissions

To submit your research to SSRN, sign in to the SSRN User HeadQuarters, click the My Papers link on left menu and then the Start New Submission button at top of page.

Distribution Services

If your organization is interested in increasing readership for its research by starting a Research Paper Series, or sponsoring a Subject Matter eJournal, please email: RPS@SSRN.com

Distributed by

Management Research Network (MRN), a division of Social Science Electronic Publishing (SSEP) and Social Science Research Network (SSRN)

Directors

OPER SUBJECT MATTER EJOURNALS

MICHAEL C. JENSEN
Harvard Business School, Social Science Electronic Publishing (SSEP), Inc., National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI)
Email: mjensen@hbs.edu

Please contact us at the above addresses with your comments, questions or suggestions for OPER-Sub.