By Lars Jaeger
There s a buzzword that has quick captured the mind's eye of product prone and traders alike: "hedge fund replication". within the broadest feel, replicating hedge fund suggestions potential replicating their go back assets and corresponding threat exposures. even though, there nonetheless lacks a coherent photo on what hedge fund replication skill in perform, what its premises are, the way to distinguish di erent techniques, and the place this may lead us to.
Serving as a guide for replicating the returns of hedge money at significantly cheaper price, replacement Beta concepts and Hedge Fund Replication presents a different specialize in replication, explaining alongside the way in which the go back resources of hedge cash, and their systematic dangers, that make replication attainable. It explains the heritage to the hot dialogue on hedge fund replication and the way to derive the returns of many hedge fund thoughts at a lot cheaper price, it differentiates a few of the underlying techniques and explains how hedge fund replication can enhance your individual funding approach into hedge money.
Written by way of the well-known Hedge Fund professional and writer Lars Jaeger, the e-book is split into 3 sections: Hedge Fund heritage, go back assets, and Replication thoughts. part one presents a quick direction in what hedge cash really are and the way they function, arming the reader with the historical past wisdom required for the remainder of the booklet. part illuminates the assets from which hedge money derive their returns and indicates that almost all of hedge fund returns derive from systematic hazard publicity instead of supervisor "Alpha". part 3 offers quite a few techniques to replicating hedge fund returns via proposing the 1st and moment new release of hedge fund replication items, issues out the pitfalls and strengths of many of the techniques and illustrates the mathematical suggestions that underlie them.
With hedge fund replication going mainstream, this ebook offers transparent suggestions at the subject to maximize returns.
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Additional info for Alternative Beta Strategies and Hedge Fund Replication
When the Long Term Capital Fund lost more than $4 billion in the late summer of 1998, the Federal Reserve Bank of New York organized a rescue by private banks to avoid possible widespread damage from a possible disorderly liquidation or bankruptcy of the fund. Addressing these concerns one can say that brokers and banks have greatly improved their systems to evaluate their exposures to hedge funds in recent years (also as a consequence of their experience with LTCM in 1998). Derivatives contracts are much better designed for defaults than they were in the past.
A clear example of this problem is the performance of convertible arbitrage funds. The typical trade for a convertible arbitrage fund is to buy convertible bonds issued by a firm and to hedge the purchase with short sales of the stock of the firm. As more funds buy convertible bonds, the strategy becomes less profitable because the funds push the price up, so that the performance of this strategy falls. Yet another development has started to jeopardize the attractiveness of hedge fund returns while at the same time opening up a door towards new opportunities: with the enormous success and unprecedented growth and the subsequent confrontation of difficulties in extracting sustainable returns in their traditional markets, hedge fund managers have started to search for return sources in new markets.
14). P1: JYS c02 JWBK289-Jaeger August 18, 2008 8:47 Printer: Yet to come What Are Hedge Funds 33 the new ‘sales story’ but have a legitimate status in the global asset management industry, even when their expected returns are no longer in the high teens. Dispel myths about hedge funds Many of the myths about hedge funds are of the industry’s own making.