Juha Joenväärä, Robert Kosowski: The present document, which represents the latest publication from the “Advanced Modelling for Alternative Investments” research chair at EDHEC Risk Institute, supported by the Prime Brokerage Group at Newedge, is part of the chair research on “Analysing the Convergence between Mainstream and Alternative Money Management.”
Assistant professor at the University of Oulu.iAffiliate professor at EDHEC-Risk Institute, associate professor in the Finance Group of Imperial College Business School, Imperial College London and Director of the Centre for Hedge Fund Research.
This paper has two objectives. First, this paper provides an academic analysis of the main techniques that are currently used by hedge fund managers and that could be transported to the mutual fund and alternative UCITS space in a straightforward manner so as to provide better forms of risk management in a regulated environment. We categorize techniques according to three groups: (1) risk management, (2) alpha generation and (3) leverage. Within the group of risk management techniques we review (1.1) techniques based on derivatives, (1.2) techniques based on dynamic trading strategies, (1.3) volatility scaling of positions, (1.4) risk measurement techniques, (1.5) currency overlay and (1.6) performance-enhancing compensation and incentive structures. In the context of alpha creation techniques, we discuss (2.1) advanced econometric techniques for asset allocation, (2.2) asset-specific betas and stock-picking, (2.3) shareholder activism, (2.4) order execution alpha and (2.5) currency alpha. Finally, we show how leverage can act as a performance driver and distinguish (3.1) financial leverage, (3.2) construction leverage, (3.3) instrument leverage, (3.4) risk-parity techniques and (3.5) VaR techniques and leverage.
|Research Cluster :||Finance|