A Comparison of Alternative Approaches for Determining the Downside Risk of Hedge Fund Strategies

This paper compares a number of different approaches for determining the Value at Risk (VaR) and Expected Shortfall (ES) of hedge fund investment strategies.

Author(s):

Daniel Giamouridis

Lecturer in the Department of Accounting and Finance at the Athens University of Economics and Business, Visiting Fellow in the Faculty of Finance of the Sir John Cass Business School, City University, London and Research Associate with the EDHEC Risk and Asset Management Research Centre

Ioanna Ntoula

Risk Analyst in the Methods and Measures Division, Market Risk Management Sector, Eurobank EFG, Greece

We compute VaR and ES through completely modelfree methods, as well as through mean/variance and distribution model-based methods. Among the models considered certain specifications can technically address autocorrelation, asymmetry, fat tails, and time-varying variances which are typical characteristics of hedge fund returns. We find that conditional mean/variance models coupled with appropriate distributional assumptions improve our ability to predict VaR, 1% VaR in particular. We also find that the goodness of ES prediction models is primarily influenced by the distribution model rather than the mean/variance specification.

Type: Working paper
Date: le 08/01/2007
Research Cluster : Finance

See Also

AGORA MEETS BERTRAND BADIE, POLITICAL SCIENTIST AND INTERNATIONAL RELATIONS SPECIALIST
News
- 21-10-2021
Agora students held another 'Rencontre de l'Agora' event on Wednesday 19 October, this...
Eiffel Excellence Scholarship: the most prestigious French scholarship you can get
News
- 21-10-2021
Mikhail Miroshnichenko joined EDHEC MiM Finance after his Bachelor’s degree in...
EDHEC-Auchan Learning Partnership: Retail industry transformations at the heart of EDHEC International BBA learning
News
- 20-10-2021
Auchan is joining forces with EDHEC to share its retail industry expertise with EDHEC...
The FIR-PRI Awards “Finance & Sustainability” prize for “best pedagogical innovation”: preparing future generations to fight climate change.
News
- 18-10-2021
At EDHEC, we want to take part in the fight against climate change. Through our...