Hedge Fund Analysis Reading the Multi-Factor Tea Leaves

During the last few years, there has been growing interest in the use of factor models for performing risk and exposure analysis of hedge funds.

Author(s):

David E. Kuenzi

Research Associate, EDHEC Business School- Head of Risk Management and Quantitative Research, Glenwood Capital Investments

While interpreting directional and spread related factors in this context is fairly straightforward, interpreting non-linear options exposures often is not. Given the variety of activities that can produce options exposures, the interpretation of multi-factor output in this regard can be more of an art than a science. This paper explores the variety of hedge fund manager activities that can drive options exposures in multi-factor analysis and the considerations that must be made in analyzing and interpreting these exposures.

Type: Working paper
Date: le 03/03/2008
Research Cluster : Finance

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