Overlay Hedging in a Fund of Funds

Hedge funds are often referred to as absolute return strategies, yet investors are aware that most hedge funds do in fact take on a variety of systematic and quasi-systematic exposures.

Author(s) :

David E. Kuenzi

Research Associate, EDHEC Risk and Asset Management Research Centre,Glenwood Capital investments

Remy Chaudhuri

Senior Quantitative Analyst, Glenwood Capital investments

Zhihui Dong

Quantitative Analyst, Glenwood Capital investments

If a manager of a fund of hedge funds (FoF) finds that the exposure of the FoF to a certain systematic exposure or the risk level broadly has become excessive, then the FoF manager may want to hedge. The purpose of this article is to outline the major issues involved with overlay hedging in a fund of funds portfolio and to provide relevant solutions to these issues. These include the determination of whether to hedge, exposure estimation, hedging single exposures with futures, options, and other instruments, and hedging exposures broadly using a multi-factor approach.
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Overlay Hedging in a Fund of Funds...
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Type : Working paper
Date : le 01/09/2008
Extra information : Ce document constitue une synthèse de travaux scientifiques conduits au sein de l'EDHEC. Pour plus d'informations, nous vous prions de vous adresser à Séverine Anjubault de la direction de la recherche de l'EDHEC : severine.anjubault@edhec.edu Les opinions exprimées sont celles de l'auteur et n'engagent pas la responsabilité de l'EDHEC.
Research Cluster : Finance

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