After collecting all available information on 109 hedge fund defaults between 1994 and 2005, we investigated two statistical methods in order to shed some light on the risk profile of hedge funds.
Quantitative Analyst with Olympia Capital Management and former Quant Trainee with E.I.M. S.A
Senior Researcher, RiskMetrics Group, Research Associate with the EDHEC Risk and Asset Management Research Centre and former Senior Quant Analyst with E.I.M. S.A
Director of Development and Research Associate with the EDHEC Risk and Asset Management Research Centre
In an initial stage, we explore the mechanisms behind a hedge fund failure in detail and propose a causal model that could explain the various scenarios that can occur when hedge funds default. A second stochastic analysis of the sample database allows us to propose a loss model for operational failures and to better understand the limitations of a naïve diversification aimed at reducing the loss from a single event by reducing its share of the overall portfolio.
|Research Cluster :||Finance|