This thesis applies a Partial Integral Differential Equation model, along with a Monte Carlo approach to quantitatively analyze the no arbitrage value of hedge fund performance fees. From a no-arbitrage point of view, the investor in a hedge fund is providing a free option to the manager of the hedge fund. The no-arbitrage value of this option can be locked in by the hedge fund manager using a simple hedging strategy. Interpolation methods, grid construction techniques and parallel computation techniques are discussed to improve the performance of the numerical methods for valuing this option.

Many hedge funds are believed to yield considerable returns to investors; there is an assumption that suggests hedge funds seem uncorrelated with market fluctuations and have relatively low volatility. In recent years, emerging market hedge funds have experienced a higher capital inflow in periods when the diversification benefits of investing in emerging markets are higher. However, the strategy‟s share of the hedge fund industry‟s total capital flows has decreased significantly during the same periods: this might imply that investors have reallocated capital to other hedge fund strategies. This paper investigates whether emerging markets hedge funds have been as consistent in performance as the benchmark indices by presenting results of comparative analysis of two sample emerging markets hedge fund indices and two standard emerging markets benchmarks performance. The empirical study ranges from the period of January 2006 to December 2010.

Hedging a contingent claim with an asset which is not perfectly correlated with the underlying asset results in an imperfect hedge. The residual risk from hedging with a correlated asset is priced using an actuarial standard deviation principle in infinitesmal time, which gives rise to a nonlinear partial differential equation (PDE). A fully implicit, monotone discretization method is developed for solving the pricing PDE. This method is shown to converge to the viscosity solution. Certain grid conditions are required to guarantee monotonicity. An algorithm is derived which, given an initial grid, inserts a finite number of nodes in the grid to ensure that the monotonicity condition is satisfied. At each timestep, the nonlinear discretized algebraic equations are solved using an iterative algorithm, which is shown to be globally convergent. Monte Carlo hedging examples are given, which show the standard deviation of the profit and loss at the expiry of the option.

This thesis applies a Partial Integral Differential Equation model, along with a Monte Carlo approach to quantitatively analyze the no arbitrage value of hedge fund performance fees. From a no-arbitrage point of view, the investor in a hedge fund is providing a free option to the manager of the hedge fund. The no-arbitrage value of this option can be locked in by the hedge fund manager using a simple hedging strategy. Interpolation methods, grid construction techniques and parallel computation techniques are discussed to improve the performance of the numerical methods for valuing this option.

Background: Risk management has always been a complex topic, especially when it comes to hedge funds. Since hedge funds are able to utilize many kinds of financial instruments it is difficult to find a risk management strategy that goes well with them. Not much research regarding the Swedish hedge fund industry and its risk management has been done; hence we find it an interesting topic to focus this thesis on. Purpose: The purpose of this thesis is to increase the knowledge of how Swedish hedge fund managers perceive and manage different types of risk and how they construct their portfolios with regards to risk management. We also want to investigate how risk measurements are used when it comes to risk management and how valid they are when applied to hedge funds. Method: In this thesis a combination of exploratory and descriptive research strategies are used. The research method used is the inductive method. A qualitative study is performed as well as a semi-structured interview technique. Conclusion: We conclude that the definitions of risk are ambiguous and differed greatly between the hedge fund managers. The risk in the hedge funds is managed differently depending on manager’s opinion regarding the nature and controllability of risk. We found that all managers agree on that risk is controllable to some degree but that there are always limits and that an uncertainty aspect is at all times present in a portfolio. The fund managers have to use their experience and knowledge in conjunction with an active risk management to run an efficient hedge fund. We conclude that all managers realize the importance of risk management, not only as a tool to achieve superior returns but also as an incentive for investors to choose their hedge fund over others. We conclude that hedge fund managers believe that there is a need for restrictions and limits within their funds. It can be argued that by enforcing and following restrictions and limits the fund has established a foundation to build its risk management and investment philosophy upon. The larger hedge funds relied on strict enforcement of their rules and guidelines and had a high degree of hierarchy; the managers of the smaller hedge funds seemed to have a higher degree of freedom and a less complicated investment process. We also find that the smaller a firm is the less enthusiasm is expressed regarding the usage of the different risk variables in their risk management and it is expressed to be more of a demand from different stakeholders. We conclude also that even though the risk measurements are used mostly in the larger firms one is still aware that they are not able to capture all the risks. Their validity is questioned by all sizes of firms.

<p>The purpose of this study is to analyze Swedish hedge funds in terms of pursued investment strategies, risks and returns.</p><p>The study deals with a large number of quantitative data and delimitations were used to obtain a sample that better fulfills the purpose of this paper. The time frame chosen for increas-ing validity and reliability was almost four years. Furthermore, the study uses secondary data due to difficulties and costs as-sociated with obtaining primary data though this is not consi-dered as lowering the quality of the study.</p><p>The theory section starts by presenting the differences between hedge funds and mutual funds and then focusing on different hedge fund strategies, risks associated with hedge funds and fi-nally risk and return measurements. This section provides an overview for the empirical findings and analysis.</p><p>In the empirical findings and analysis, statistical calculations of and Analysis the risk measurements standard deviation, Sharpe ratio, track-ing error and correlation are conducted for the sample. The re-sults are related to the hedge funds strategies. Later on the strategies are weighted against each other. Finally, all strategies are compared to OMXS to find the investors‟ most appropriate investment structure.</p><p>After categorizing the different hedge funds with respect to pursued strategies, the result shows how there are clear dispari-ties in risk and returns for the different strategies. We found indications of a significant relationship between high return and high risk as well as between low return and low risk.</p><p> </p>

I examine the information content of unrealized cash flow hedge gains/losses for future profitability and stock returns. An unrealized gain on a cash flow hedge suggests that the price of the underlying hedged item (i.e. commodity price, foreign currency exchange rate or interest rate) moved in a direction that negatively affects the firm. Based on this inverse relation, I find that unrealized cash flow hedge gains/losses are negatively associated with future gross margin. This association is weaker for firms that have the ability to pass input price changes through to customers. Finally, I find that investors do not immediately price the information conveyed by cash flow hedges. Instead, investors appear surprised by future realizations of gross margin, consistent with the view that a lack of transparent disclosure on future hedged transactions leads to a delay in pricing. These results may inform current policy decisions of both the FASB and SEC.

The purpose of this report is to offer an independent evaluation of strategic investment vehicles that are used to hedge against inflation by asset management companies in Zimbabwe. Zimbabwe's inflation stood at an alarming 536% at the end of December 2003,which gives the research enough motivation to establish the best inflation hedging instruments ideal in such a highly volatile and unstable environment. Since 1999 to date many companies have shut down and or scaled down their operational activities due to the adverse inflationary trading environment. This paper therefore serves to find out whether AMC's have strategic products to save corporations. The investigation starts off by discussing the Zimbabwean inflationary situation and followed by the research's main goals, investigative questions and the reason and value for carrying out the study. The pertinent literature is then discussed and evaluated with particular emphasis on the role of asset portfolio management. The research analyses the traditional asset classes and compares their attributes to the alternative investment classes in particular with real estate investments. Previous research studies support the view that real estate retains value and that it is an instrument for the protection of asset erosion caused by the effects of inflation. The empirical findings from this study have established that real estate investments have higher returns than inflation cumulatively. As a result real estate investments offer diversification benefits within any investor's efficient portfolio. Upon reflection of this investigation's findings some recommendations are made. Firstly the study recommends that rational investors should include real estate on their diversified portfolios in order to maximize shareholder wealth. Secondly we recommend that asset managers should push for higher holding weights when making strategic decisions on asset allocation. There is a potential for more appetizing alternative investments for the Zimbabwean investor and asset managers need a paradigm shift to include more alternative forms of investments in their portfolios. / Thesis (MBA)-University of Natal, Durban, 2004.

<p>This dissertation includes two parts. The first part examines the preventive effect of hedge fund activism against corporate policy deviations. Using stock liquidity and mutual fund fire sales as instruments, I find that when the likelihood of hedge fund activism increases, firms respond by paying shareholder more and CEOs less, holding less cash and leveraging more, and increasing investment into research and development while cutting capital expenditures. These results imply that hedge fund activism has a stronger and broader impact on corporate policy than previously documented. The second part critically examines capital flow-induced mutual fund trades as an exogenous proxy for changes in stock price. I find that liquidity-strapped mutual funds sell widely across all portfolio holdings but the extreme capital outflows could be driven by the performance of portfolio holdings in the first place.</p> / Dissertation

What explains the shift towards greater direct public oversight of financial markets in international financial regulation that has characterized the response to the global financial crisis of 2007-2010? Over this period, the main international financial regulatory bodies have abandoned the market-based mechanisms that had informed their approach towards the regulation of different financial domains in the years before the crisis and significantly expanded the perimeter of state-based regulation. However, the extent and the timing of this shift cannot be regarded only as the by-product of the crisis, nor they can be explained by the existing interpretations of the political determinants of international regulatory policies. This study builds upon existing state-centric explanations of international regulatory policies, but it goes beyond these works by exploring how the preferences of the most influential countries in response to the crisis have been influenced by variations in the degree of public salience of different financial domains. More specifically, this study argues that the lasting increase in the public salience of financial regulatory policies in the US and different European countries since the last quarter of 2008 has created strong incentives for elected officials in these countries to challenge the market-based approach that had emerged in the decade and half before the crisis and to directly interfere in the international regulatory agenda. In order to explain this shift, this study will analyse the evolution in the international governance of three sets of markets and institutions that have occupied an important position in the international regulatory agenda in recent years: 1) OTC derivatives; 2) rating agencies; 3) hedge funds. Besides making an empirical contribution to the literature on the politics of international financial regulation, this study also contributes theoretically to this literature by deepening our understanding of the nexus between international regulatory coordination and domestic public opinion.