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An SDF approach to hedge funds’ tail risk: evidence from Brazilian funds

Submitted by Laura Simonsen Leal (arula@fgvmail.br) on 2016-06-22T12:59:34Z
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Previous issue date: 2016-03-21 / The main purpose of this paper is to propose a methodology to obtain a hedge fund tail risk measure. Our measure builds on the methodologies proposed by Almeida and Garcia (2015) and Almeida, Ardison, Garcia, and Vicente (2016), which rely in solving dual minimization problems of Cressie Read discrepancy functions in spaces of probability measures. Due to the recently documented robustness of the Hellinger estimator (Kitamura et al., 2013), we adopt within the Cressie Read family, this specific discrepancy as loss function. From this choice, we derive a minimum Hellinger risk-neutral measure that correctly prices an observed panel of hedge fund returns. The estimated risk-neutral measure is used to construct our tail risk measure by pricing synthetic out-of-the-money put options on hedge fund returns of ten specific categories. We provide a detailed description of our methodology, extract the aggregate Tail risk hedge fund factor for Brazilian funds, and as a by product, a set of individual Tail risk factors for each specific hedge fund category.

Identiferoai:union.ndltd.org:IBICT/oai:bibliotecadigital.fgv.br:10438/16638
Date21 March 2016
CreatorsLeal, Laura Simonsen
ContributorsGlasman, Daniela Kubudi, Simonsen, Axel André, Escolas::EPGE, FGV, Almeida, Caio Ibsen Rodrigues de
Source SetsIBICT Brazilian ETDs
LanguageEnglish
Detected LanguageEnglish
Typeinfo:eu-repo/semantics/publishedVersion, info:eu-repo/semantics/masterThesis
Sourcereponame:Repositório Institucional do FGV, instname:Fundação Getulio Vargas, instacron:FGV
Rightsinfo:eu-repo/semantics/openAccess

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