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Index
absolute returns 4, 9–11
achieving purity, illusions concepts
48–9
acquisitions see merger...
active hedge fund indices 2–3, 4, 45–68
AIMA 31, 59
alpha 34, 63, 65, 66, 75–6, 144–5
alternative funds 1–5
see also hedge funds
alternative investment styles
BCIM 182–6
concepts 13–14, 19–20, 26–7, 33–4,
76–8, 85–92, 114–17, 129–37,
182–6
Altvest 32, 41
annual style distributions of the testing
periods in percent, statistics 13–14,
32–3
annualization issues
concepts 155–78
Cornish–Fisher Value-at-Risk 167–9,
171–2
EVT 171–2, 175–8, 196–8
GARCH Value-at-Risk 172–4, 177–8,
227–8
historical Value-at-Risk 169–71
leptokurtic distributions 159–62,
164–7
main statistical indicators 157–62
Value-at-Risk 161–78
approximation errors 157–78
arbitrage 13–14, 19, 33, 34–5, 41–3, 49,
52–3, 56–9, 76–8, 88–9, 102–17,
129–37, 183–6, 229–31
see also relative-value strategies
arbitrage on the underlying, derivatives
57
asset classes, concepts 69–70, 101–3,
184
asset flow statistics 11–13
asset-backed securities 224
asymmetry of returns 2, 64, 94–5,
158–62
see also skewness
auto-regressive approach, hedge funds
62
autocorrelation, concepts 131–6,
184
automated selection approaches 3–4,
181–205
see also Best Choice . . .
average silhouette
concepts 38–41
definition 38
Baa/treasury spread 200, 229–30
back office developments 14–15
backtesting, Value-at-Risk 104–17,
144–5, 147–50, 196–8
Barclay . . . 10, 41
Basel Committee 115–16, 155
BB rated bonds 58–9
BCIM see Best Choice Implicit Model
bear markets 25–30
‘before and after’ risk attribution, risk
decomposition 30, 211–12
benchmark/relative performance bubble
9–11
benchmarks 9–30, 46, 64–5, 66–8,
219–21
239
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240 Index
Best Choice Implicit Model (BCIM)
see also Implicit . . .
alternative style analysis 182–6
automatic selection 192–3
backtesting 196–8
clones 199–205
coefficient of determination 190–205
concepts 3–4, 5, 30, 181–205, 207–14
empirical tests 195–8
implicit factors 187–90, 196–8
independent variables 190–2
non-linear model 202–5
quality issues 196–8
risk budgeting 207–14
steadiness considerations 198
ten-factor model 199–202
theoretical framework 186–93
betas 18, 26–7, 32, 34, 56, 61, 63, 65,
75–6, 101–2, 182–4, 194–8,
210–14, 230–1
biases 33, 34–5, 41–3, 67–8, 76–8,
85–6, 102, 105–17, 119–20
bibliography 233–8
Billion Dollar Club 12–13
binomial distribution 115–16, 128
bisection method 150–1
Bivariate Extreme Value Theory 139–42
boards of directors 14–15
bonds 19, 33, 34–5, 41–3, 52, 56–8,
76–8, 88–90, 94–5, 102–17,
129–37, 161–78, 183–6, 200–5,
224
convertible arb style 13–14, 33, 34–5,
41–3, 52, 56–8, 76–8, 88–9,
102–17, 129–37, 183–6, 229–31
credit ratings 58–9, 224
fixed income style 13–14, 33, 34–5,
41–3, 52, 76–8, 89–90, 94–5,
129–37, 183–6, 230–1
square root of time rule 161–78
Bretton Woods 223
bull markets 25–30
businesscyclerisk(BUS),riskmatrix77
business processes
see also structural risk
concepts 71–5
call options 94, 202–5
capitalism 22–3
capitalization issues 21–2, 55–6, 57–8,
86–7
Cash-Flow-at-Risk 224–5
catastrophe risks 54, 107
CDOs see collateral debt obligations
CESR 46
Chapter 11 bankruptcy protection 20
chi-squared tests 25–6
CISDM 41, 60, 62–3
City World GVT AM 162–78
classifications of hedge funds, concepts
31–43, 49–51, 59, 61, 182–4, 187,
221
Clayton copula 153–4
cliquet products 70–1
clones 2–3, 5, 11, 40–1, 47, 56–68,
199–205, 230–1
see also replication
BCIM 199–205
conclusions 64–8
funds of funds 62–3, 66–8
closed deals, merger arbitrage 57–8
closed form risk attribution, risk
decomposition 212–14
closed hedge funds 53–4
coefficient of determination 181–205
coefficients above the fourth order of
magnitude, annualization issues
160–2
collateral debt obligations (CDOs) 58–9,
224
commodities 20–1, 56–7, 63, 200–3
conditional distributions, unconditional
distributions 155
confidence levels, Style Value-at-Risk
Model 99–100, 119, 130, 184–6
contrarian strategies 82
convertible arb style 33, 34–5, 41–3, 52,
56–8, 76–8, 88–9, 102–17, 129–37,
183–6, 229–31
annual style distributions of the
testing periods in percent 13–14, 33
backtesting 106–17, 148–50
betas 183–6
EVT 129–37, 148–50
intra-correlations/inter-correlations
34–5
mechanical replication 56–8
risk management 76–7, 88–9,
114–17
copulas, concepts 136–45, 151–4
Cornish–Fisher expansion,
Value-at-Risk 167–9, 171–2
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Index 241
correlation
concepts 33–6, 77, 138–42, 146, 154,
184, 187–98
critique 138–9
risk matrix 77
counter-party risk, concepts 93
covariance 2, 103–4, 138–9, 189–90,
217–18
cpr see cross-product ratio
credit crunch 10–11, 20–1, 224–5
see also liquidity . . .
credit ratings, bonds 58–9, 224
credit risk (CRT), concepts 1, 75–8,
88–9, 224
credit spreads 88–9, 227–31
cross-gamma effects 71
cross-product ratio (cpr) 24–30
CS/Tremont hedge fund indices 3,
13–14, 26–7, 32–6, 39–40, 42,
53–4, 55–6, 64–5, 76–7, 102–3,
105–17, 120, 128–36, 147–50,
162–78, 182–6, 219–21, 226–30
CSFB 54
CTAs 13–14, 56–7, 63, 76–8, 129–37,
183–6
see also managed futures style
CTs 56–7, 63
data mining 4
database exits, fund managers 13,
215–21
de Picciotto, Edgar 223–4, 226–7
dead funds 215–21
dedicated short bias style 13–14, 33,
34–5, 41–3, 76–8, 85–6, 102,
106–17, 129–37, 141, 148–50,
183–6, 230–1
annual style distributions of the
testing periods in percent 13–14, 33
backtesting 106–17, 148–50
betas 183–6
EVT 129–37, 148–50
intra-correlations/inter-correlations
34–5
risk matrix 76–7
delegated index selections, institutional
investors 65
delegation risk
see also credit...;liquidity...;
market...
concepts 70–1, 75–8, 83–5
delta hedging 82–3
derivatives 15–16, 19–20, 57, 60, 72–4
Deutsche Borse 17
Diez de los Rios and Garcia (2006)
model 202–5
direct investment risk, concepts 78–85
direct lending, concepts 20–1, 73–4
disclosures 79–81
see also transparency issues
dispersion products 70–1
distressed securities 52, 72–3
distributions, replication 63–4
diversification levels 1, 26–8, 30, 36,
56–7, 61–2, 65, 79–80, 85–6,
184–6, 207–8
diversified CTA, mechanical replication
56–7
dot.com crisis 223–4
Dow Jones Convertible Bond investable
index 48, 64
downside deviation, concepts 2
Drost and Nijman theorem 172–4,
177–8
due diligence, concepts 1–2, 66–7,
69–70, 72–3, 83–5
dynamic trading strategies 76–83,
99–100
EDHEC indices 42, 45–6, 51, 55–6, 62,
107–8
elemental percentile method (EPM),
concepts 122, 124–37, 150–1
emerging markets style 13–14, 33, 35,
41–3, 76–8, 102, 106–17, 129–37,
203–5, 230–1
annual style distributions of the
testing periods in percent 13–14, 33
backtesting 106–17, 148–50
EVT 129–37, 148–50
intra-correlations/inter-correlations 35
risk matrix 76–7
endowments 11–13
EPM see elemental percentile method
equities
convertible arb style 13–14, 33, 34–5,
41–3, 52, 56–8, 76–8, 88–9,
102–17, 129–37, 183–6, 229–31
square root of time rule 161–78
equity market neutral style 9, 13–14, 27,
33–5, 41–3, 52, 76–8, 87–8, 102,
106–17, 129–37, 148–50, 230–1

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