This paper presents a theoretical study of how incentives affect hedge fund risk and returns and an empirical study of … returns above a certain benchmark. We investigate how these features of hedge fund fees affect risk taking by the fund manager … excessive risk. However, risk taking is greatly reduced if a substantial amount of the manager’s own money is in the fund as …

rapidly vanishes as the formation or the holding period lengthens. Finally, the long term risk adjusted returns persistence of …

In this paper we study the hedging of derivatives in illiquid markets. More specifically we consider a model where the … implementation of a hedging strategy affects the price of the underlying security. Following earlier work we characterize perfect … hedging strategies by a nonlinear version of the Black-Scholes PDE. The core of the paper consists of a simulation study. We …

In this paper the performance of locally risk-minimizing hedge strategies for European options in stochastic volatility … simulation results on model risk show that the locally risk-minimizing hedges are robust with respect to uncertainty and even … misconceptions about the underlying data generating process. The empirical study indicates that locally risk-minimizing hedge …

This paper presents results on the convergence for hedging strategies in the setting of incomplete financial markets …. We examine the convergence of the so-called locally risk-minimizing strategy. It is proved that such a choice for the … trading strategy, when perfect hedging of contingent claims is infeasible, is robust under weak convergence. Several …

expected returns and risk, which arethe key determinants of portfolio choice, affect capital flows in often subtle ways. The …