Near-the-money options experience a rapid decline in time value over the weeks leading up to the expiry date. A possible strategy to alleviate the impact of the time decay effect is to unwind the hedge prior to expiry. However, appreciable time value is present for a reason: it is an indication...

This report attempts to answer the question: What underlying portfolio should one use to hedge an active fund? We introduce a framework which allows us to conduct analysis on simulated realistic active portfolios in order to build intuition as to how hedge mismatch error affects the level of...

Equity derivatives offer fund managers a great deal of flexibility in managing the risk of a portfolio and shaping the overall future return distribution. It can, however, be difficult for fund managers to decide on an appropriate protection strategy, both in terms of the proportion of equity to...

Systematic trading is a method that is currently extremely popular in the investment world. The testing of systematic trading rules is usually done through backtesting and is at high risk of spurious accuracy as a result of the data-mining bias (DMB) present from testing multiple rules...

This research adds to the current literature of measuring fund persistence by introducing two novel quantitative methods. Firstly, an existing method based on the Markov modelling of a fund's Morningstar rating over time is examined. An improvement to this model is then suggested based on the...

Options on a number of currency pairs involving the Rand are readily available to investors in the South African market. The most widely implemented strategies are those involving call options giving geared upside exposure to the underlying. However, overlay strategies such as collars and fences...

The sample covariance matrix is known to contain substantial statistical noise, making it inappropriate for use in financial decision making. Leading researchers have proposed various filtering methods that attempt to reduce the level of noise in the covariance matrix estimator. In most cases,...

One of the most important aspects in portfolio management is having an accurate understanding of the future possible returns of the underlying assets. Unfortunately, estimating such return distributions is anything but trivial. In this research, we consider the information embedded in the...

In previous Peregrine Securities work, it was shown that currency hedge selection can be approached in an optimization framework and that the particular choice of hedge is strongly dependent on the correlation between the exchange rate and the foreign asset. Unfortunately, correlations between...

It's often said that diversification is the only ‘free lunch' available to investors; meaning that a properly diversified portfolio reduces total risk without necessarily sacrificing expected return. However, achieving true diversification is easier said than done, especially when we don't...