In this paper we develop and demonstrate the workings of a copula-based technique that allows the derivation of dynamic trading strategies, which generate returns with statistical properties similar to hedge funds. We show that this technique is not only capable of replicating fund of funds...

By dynamically trading futures in very much the same way as investment banks hedge their OTC option positions it is possible to generate returns that are statistically very similar to the returns generated by hedge funds but without any of the usual drawbacks surrounding alternative investments,...

Over the last 20 years, investors have come to approach investment decision-making in an increasingly mechanical manner. Optimisers are filled up with historical return data and the 'optimal' portfolio follows almost automatically. In this paper we argue that such an approach can be extremely...

In this paper we study the possible role of managed futures in portfolios of stocks, bonds and hedge funds. We find that allocating to managed futures allow investors to achieve a very substantial degree of overall risk reduction at limited costs. Apart from their lower expected return, managed...

In this paper we use a scenario-based ALM model to study the effects on the risk-return profile of defined benefit pension funds from including options in the pension fund portfolio. Our results show that properly constructed option strategies can add substantial value to pension fund...

In this paper we report on a new class of derivative products which we refer to as 'equity-linked savings products' (ELSPs). ELSPs require investors to pay periodic installments in return for a predefined equity-linked payoff at maturity. We discuss the structuring, hedging, pricing and...

Although the inclusion of hedge funds in an investment portfolio can significantly improve that portfolio's mean-variance characteristics, it can also be expected to lead to significantly lower skewness and higher kurtosis. In this paper we show how this highly undesirable side-effect can be...

In this paper we investigate whether it is possible for a fund of hedge funds to not only offer investors access to a diversified basket of hedge funds but to provide skewness protection at the same time. We study two different strategies. The first is for a fund to buy stock index puts and...

In this paper we study the persistence and predictability of several statistical parameters of individual hedge fund returns. We find little evidence of persistence in mean returns but do find strong persistence in hedge funds' standard deviations and their correlation with the stock market....

This paper provides an overview of the most important statistical properties of individual hedge fund returns. We find that the net-of-fees monthly returns of the average individual hedge fund exhibit significant degrees of negative skewness, excess kurtosis, as well as positive first-order...