Recently, Kat and Palaro (2005) showed how dynamic trading technology can be used to create dynamic futures trading strategies (or 'synthetic funds' as we call them), which generate returns with predefined statistical properties. In this paper we put their approach to the test. In a set of four...

With the arrival of synthetic funds, investment management no longer has to resemble a visit to The Mongolian Barbeque. Investors no longer have to go through the usual process of finding and combining individual assets and funds into portfolios in an, often only partially successful, attempt to...

Most previous tests of hedge fund performance have failed to model the exposure of hedge fund returns to systematic non-normality risks, nor have they taken the tactical asset allocation decisions of hedge funds managers into account. This paper shows that failure to account for these features...

Since the publication of our first paper on hedge fund replication in 2005, our FundCreator methodology has met with many positive reactions. There have also been some negative responses though. With investors clearly becoming confused as a result of the amount of disinformation that is being...

In this paper we study the multivariate return properties of a large variety of commodity futures. We find that between commodity groupings (such as metals, energy, etc.) correlations are very low and mostly insignificant whereas within groups they tend to be much stronger. In addition,...

Interest rates are currently at a historical low. Since in the longer run interest rates will return to their historical average, this implies that bond prices are about to fall. Popular investment advice therefore says that investors should shorten the maturity of their bond portfolios to...

Several authors have published analytical formulas for barrier options. Unfortunately, the specifications of the options studied do not match those of the options typically traded in the OTC market. One major difference concerns the frequency with which the reference index is monitored. Where...

In this article we present a model of Samp;P 500 futures mispricing that is able to capture all major stylized facts observed in actual Samp;P 500 mispricings behavior. The model itself is inspired by theoretical considerations as well as empirical observations. The model's parameters are...

Derivatives traded in the OTC markets may sometimes involve both asset price risk and exchange rate risk. This article provides an unified treatment of the pricing and hedging of path independent international equity derivatives. After modeling the international economy, we derive a partial...

This article describes the valuation, hedging and applications of contingent premium options (CPOs). We derive closed-form formulas for path independent and path dependent CPOs that address most cases of practical importance. The resulting hedge ratios show that when it is not possible to hedge...