We develop a new multivariate generalized ARCH (GARCH) parameterization suitable for testing the hypothesis that the optimal futures hedge ratio is constant over time, given that the joint distribution of cash and futures prices is characterized by autoregressive conditional heteroskedasticity (ARCH). The advantage of the new parameterization is that it allows for a flexible form of time-varyin...

We extend the regular model checking framework so that it can handle systems with arbitrary width tree-like structures. Configurations of a system are represented by trees of arbitrary arities, sets of configurations are represented by regular hedge automata, and the dynamics of a system is modeled by a regular hedge transducer. We consider the problem of computing the transitive closure T + of...

H edge funds often make headlines because of spectacular losses or spectacular gains. In September 2006, a large hedge fund, Amaranth, reported losses of more than $6 billion apparently incurred in only one month, representing a negative return over that month of roughly 66 percent. Earlier in the year, newspapers focused on the $1.4 billion compensation in 2005 of hedge fund manager Boone Pick...

The search for methodologies that accurately measure performance and performance persistence continues to evolve. This is especially true for investment strategies such as hedge funds, which have been shown, in several instances, to not be normally distributed. In this article, we evaluate performance of hedge funds using conditional approaches and GMM. Unlike the Sharpe ratio or Jensen’s alpha...

This paper compares the performances of the hedge ratios estimated from the OLS (ordinary least squares) method and the constant-correlation VGARCH (vector generalized autoregressive conditional heteroscedasticity) model. These methods are evaluated based on the out-of-sample optimal hedge ratio forecasts. A systematic comparison is provided by examining ten spot and futures markets covering cu...

Regression and duratio n are com peting hed ging models for reducing the risk of a debt position. This paper compa res these mode ls to determ ine if one method provides consistently superior hedging results. Both perfect forecast (in-sample) and historical (out-ofsample) hedge ratios a re emplo yed to hedge the long-term Bellwether bond and the two-year T-note. The regression procedure provide...

During the recent financial crisis, more than 30% of hedge fund managers used their discretion to restrict investor liquidity through the use of “gates” or “side pockets.” Using a database of hedge fund investor interests, this paper is the first to empirically examine the determinants of these discretionary liquidity restrictions (DLRs) and their consequences for hedge fund investors. We find ...

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 allows investors to achieve a very substantial degree of overall risk reduction at, in terms of expected return, relatively limited costs. Apart from their lower expected return, managed futures appear to be more effective diversifiers than hedg...

This paper compares the performance of artificial neural networks (ANNs) with that of the modified Black model in both pricing and hedging Short Sterling options. Using high frequency data, standard and hybrid ANNs are trained to generate option prices. The hybrid ANN is significantly superior to both the modified Black model and the standard ANN in pricing call and put options. Hedge ratios fo...

Multi-period guarantees are often embedded in life insurance contracts. In this paper we consider the problem of hedging these multiperiod guarantees in the presence of transaction costs. We derive the hedging strategies for the cheapest hedge portfolio for a multi-period guarantee that with certainty makes the insurance company able to meet the obligations from the insurance policies it has is...