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An SDF Approach to Hedge Funds' Tail Risk:Evidence from Brazilian Funds

Brazilian Review of Econometrics

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Title An SDF Approach to Hedge Funds' Tail Risk:Evidence from Brazilian Funds
 
Creator Leal, Laura Simonsen; EPGE/FGV
Almeida, Caio; EPGE/FGV
 
Subject Asset Pricing; Stochastic Discount Factor; Risk-Neutral Probability; Tail Risk; Hedge Funds.
G0
 
Description The main purpose of this paper is to propose a methodology to obtain a hedge fund tail risk measure. Our measure builds on the methodologies proposed by \citet*{ag15} and \citet*{aagvg15}, which rely in solving dual minimization problems of Cressie Read discrepancy functions in spaces of probability measures. Due to the recently documented robustness of the Hellinger estimator (Kitamura et al., 2013), we adopt within the Cressie Read family, this specific discrepancy as loss function. From this choice, we derive a minimum Hellinger risk-neutral measure that correctly prices an observed panel of hedge fund returns. The estimated risk-neutral measure is used to construct our tail risk measure by pricing synthetic out-of-the-money put options on hedge fund returns of ten specific categories. We provide a detailed description of our methodology, extract a Tail risk hedge fund factor for Brazilian funds, and relate it to a commonly adopted market volatility measure.
 
Publisher Sociedade Brasileira de Econometria
 
Contributor ANBIMA
Antero Vasconcelos Neto, TI/FGV
 
Date 2017-05-25
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
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Format application/pdf
 
Identifier http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/62104
10.12660/bre.v37n12017.62104
 
Source Brazilian Review of Econometrics; Vol 37, No 1 (2017); 61-88
Brazilian Review of Econometrics; Vol 37, No 1 (2017); 61-88
1980-2447
 
Language eng
 
Relation http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/62104/66413
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/downloadSuppFile/62104/2249
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/downloadSuppFile/62104/2330
 
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