A Fund of Hedge Funds Under Regime Switching

Saunders, David; Seco, Luis; Vogt, Christofer; Zagst, Rudi

doi:10.3905/jai.2013.15.4.008

Cited by 6 publications

(4 citation statements)

References 30 publications

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“…The routine terminates when the change of the parameters between two iterations falls below a certain tolerance level or a maximum number of iterations is reached. In our implementation we set the tolerance to 10 −6 and the maximum number of iterations to 40 6 . The routine is relatively insensitive to start parameters, except for choosing α = 2, which results in α keeping that value.…”

Section: Parameter Estimationmentioning

confidence: 99%

“…In a portfolio optimization case study, they show that the consideration of regime switching in portfolio optimization leads to a better portfolio performance and lower portfolio risk compared to a non-switching standard Normal distribution model. [6] employ a Markov-switching model for the asset allocation of a fund of hedge funds. An application to the credit market, in particular for the pricing of collateralized debt obligations (CDO) can be found in [7].…”

Section: Introductionmentioning

confidence: 99%

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Risk management and portfolio selection using \alpha-stable regime switching models

Reuß¹,

Olivares²,

Seco³

et al. 2016

ams

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This article tries to enhance traditional distribution paradigms for modelling asset returns by considering an α-stable regime-switching model. Our approach is to perform an empirical test of the α-stable regimeswitching model against other common methods in two settings: in risk management and in portfolio selection. Our empirical study will show that the model is better suited than Gaussian and Gaussian regimeswitching models to measure risk accurately. A portfolio optimization case study for a traditional stocks and bonds investor is pursued. In this study, the model leads to less risky and more diversified portfolios. In particular, the model avoids outsized losses in times of crisis and thus leads to a better (adjusted) Sharpe ratio and Omega.

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Section: Parameter Estimationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Risk management and portfolio selection using \alpha-stable regime switching models

Reuß¹,

Olivares²,

Seco³

et al. 2016

ams

Self Cite

View full text Add to dashboard Cite

show abstract

“…Elliott and Miao (2009) and Guidolin and Timmermann (2004) combined the RSM with the value at risk (VaR) and conditional VaR (CVaR) and obtained significantly better performance. Bruder et al (2011), Saunders et al (2010) and Guidolin and Ria (2010) combined the Black-Litterman (BL) estimates with the RSM. Most studies focus on subcategories of only one asset class, like hedge funds, e.g.…”

Section: Introductionmentioning

confidence: 99%

“…Most studies focus on subcategories of only one asset class, like hedge funds, e.g. Saunders et al (2010) and Bruder et al (2011), or stocks, e.g. Zhao (2010) and Guidolin and Timmermann (n.d.).…”

Section: Introductionmentioning

confidence: 99%

Portfolio Optimization: A Combined Regime-Switching and Black–Litterman Model

Fischer

Seidl

2013

SSRN Journal

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Traditionally portfolios are optimized with the single-regime Markowitz model using the volatility as the risk measure and the historical return as the expected return. This study shows the effects that a regime-switching framework and alternative risk measures (modified value at risk and conditional value at risk) and return measures (CAPM estimates and Black-Litterman estimates) have on the asset allocation and on the absolute and relative performance of portfolios. It demonstrates that the combination of alternative risk and return measures within the regime-switching framework produces significantly better results in terms of performance and the modified Sharpe ratio. The usage of alternative risk and return measures is also shown to meet the need that asset returns very often are not distributed normally and serially correlated. To eliminate these empirical shortcomings of asset returns an unsmoothing algorithm is used in combination with the Cornish-Fisher expansion.

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Portfolio optimization in hedge funds by OGARCH and Markov Switching Model

Luo

Seco

2015

Omega

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A Fund of Hedge Funds Under Regime Switching

Cited by 6 publications

References 30 publications

Risk management and portfolio selection using \alpha-stable regime switching models

Risk management and portfolio selection using \alpha-stable regime switching models

Portfolio Optimization: A Combined Regime-Switching and Black–Litterman Model

Portfolio optimization in hedge funds by OGARCH and Markov Switching Model

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