The Cost of Capital for Alternative Investments

Jakub W. Jurek () and Erik Stafford
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Jakub W. Jurek: Bendheim Center for Finance, Princeton University

No 12-013, Harvard Business School Working Papers from Harvard Business School

Abstract: This paper studies the cost of capital for alternative investments. We document that the risk profile of the aggregate hedge fund universe can be accurately matched by a simple index put option writing strategy that offers monthly liquidity and complete transparency over its state-contingent payoffs. The contractual nature of the put options in the benchmark portfolio allows us to evaluate appropriate required rates of return as a function of investor risk preferences and the underlying distribution of market returns. This simple framework produces a number of distinct predictions about the cost of capital for alternatives relative to traditional mean-variance analysis.

Pages: 41 pages
Date: 2011-08
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Cost of Capital for Alternative Investments (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hbs:wpaper:12-013

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