Optimal risk taking under high-water mark contract with jump risk

Congming Mu, Jingzhou Yan and Zhian Liang

Finance Research Letters, 2021, vol. 38, issue C

Abstract: This paper studies the effects of jump risk in returns on the hedge fund manager’s optimal risk taking under high-water mark contract. The results show that the fund manager’s optimal risk taking under jump-diffusion risk is not a simple combination of that under pure-jump risk and pure-diffusion risk. The increase in jump intensity and jump size discourages the fund manager’s risk choice.

Keywords: High-water mark; Hedge fund; Risk taking; Jump risk; Portfolio choice (search for similar items in EconPapers)
JEL-codes: G01 G11 G23 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319303599

DOI: 10.1016/j.frl.2020.101460

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