A Risk Measure for S-Shaped Assets and Prediction of Investment Performance

Qi Tang (), Haidar Haidar (), Bernard Minsky () and Rishi Thapar
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Qi Tang: Department of Mathematics, University of Sussex, Postal: Pevensey 2 Building, University of Sussex, Falmer Campus, Brighton BN1 9QH
Haidar Haidar: Department of Mathematics, University of Sussex, Postal: Pevensey 2 Building, University of Sussex, Falmer Campus, Brighton BN1 9QH
Bernard Minsky: International Asset Management Ltd, Postal: 7 Clifford Street, London, W1S 2FT

Journal of Financial Transformation, 2012, vol. 34, 175-181

Abstract: In this paper, we study the option valuation of S-shaped assets. S-shaped assets are frequently encountered in technological developments, grant funding of research projects, and to a degree, hedge funds and stop-loss controlled trend-following investment vehicles. We conclude that the quantity σ2/μ (variance of return/expected return) replaced the traditional variance risk measure σ2 in the Black-Scholes option valuation formula. We further study the interesting property of σ2/μ in predicting the turning point of performance of a portfolio of hedge funds in the early months of 2008 (and indeed, for earlier historical turning points).

Keywords: s-shaped assets; options valuation; fund of hedge funds (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1469

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