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

Laura Simonsen Leal and Caio Almeida ()

Brazilian Review of Econometrics, 2017, vol. 37, issue 1

Abstract: 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.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://periodicos.fgv.br/bre/article/view/62104 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sbe:breart:v:37:y:2017:i:1:a:62104

Access Statistics for this article

Brazilian Review of Econometrics is currently edited by Daniel Monte

More articles in Brazilian Review of Econometrics from Sociedade Brasileira de Econometria - SBE Contact information at EDIRC.
Bibliographic data for series maintained by Núcleo de Computação da FGV EPGE ().