Form PF and Hedge Funds: Risk-measurement Precision for Option Portfolios

Mark Flood and Phillip Monin ()
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Phillip Monin: Office of Financial Research

No 16-02, Working Papers from Office of Financial Research, US Department of the Treasury

Abstract: The Securities and Exchange Commission's Form PF is the implementation of Congress's post-crisis mandate for risk reporting by hedge funds to help protect investors and monitor systemic risk. We extend the methodology of Flood, Monin, and Bandyopadhyay [2015] to assess the risk measurement tolerances of Form PF for portfolios including options exposures. We generate a range of simulated portfolios of equities and equity options, where the weights are calibrated so that portfolios appear identical on Form PF. We assess the measurement tolerances of Form PF by examining the minimum-maximum range of actual risk exposures as measured directly from portfolio details. We find that the possible range of variation is significant. For portfolios that include options but do not report value at risk on Form PF, the range is especially large.

Keywords: Hedge Funds; Form PF; Financial Risks; Risk Measurement; Options (search for similar items in EconPapers)
Pages: 42 pages
Date: 2016-03-23
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Citations: View citations in EconPapers (6)

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