On the tracking and replication of hedge fund optimal investment portfolio strategies in global capital markets in presence of nonlinearities, applying Bayesian filters: 1. Stratanovich – Kalman – Bucy filters for Gaussian linear investment returns distribution and 2. Particle filters for non-Gaussian non-linear investment returns distribution

Dimitri Ledenyov and Viktor Ledenyov

MPRA Paper from University Library of Munich, Germany

Abstract: The hedge fund represents a unique investment opportunity for the institutional and private investors in the diffusion-type financial systems. The main objective of this condensed article is to research the hedge fund’s optimal investment portfolio strategies selection in the global capital markets with the nonlinearities. We provide a definition for the hedge fund, describe the hedge fund’s organization structures and characteristics, discuss the hedge fund’s optimal investment portfolio strategies and review the appropriate hedge fund’s risk assessment models for investing in the global capital markets in time of high volatilities. We analyze the advanced techniques for the hedge fund’s optimal investment portfolio strategies replication, based on both the Stratonovich – Kalman - Bucy filtering algorithm and the particle filtering algorithm. We developed the software program with the embedded Stratonovich – Kalman - Bucy filtering algorithm and the particle filtering algorithm, aiming to track and replicate the hedge funds optimal investment portfolio strategies in the practical cases of the non-Gaussian non-linear chaotic distributions.

Keywords: hedge fund; investment portfolio; investment strategy; global tactical asset allocation investment strategy; investment decision making; return on investments; value at risk; arbitrage pricing theory; Sharpe ratio; separation theorem; Sortino ratio; Sterling ratio; Calmar ratio; Gini coefficient; value at risk (VaR); Ledenyov investment portfolio theorem; stability of investment portfolio; Kolmogorov chaos theory; Sharkovsky chaos theory; Lyapunov stability criteria; bifurcation diagram; nonlinearities; stochastic volatility; stochastic probability; Markov chain; Bayesian estimation; Bayesian filters; Wiener filtering theory; Stratonovich optimal non-linear filtering theory; Stratonovich – Kalman – Bucy filtering algorithm; Hodrick-Prescott filter; Hirose - Kamada filter; particle filtering methods; particle filters; multivariate filters; Gaussian linear distribution; non-Gaussian nonlinear distribution; Monte-Carlo simulation; Brownian motion; diffusion process; econophysics; econometrics; global capital markets. (search for similar items in EconPapers)
JEL-codes: C11 C13 C16 C3 C32 C35 C38 C4 C46 C5 C51 C53 C58 C61 C63 C8 C87 D8 D84 (search for similar items in EconPapers)
Date: 2013-10-29
New Economics Papers: this item is included in nep-cmp and nep-rmg
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https://mpra.ub.uni-muenchen.de/51176/8/MPRA_paper_51176.pdf revised version (application/pdf)

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