Efficient fund of hedge funds construction under downside risk measures

David P. Morton, Elmira Popova, Ivilina Popova*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

31 Scopus citations

Abstract

We consider portfolio allocation in which the underlying investment instruments are hedge funds. We consider a family of utility functions involving the probability of outperforming a benchmark and expected regret relative to another benchmark. Non-normal return vectors with prescribed marginal distributions and correlation structure are modeled and simulated using the normal-to-anything method. A Monte Carlo procedure is used to obtain, and establish the quality of, a solution to the associated portfolio optimization model. Computational results are presented on a problem in which we construct a fund of 13 CSFB/Tremont hedge-fund indices.

Original languageEnglish (US)
Pages (from-to)503-518
Number of pages16
JournalJournal of Banking and Finance
Volume30
Issue number2
DOIs
StatePublished - Feb 2006

Keywords

  • Expected regret
  • Fund of funds
  • Hedge funds
  • Monte Carlo simulation
  • Portfolio choice
  • Portfolio optimization

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Efficient fund of hedge funds construction under downside risk measures'. Together they form a unique fingerprint.

Cite this