Derivatives and Hedge Funds

416 Pages·2016·1.986 MB·English

by  Stephen Satchell (eds.)

Derivatives and
Hedge Funds
Edited by
Stephen Satchell
Derivatives and Hedge Funds
This page intentionally left blank
Derivatives and
Hedge Funds
Edited by
Stephen Satchell
Professor of Finance, Sydney University, Australia
Selection and editorial matter © Stephen Satchell 2016
Chapters © Contributors 2016
Chapters originally published in The Journal of Derivatives and Hedge Funds
by Palgrave Macmillan (various years)
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First published 2016 by
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ISBN 978-1-349-55828-5 ISBN 978-1-137-55417-8 (eBook)
DOI 10.1057/9781137554178
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Contents
List of Figures, Tables and Boxes vii
Preface xvi
Part I Hedge Funds
1 Frictional Costs of Diversifi cation: How Many
CTAs Make a Diversifi ed Portfolio? 3
Bernd Scherer
2 Crude Oil Futures Markets: Another Look
into Traders’ Positions 20
Damir Tokic
3 Fund of Hedge Funds Portfolio Selection:
A Multiple-Objective Approach 45
Ryan J. Davies, Harry M. Kat and Sa Lu
4 A Primer on Structured Finance 72
Andreas A. Jobst
5 Value at Risk, GARCH Modelling and the Forecasting
of Hedge Fund Return Volatility 91
Roland Füss, Dieter G. Kaiser and Zeno Adams
6 Index Futures Trading, Information and Stock Market
Volatility: The Case of Greece 118
Christos Floros and Dimitrios V. Vougas
7 Modelling and Trading the Gasoline Crack Spread:
A Non-Linear Story 140
Christian L. Dunis, Jason Laws and Ben Evans
8 The Relation between Bid–Ask Spreads and Price Volatility
in Forward Markets 161
Roy A. Batchelor, Amir H. Alizadeh and Ilias D. Visvikis
Part II Markets, Pricing and Products
9 Introduction of Futures and Options on a Stock Index
and Their Impact on the Trading Volume and Volatility:
Empirical Evidence from the DJIA Components 187
Mohammad G. Robbani and Rafiqul Bhuyan
v
vi Contents
10 The Characteristics and Evolution of Credit Default
Swap Trading 202
Lei Meng and Owain ap Gwilym
11 The Performance Persistence of Equity Long/Short
Hedge Funds 218
Samuel Manser and Markus M. Schmid
12 Examination of Fund Age and Size and Its Impact
on Hedge Fund Performance 240
Meredith Jones
13 Great in Practice, Not in Theory: An Empirical
Examination of Covered Call Writing 253
Michael L. McIntyre and David Jackson
14 Hedge Funds and Higher Moment Portfolio Selection 269
Greg Bergh and Paul van Rensburg
15 Sovereign Wealth Funds – Investment Strategies
and Financial Distress 298
Raphael W. Lam and Marco Rossi
16 Modeling Autocallable Structured Products 323
Geng Deng, Joshua Mallett and Craig McCann
17 The Beta Puzzle Revisited: A Panel Study of Hedge
Fund Returns 345
François-Éric Racicot and Raymond Théoret
18 Option Pricing Based on Mixtures of Distributions:
Evidence from the Eurex Index and Interest Rate
Futures Options Market 370
Sascha Wilkens
Index 391
List of Figures, Tables and Boxes
Figures
1.1 Optimal number of CTAs for a mean variance investor 11
1.2 State price deflator 12
1.3 State price deflator 13
1.4 Cross-sectional volatility (dispersion) of CTA returns 14
2.1 Futures-and-options-combined positions for the
Money Manager group 27
2.2 Futures-only and options-only positions for the
Money Manager group 28
2.3 Futures-and-options-combined positions for the
Swap Dealer group 31
2.4 Futures-only and options-only positions for the
Swap Dealer group 31
2.5 Futures-and-options-combined positions for the
P/M/P/U group 32
2.6 Futures-only and options-only positions for the
P/M/P/U group 34
2.7 Futures-and-options-combined positions for the
Other Reportable group 37
2.8 Futures-only and options-only positions for the
Other Reportable group 37
2.9 Futures-and-options-combined positions for the
Non-Reportable group 39
2.10 Futures-only and options-only positions for the
Non-Reportable group 40
3.1 The deviation from the two-space optimal expected
return varies as the large investor’s preference parameter
over the given moment, holding the investor’s
preference over the other moments constant 57
3.2 The feasible set of portfolios and the efficient frontier in a
mean-variance framework for large investors 59
4.1 Overview of risk transfer instruments 76
vii
viii List of Figures, Tables and Boxes
4.2 The pay-off profile under put-call parity of the
three basic Islamic finance transactions 83
5.1 Hedge fund styles and strategies 95
5.2 Comparison of the different VaR estimations 110
6.1 Effect of a 1 SD shock on spot price volatility before
the onset of futures trading (FTSE/ASE-20) 133
6.2 Effect of a 1 SD shock on spot price volatility after
the onset of futures trading (FTSE/ASE-20) 133
6.3 Effect of a 1 SD shock on spot price volatility before
the onset of futures trading (FTSE/ASE Mid 40) 134
6.4 Effect of a 1 SD shock on spot price volatility after
the onset of futures trading (FTSE/ASE Mid 40) 134
6.1A GARCH variance series before and after the introduction
of the FTSE/ASE-20 stock index futures 138
6.1B GARCH variance series before and after the introduction
of the FTSE/ASE Mid 40 stock index futures 139
7.1 Gasoline crack spread price 1st January,
1995–25th April, 2003 142
7.2 A single output, fully connected MLP model 149
7.3 Architecture of Elman or RNN 150
7.4 Left, MLP with three inputs and two hidden nodes; right,
second-order HONN with three inputs 151
7.5 Operation of the correlation filter 153
8.1 Volume of transactions in the FFA and BIFFEX markets 163
8.2 Route 1 BAS series; sample period 16th January,
1997 to 31st July, 2000 173
8.3 Route 1A BAS series; sample period 16th January,
1997 to 31st July, 2000 173
8.4 Route 2 BAS series; sample period 16th January,
1997 to 10th August, 2001 173
8.5 Route 2A BAS series; sample period 16th January,
1997 to 10th August, 2001 174
8.6 Route 1 BAS and historical volatility; sample period
16th January, 1997 to 4th July, 2000 174
8.7 Route 1A BAS and historical volatility; sample period
16th January, 1997 to 4th July, 2000 175
8.8 Route 2 BAS and historical volatility; sample period
16th January, 1997 to 16th July, 2001 175
List of Figures, Tables and Boxes ix
8.9 Route 2A BAS and historical volatility; sample period
16th January, 1997 to 16th July, 2001 175
10.1 Distribution of notional amount 206
10.2 Percentage of the use of $10 million and $5 million
as notional amount 207
10.3 Distribution of maturity 208
10.4 Percentage of the use of 5-year as maturity 208
10.5 Ratio of number of bids to number of offers (monthly) 212
10.6 Ratio of monthly quotes to monthly trades 213
11.1 (a) Performance of equity long/short strategy 225
11.1 (b) Equity long/short versus market returns 225
11.2 (a) Contingency table of initial and subsequent ranking
(lagged returns) 229
11.2 (b) Postformation returns of portfolios sorted on
lagged 1-year returns 229
11.3 (a) Contingency table of initial and subsequent ranking
(lagged alpha) 232
11.3 (b) Postformation alpha of portfolios sorted on
lagged 2-year alpha 232
12.1 Performance of small, medium and large hedge funds 242
12.2 Monthly performance of various age hedge funds 248
13.1 Coverage pattern of written calls 256
14.1 Optimal fund-of-hedge-fund portfolios minimum-variance
frontier with comparative MVSK portfolios 285
14.2 Optimal balanced portfolios under a mean–variance
framework with comparative MVSK portfolios 292
15.1 Recent developments of sovereign wealth funds 300
15.2 Transmission mechanism on the likelihood
of a financial crisis 313
16.1 Number and total issue size of autocallable structured
products, January 2003–June 2010 325
16.2 An autocall event 326
16.3 Maturity payoff if the autocallable structured
product is not called 334
16.4 Standard buffers, contingent buffers and fading buffer 342
17.1 Distribution of the fixed effects in the panel
GMM-hm estimation of the funds of funds strategy
conditional model 365