Hedge Fund risk management on a daily basis
Since Hedge Funds/Fund of Funds report on a monthly basis usually within 10 days after the month end, monitoring and managing (hedging) potential risks is quite a difficult task. Having done some research, there seems to be some solutions to this problem.
Let’s just say that there is a FoF, under which there are around 50 HFs with different strategies. Managing risk can be done on a FoF level as well as on each HF level. The latter is more tedious but offers better understanding (as in if a particular HF is a Long/Short Equity fund, its obvious that they are exposed to equity risk).
Thus far I have looked at HFRI Equity Hedge Index and regressed it against Fama-French factors. The result is not perfect (24 months rolling regression), but is alright. However, this exact approach is not yielding anything meaningful for Credit, Multi-strat, Fixed Income funds (maybe I am not using correct factors). I will probably keep trying for a while.
還有兩個選項 - PCA 和因子分析。所以我想也許有人已經看過這個問題並願意分享他/她的經驗。任何輸入表示讚賞。
查看PCA 與 FA之間的以下討論： https ://stats.stackexchange.com/questions/1576/what-are-the-differences-between-factor-analysis-and-principal-component-analysi ，然後選擇您認為理論上適合您的情況。
$$ EDIT $$ In regards to Risk Monitoring, EM Algorithm FA could be used to build Latent Factor Models on Alternative Indexes. My advice is to access some databases such as : indexiq, alternativeucits, etc. to obtain sufficient time series (returns) on the different strategies adopted or tracked by your funds. This might be relatively less costly (in terms of Time) than replicating those third-party index methodologies.
Ps: Few data (index strategies) could also be found on Bloomberg such as Newedge CTA Trend..
Once your Multi-Factor Model is built using EM algorithm (e.g loading, Score..), you could derive your Ex-Ante Sigma, and also easily apply Monte Carlo simulations on your Factors to derive VaR…
Stumbled upon IndexIQ’s methodology here: http://www.indexiq.com/docs/iqhgms/iiqhedgeiqindexes.pdf
Might be another alternative to replicate HF returns/risk and risk manage accordingly on a daily basis.
Feel free to comment/discuss.