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Hedge Fund Risk Premium Calculation by Wang Transform

Hedge Fund Risk Premium Calculation by Wang Transform. International AFIR Colloquium 2003 YAMASHITA, Miwaka, CFA Tokio Marine Financial Solutions Ltd. Contents. Pricing the Hedge Fund Performance Derivatives The Idea for the Pricing Idea

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Hedge Fund Risk Premium Calculation by Wang Transform

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  1. Hedge Fund Risk Premium Calculation by Wang Transform International AFIR Colloquium 2003 YAMASHITA, Miwaka, CFA Tokio Marine Financial Solutions Ltd.

  2. Contents • Pricing the Hedge Fund Performance Derivatives • The Idea for the Pricing • Idea • Review of Wang Transform • Actual Examples • Fat Tail Issues • Extreme Value Indicator

  3. = m + s C k Pricing the Hedge FundPerformance Derivatives • Risk Premium Calculation Principle : premium C m : average of losses s : standard deviation of losses : multiplier. k

  4. Pricing the Hedge FundPerformance Derivatives • No Arbitrage Free Condition • No Equilibrium Pricing Method • No Clear Risk Measure

  5. The Idea for the Pricing • Idea; Use Wang Transform

  6. The Idea for the Pricing • Review of Wang Transform • Capital Market Line • Black-Scholes Option Pricing Model • Esscher Transform • Coherent Risk Measure • VaR, Tail VaR

  7. The Idea for the Pricing • Other Discussion

  8. Actual ExampleRisk Premium Adjusted Price

  9. Actual ExampleRisk Premium Adjusted Price

  10. Actual ExampleFat Tail Issues

  11. Remarks • Risk Management and Risk Pricing • Loss Probability • No Risk Measure, No Equilibrium Pricing

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