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Valuation of Collateralized Funds of Hedge Fund Obligations: a basket option pricing approach

Tassinari, Gian Luca ; Corradi, Corrado (2012) Valuation of Collateralized Funds of Hedge Fund Obligations: a basket option pricing approach. [Preprint]

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The purpose of the present contribution is to provide an extension to a model developed by Tassinari and Corradi [9] to price equity and debt tranches of a Collateralized fund of hedge fund Obligations. Since the value of every tranche depends on the evolution of the collateral portfolio during the life of the contract, the idea is to evaluate each CFO liability as an option on the underlying basket of hedge funds. The proposed model is able to capture skewness, excess-kurtosis in hedge funds’ log-returns distribution and to generate a more complex dependence structure than the linear one. At the same time, this new model can be calibrated to the empirical correlation matrix. Finally, the adopted approach allows to find explicit relations among physical and risk neutral processes and distributions at both marginal and joint level.

Document type:Preprint
Subjects:Area 01 - Scienze matematiche e informatiche > MAT/06 Probabilità e statistica matematica
Area 13 - Scienze economiche e statistiche > SECS-S/06 Metodi matematici dell'economia e delle scienze attuariali e finanziarie
Depositato da:Gian Luca Tassinari
Depositato il:23 Jul 2012 10:24
Last modified:08 Oct 2012 11:38

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