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A Risk Measure for S-Shaped Assets and Prediction of Investment Performance

Author

Listed:
  • Tang, Qi

    (Department of Mathematics, University of Sussex)

  • Haidar, Haidar

    (Department of Mathematics, University of Sussex)

  • Minsky, Bernard

    (International Asset Management Ltd)

  • Thapar, Rishi

    (International Asset Management Ltd)

Abstract

In this paper, we study the option valuation of S-shaped assets. S-shaped assets are frequently encountered in technological developments, grant funding of research projects, and to a degree, hedge funds and stop-loss controlled trend-following investment vehicles. We conclude that the quantity σ2/μ (variance of return/expected return) replaced the traditional variance risk measure σ2 in the Black-Scholes option valuation formula. We further study the interesting property of σ2/μ in predicting the turning point of performance of a portfolio of hedge funds in the early months of 2008 (and indeed, for earlier historical turning points).

Suggested Citation

  • Tang, Qi & Haidar, Haidar & Minsky, Bernard & Thapar, Rishi, 2012. "A Risk Measure for S-Shaped Assets and Prediction of Investment Performance," Journal of Financial Transformation, Capco Institute, vol. 34, pages 175-181.
    • Handle: RePEc:ris:jofitr:1469
    as

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    More about this item

    Keywords

    s-shaped assets; options valuation; fund of hedge funds;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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