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Jan 9

Friday reading list 01/08/2010

Posted by abiao at 01:11 | Others | Comments(0) | Reads(5301)
1, Yes, the Choice of Performance Measure Does Matter for Ranking of US Mutual Funds, "Recent literature in performance evaluation has focused on preferences and characteristics of returns’ distribution that go beyond mean and variance world. However, Eling (2008) compared the Sharpe ratio with some of these performance measures, and found virtually identical rank ordering using mutual fund data. This paper compares 13 performance measures with the traditional Sharpe Ratio using a sample of US Fixed-Income, Equity and Asset Allocation Mutual Funds. Results show that performance measures based on absolute reward-risk ratios have similar rankings, when the numerator (mean excess return) is the same. However, when we move to other types of performances measures, results may be significantly different. " http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1403916

2, The Augmented Black-Litterman Model: A Ranking-Free Approach to Factor-Based Portfolio Construction and Beyond, "The Fama and French (1992 and 1993 etc.) factor ranking approach is very popular among quantitative fund managers. However, this approach suffers from hidden factor view, loss of information, etc. issues. Based on the Black-Litterman model (Black and Litterman, 1992; as explained in Cheung, 2009A), we design a technique that endogenises the ranking process and elegantly resolves these issues. This model explicitly seeks forward-looking factor views and smoothly blends them to deliver robust allocation to securities. Our numerical experiments show this is an intuitive and practical framework for factor-based portfolio construction, and beyond." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1347648

3, Transparent Augmented Black-Litterman Allocation: Simple and Unified Framework for Strategy Combination, Factor Mimicking, Hedging, and Stock-Specific Alphas, "You have some factor, strategy, and/or stock-specific alpha ideas. Without an optimiser, some straightforward linear algebra gives you the diversified and efficient Bayesian allocation that allows greater performance accountability. All you need is just a factor risk model. How does this sound? This paper derives a transparent version of the ABL model (Cheung, 2009B) with an explicit allocation expression, including components for all the needed functionalities. In addition to further insights, it allows more tangible implementation of strategy combination, factor mimicking, hedging, and stock-specific bets in a unified framework." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1347663

4, Homogeneous Volatility Bridge Estimators, "We present a theory of homogeneous volatility bridge estimators for log-price stochastic processes. The main tool of our theory is the parsimonious encoding of the information contained in the open, high and low prices of incomplete bridge, corresponding to given log-price stochastic process, and in its close value, for a given time interval. The efficiency of the new proposed estimators is favorably compared with that of the Garman-Klass and Parkinson estimators." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1523225

5, A PDE Pricing Framework for Cross-Currency Interest Rate Derivatives, "We propose a general framework for efficient pricing via a Partial Differential Equation (PDE) approach of cross-currency interest rate derivatives under the Hull-White model. In particular, we focus on pricing long-dated foreign exchange (FX) interest rate hybrids, namely Power Reverse Dual Currency (PRDC) swaps with Bermudan cancelable features." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1502302

Have a nice weekend.

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