Optimizing Benchmark-Based Portfolios with Hedge Funds

@article{Popova2007OptimizingBP,
  title={Optimizing Benchmark-Based Portfolios with Hedge Funds},
  author={Ivilina Popova and Elmira Popova and David P. Morton and Jot K. Yau},
  journal={Risk Management},
  year={2007}
}
Hedge funds typically have non-normal return distributions marked by significant positive or negative skewness and high kurtosis. Mean-variance optimization models ignore these higher moments of the return distribution. If a mean-variance optimization model suggests significant allocation to hedge funds, an investor concerned about unwanted skewness and kurtosis is rightfully skeptical. We apply a new stochastic programming model which incorporates Monte Carlo simulation and optimization to… Expand
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