Derman, Emanuel; Park, Kun Soo; Whitt, Ward - In: Quantitative Finance 10 (2010) 7, pp. 701-733
We propose a stochastic difference equation of the form Xn = AnXn-1 + Bn to model the annual returns Xn of a hedge fund relative to other funds in the same strategy group in year n. We fit this model to data from the TASS database over the period 2000 to 2005. We let {An} and {Bn} be independent...
