One of the most important aspects in portfolio management is having an accurate understanding of the future possible returns of the underlying assets. Unfortunately, estimating such return distributions is anything but trivial. In this research, we consider the information embedded in the...

This report attempts to answer the question: What underlying portfolio should one use to hedge an active fund? We introduce a framework which allows us to conduct analysis on simulated realistic active portfolios in order to build intuition as to how hedge mismatch error affects the level of...

In previous Peregrine Securities work, it was shown that currency hedge selection can be approached in an optimization framework and that the particular choice of hedge is strongly dependent on the correlation between the exchange rate and the foreign asset. Unfortunately, correlations between...

In this report we study South African implied volatility from three different perspectives. Firstly, we conduct an analysis of the historical Top40 Index implied volatility surface dynamics. In particular, we consider the regime-dependence of atm volatility and skew levels and how this...

We address a very topical – and to some extent, intractable – question: When should I hedge? By analysing South African historical market returns, we show that only a handful of extreme returns – which are well characterised by two simple quantitative indicators – can have a significant...

Equity derivatives offer fund managers a great deal of flexibility in managing the risk of a portfolio and shaping the overall future return distribution. It can, however, be difficult for fund managers to decide on an appropriate protection strategy, both in terms of the proportion of equity to...

Offshore assets present investors with an increased investment universe and additional opportunities for reward, but embedded exposure to exchange rates can result in additional risk. In this work, we consider a global equity portfolio of five equity indices (US, Japan, Europe, UK and Canada),...