This chapter provides a comprehensive explanation of hedge fund replication. This chapter first reviews the characteristics of hedge fund returns. Then, the emergence of hedge fund replication products is discussed. Hedge fund replication methods are classified into three categories: rule-based,...

This paper provides a new method to construct a dynamic optimal portfolio for asset management. This method generates a target payoff distribution using the cheapest dynamic trading strategy. As a practical example, the method is applied to hedge fund replication. This dynamic portfolio strategy...

This paper studies the probability distribution and option pricing for drawdown in a stochastic volatility environment. Their analytical approximation formulas are derived by the application of a singular perturbation method (Fouque et al., 2000). The mathematical validity of the approximation...

This paper proposes a new fuzzy logic (FL)-based expert system with particle filtering and anomaly detection to create high-performance investment portfolios. In particular, our FL system selects a portfolio with fine risk-return profiles from a number of candidates by integrating multilateral...

This paper proposes a novel scheme for achieving high investment performances with Mean-Variance (MV) portfolios. As is well-known, MV portfolio performances largely depend on the quality of estimates of parameters, namely expected returns and covariance matrices. Particularly, easily...

This paper proposes a new approach to style analysis by applying a general state space model and Monte Carlo filter. Particularly, we regard coefficients of style indices as state variables in the state space model and employ Monte Carlo filter as an estimation method. Moreover, we utilize a...

This paper considers a new problem for portfolio optimization with a choice of a probability measure, particularly, an optimal investment problem under sentiments. Firstly, we formulate the problem as a sup-sup-inf problem consisting of optimal investment and a choice of a probability measure...