A traditional VaR approach is not suitable to assess the risk that merger arbitrage funds carry in their portfolios. We propose a simple two-state or three-state model that captures the risk characteristics of the deals in which merger arbitrage funds invest.This model has been tested on a set...

We present a model that captures risks of hedge funds only using their historical performance as input. This statistical model is a multivariate distribution where the marginals derive from an AR(1)/AGARCH(1,1) process with t_5 innovations, and the dependency is a grouped-t copula. The process...

A traditional VaR approach is not suitable to assess the risk of merger arbitrage hedge funds. We recently proposed a simple two- or three-state model that captures the risk characteristics of the deals in which merger arbitrage funds invest. Here, we refine the model, and demonstrate that it...