PEARL uses AI to replicate private equity performance with liquid assets.
problem Lack of access to private equity due to high costs and complexity.
method Combines AI with liquid assets, incorporating asymmetry for better performance.
result Model outperforms liquid proxies and aligns with private equity benchmarks.
Paper develops models to forecast private equity fund cash flows.
problem Limited literature on illiquid alternative asset cash flow forecasting.
method Develops benchmark model and two novel approaches (direct vs. indirect) using LSTM/GRU models and macroeconomic indicators.
result Direct model performs better and aligns with actual cash flows, but indirect model's performance is less clear.
New framework replicates private equity performance using AI and liquid strategies.
problem Inadequate trust and transparency in private equity markets.
method Advanced graphical models and asymmetric risk adjustments.
result Liquid, scalable solution that closely mimics private equity performance.
Private equity deals predict public market returns with up to 70% accuracy.
problem Predicting public market behavior from private equity transactions.
method Logit model using detailed analysis of private equity diligence process.
result Model predicts public market returns with up to 70% accuracy in specific sectors.
Private credit markets have expanded significantly, offering unique lending technology to private equity firms.
problem Understanding the growth and characteristics of private credit markets.
method Systematic survey of academic literature, development of integrated theoretical framework, empirical evidence.
result Private credit markets offer a distinct lending technology with higher spreads over syndicated loans.
Study evaluates early-stage cybersecurity firms' performance using Crunchbase data.
problem Assessing performance of early-stage cybersecurity startups.
method Empirical analysis of 19 cybersecurity sectors using Crunchbase data.
result Significant variations in capital raised and post-money valuations across cybersecurity sectors.
Study examines Indian equity mutual funds' investment style and risk-shifting.
problem Understanding how Indian equity mutual funds' investment styles affect their returns.
method Estimating size and style beta coefficients, identifying breakpoints, analyzing investment styles, and assessing risk-shifting intensity.
result Funds can enhance returns by shifting to high-return styles like Small Value and Small Blend.
New methods for equity fund selection and portfolio construction using mutual fund top holdings.
problem Classic equity fund selection and portfolio construction problems.
method Propose an easy-to-implement framework to produce a long-short portfolio from mutual fund top holdings.
result Generate impressive results and show statistical evidence.
A fund manager invests both the fund's assets and own private wealth in separate but potentially correlated risky assets, aiming to maximize expected utility from private wealth in the long run. If relative risk aversion and investment opportunities are constant, we find that the fund's portfolio depends only on the fu…
Study uses put-call parity to estimate cost of funding in equity derivatives markets.
problem Estimating the cost of funding in active equity derivative markets.
method Develops a method using European put and call prices to recover the implicit discount factor and cost of funding.
result Identifies the cost of funding in major equity markets, showing it is typically around 34 basis points above OIS.
Paper presents a faster method for computing cost of equity and performing comparable company analysis.
problem Tedium and subjectivity in traditional cost of equity and comparable company analysis methods.
method Uses spectral and agglomerative clustering to compute cost of equity and perform comparable company analysis.
result Reduces time required for comps by orders of magnitude and improves consistency and reliability.
New model values equity-linked securities with guaranteed return.
problem Valuation of equity-linked securities with guaranteed return.
method Replicate security price as sum of guaranteed amount and Asian style option price on basket.
result Analytical formulas derived for security price and hedge ratios.
Study shows mutual funds add little value for uninformed investors.
problem Understanding the performance of actively managed equity mutual funds for uninformed investors.
method Constructed a reference portfolio using prices and supply information, analyzed various subsets of funds, and compared to market index.
result Mutual funds provide insignificant alpha for uninformed investors, with negative and significant alpha when compared to the market index.
We propose a novel approach for analysis of the composition of an equity mutual fund based on the time series decomposition of the price movements of the individual stocks of the fund. The proposed scheme can be applied to check whether the style proclaimed for a mutual fund actually matches with the fund composition. …
This paper develops a valuation model for private companies.
problem Lack of pricing and hedging models for private companies.
method Dynamic Gordon growth model, Maximum Likelihood (ML) estimators, Expectation Maximization (EM) algorithm.
result Closed-form pricing and hedging formulas for private companies.
Bayesian MS-VAR model for pricing equity-linked life insurance products.
problem Pricing and hedging equity-linked life insurance products on maximum of several assets.
method Introduces Bayesian Markov-Switching Vector Autoregressive (MS-VAR) process to model economic variables and insured's lifetime.
result Obtains net single premiums and hedging formulas for equity-linked life insurance products.
Study finds Indian mutual funds adjust cash holdings based on inflows, impacting stock purchases.
problem Active liquidity management by mutual funds in India.
method Examined cash holdings and stock purchases of Indian equity mutual funds.
result Funds with active liquidity choices outperform, highlighting the importance of this strategy.
Valuation adjustments are nowadays a common practice to include credit and liquidity effects in option pricing. Funding costs arising from collateral procedures, hedging strategies and taxes are added to option prices to take into account the production cost of financial contracts so that a profitability analysis can b…
Investment strategies in occupational pension plans are optimized for non-tradable income risk.
problem Optimizing investment strategies for occupational pension plans in the presence of non-tradable income risk.
method Formulated as a stochastic optimization problem, analyzed in both constant and stochastic volatility environments.
result Random contributions induce the optimal glide path structure, influenced by initial wealth, contributions, and risk aversion.
The paper analyzes GMWB annuities in low interest rate environments.
problem Valuation of GMWB annuities in low interest rate conditions.
method Dynamic programming and Hull-White interest rate model.
result Low interest rates increase the fair value of GMWB annuities.
Evology models US equity mutual funds interactions for investment strategies.
problem Understanding complex interactions in financial markets.
method Agent-based model (ABM) of US stock market participants and their strategies.
result Trading strategies interact with other market participants and conditions.
This work uses the stocks of the 197 largest companies in the world, in terms of market capitalization, in the financial area in the study of causal relationships between them using Transfer Entropy, which is calculated using the stocks of those companies and their counterparts lagged by one day. With this, we can asse…
Deep learning models predict mutual funds' performance better than traditional methods.
problem Predicting mutual funds' performance accurately.
method Deep learning models (LSTM, GRUs) trained with Bayesian optimization and ensemble methods.
result Ensemble method of LSTM and GRUs achieves the highest accuracy in forecasting mutual funds' Sharpe ratios.
This report was originally written as an industry white paper on Hedge Funds. This paper gives an overview to Hedge Funds, with a focus on risk management issues. We define and explain the general characteristics of Hedge Funds, their main investment strategies and the risk models employed. We address the problems in H…
We point out a simple equities trading strategy that allows a sufficiently large, market-neutral, quantitative hedge fund to achieve outsized returns while simultaneously contributing significantly to increasing global wealth inequality. Overnight and intraday return distributions in major equity indices in the United …
Study assesses the impact of Basel III reforms on Bangladeshi banks.
problem Impact of Basel III liquidity and capital requirements on Bangladeshi banks.
method Panel data analysis with fixed effects, including macroeconomic variables.
result Higher capital and liquidity requirements negatively affect banks' profitability but positively impact interest rates and private sector lending.
Since beginning of the 2008 financial crisis almost half a trillion euros have been spent to financially assist EU member states in taxpayer-funded bail-outs. These crisis resolutions are often accompanied by austerity programs causing political and social friction on both domestic and international levels. The questio…
Investor flows in Korean equity market transmit shared information, not private signals.
problem Whether investor flows transmit private information or only public signals.
method Transfer Entropy networks constructed from investor-type flows over
umNDates{} trading days.
result Investor flows transmit shared information, not private signals.
Dynamic model considers private asset markets' complexities.
problem Understanding and optimizing private asset allocation.
method State-of-the-art dynamic model with machine learning.
result Optimal investment policies quantified over fund life.
Study measures investment funds' climate transition risk, finds moderate losses.
problem Measuring the impact of climate transition on investment portfolios.
method Comprehensive framework using geographical, sectoral, company and ISIN-level data.
result Investment funds suffer a moderate 5.7% loss in high transition risk scenario.
Equity risk premium is a central component of every risk and return model in finance and a key input to estimate costs of equity and capital in both corporate finance and valuation. An article by Damodaran examines three broad approaches for estimating the equity risk premium. The first is survey based, it consists in …
Study shows GDP and CPI predict CCC funding, highlighting need for economic forecasting.
problem Challenges in aligning CCC funding with DEI initiatives.
method Quantitative correlational design, analyzing 30 years of economic data.
result Strong positive correlation between GDP growth and CCC funding levels, and between CPI and funding levels.
The paper analyzes bank decisions in a three-step model, focusing on equity and debt raising.
problem Bank decision-making in a three-time-step model with equity and debt raising.
method Theoretical analysis of raising new equity and debt, considering capital requirements and equity holders constraints.
result Raising equity and debt can increase or decrease return on equity, depending on specific cases.
Develops Merton's model for private companies using DDM.
problem Lack of observable asset values for private companies.
method Uses dividend discount model (DDM) to develop structural model.
result Obtains closed-form formulas for equity and liability values, default probability.
Modeling climate change costs with stochastic interest rates shows inequality, but funding abatement can reduce this.
problem Evaluating the costs and benefits of climate change mitigation with uncertain discount rates.
method Amended DICE model with stochastic interest rates and funding abatement costs.
result Introducing funding abatement can reduce intergenerational inequality in climate change costs.
This thesis applies entropy as a model independent measure to address three research questions concerning financial time series. In the first study we apply transfer entropy to drawdowns and drawups in foreign exchange rates, to study their correlation and cross correlation. When applied to daily and hourly EUR/USD and…
Study benchmarks mutual funds in India using DEA, finding efficiency metrics.
problem Benchmark mutual funds in India based on efficiency metrics.
method Data Envelopment Analysis (DEA) model incorporating risk, cost, return, and information ratio.
result DEA model identifies efficiency frontier and compares results with traditional metrics.
Sparse portfolio strategy from mutual funds' favorite stocks in China A share market.
problem Building a sparse portfolio from mutual funds' favorite stocks in a market with limited fund information.
method Analyzed mutual fund favorite stocks, used portfolio optimizer with constraints, and compared different methods.
result Sparse portfolios consistently outperform the benchmark index 930950.CSI.
Within the Private Equity (PE) market, the event of a private company undertaking an Initial Public Offering (IPO) is usually a very high-return one for the investors in the company. For this reason, an effective predictive model for the IPO event is considered as a valuable tool in the PE market, an endeavor in which …
Study uses ML to analyze how interest rates affect fund returns, finding gradient boosting is effective.
problem Understanding how interest rate changes impact fund returns.
method Combines Machine Learning and causal inference, using Double Machine Learning framework.
result Gradient boosting is useful for predicting fund returns, showing a significant negative effect of interest rate increases.
We illustrate a problem in the self-financing condition used in the papers "Funding beyond discounting: collateral agreements and derivatives pricing" (Risk Magazine, February 2010) and "Partial Differential Equation Representations of Derivatives with Counterparty Risk and Funding Costs" (The Journal of Credit Risk, 2…
Improved estimation of hedge fund tail risks using a novel model.
problem Estimation inefficiencies and need for manual threshold selection in extreme value regression models.
method Extended tail regression model with automatic threshold selection and artificial censoring.
result Significant link between tail risks and factors like equity momentum and financial stability index.
Paper proposes government indemnification for AI risks to solve judgment-proof problem.
problem Uninsurable risks from AI, especially existential risks, create a judgment-proof problem.
method A government-provided, mandatory indemnification program using risk-priced fees and Bayesian Truth Serum.
result The approach better leverages private information and signals risk mitigation efforts.
Study introduces new methods to estimate equity and liability required rates of return.
problem Estimating the required rates of return for equity and liabilities of companies.
method Used maximum likelihood, Bayesian, Kalman filtering, and market value evaluation methods.
result The new methods can accurately estimate the required rates of return.
In the last years, increasing efforts have been put into the development of effective stress tests to quantify the resilience of financial institutions. Here we propose a stress test methodology for central counterparties based on a network characterization of clearing members, whose links correspond to direct credits …
Analyzes valuation of derivative claims with asymmetric funding costs and WWR.
problem Valuing and hedging derivative claims with bilateral cash flows in asymmetric funding and risk environments.
method Characterizes pre-default claim value as solution to a non-linear Cauchy problem, applies stochastic representation under linear funding policy.
result Derivative claim value can be represented as a portfolio of European options and admits an analytical formula involving elementary functions and Gaussian integrals.
Examines climate financing for renewable energy projects using structured funds.
problem Valuation of structured climate financing on diverse renewable energy asset pools.
method Bottom-up Gaussian copula framework with LH++ model for diversification analysis.
result Shows how the mix of indirect and direct RE investments affects the sensitivity of the senior tranche.
In this article, we combine replication pricing with expectation pricing for derivative trades that are partially collateralized by cash. The derivatives are replicated by underlying assets and cash, using repurchasing agreement (repo) and margining, which incur funding costs. We derive a partial differential equation …