VaR and Omega measures for hedge funds portfolios: A copula approach
Abstract
This paper provides accurate estimations of portfolio returns including several hedge funds. The main problem is to identify their dependence structure. For this purpose, we introduce goodness-of-fit tests of copula, based on the Kendall's functions. To illustrate our approach, we consider in particular different optimal portfolios, corresponding to the maximization of performance measures such as the Sharpe, Return on VaR, Return on CVaR and Omega ratios. The empirical validation is made on three hedge fund indices: the Event Driven, Long/Short and Managed Futures. The time period of the analysis is December 1993 to October 2008. Our results show that copula clearly allows a better determination of risk and performance measures of such portfolios.