FI 4260
3. Event Driven Strategies
1). Merger-Arbitrage
1
Outlines
Merger-arbitrage strategy
2
The positions and their relative dollar amounts
Arbitrage spread of the strategy
The risks involved in the strategy and the approaches to
manage such risks
Obje
FI 4260
Risk and Return Characteristics-2
Risk-adjusted performance measures
1
Objectives
Contrast and calculate Sharpe ratio,
information ratio, Jensens alpha, Treynor
ratio, Sortino ratio, and RoVaR
2
Risk-adjusted performance measures
Sharpe ratio
Info
FI 4260
Risk and Return Characteristics-3
1
Benefits of factor models
Identify the bets made by the manager in
exposing the fund to particular risks.
Can identify the value added by the
manager over a passive portfolio
2
Linear single factor models
CAPM
C
Convertible arbitrage is a market-neutral investment strategy often employed by
hedge funds. It involves the simultaneous purchase of convertible securities and the
short sale of the same issuer's common stock.
Compute the value of a convertible bond.
1.
FI 4260 Hedge Funds, Mutual Funds, and Trading Strategies
Professor Zhen Shi
Stock-Trak Project
Each student will join an investment team (3-4 members) and implement a hedge
fund strategy or a combination of different hedge fund strategies using Stock-tra
FI 4260
3. Event Driven Strategies
1). Merger-Arbitrage
1
Outlines
Merger-arbitrage strategy
2
The positions and their relative dollar amounts
Arbitrage spread of the strategy
The risks involved in the strategy and the approaches to
manage such risks
Obje
FI 4260
3. Event Driven Strategies
2). Distressed Securities
1
Outlines
What is distressed security investing?
The advantages for hedge funds to operate in the
segment of distressed securities
Value distressed securities
Economic distress vs. financial di
FI 4260
Hedge Funds, Mutual Funds, and
Trading Strategies
Zhen Shi
Assistant Professor of Finance
J. Mack Robinson College of Business
Georgia State University
1
Course Overview
Introduction
to Hedge Funds
Hedge Fund Trading Strategies
Long-Short
Equity
FI 4260
Risk and Return Characteristics-1
Risk and return measures
1
Return Measures
Relative change in the funds NAV over a
particular time period:
R
T
T
1, 2
NAV NAV
T
T
2
1
NAV
T
1
Example:
If the NAV at beginning of the period is $15 and is
$16 at the
FI 4260
4. Directional Strategies
4) Leverage
1
Objectives
1.
2.
3.
4.
5.
2
Define and calculate margin in a long position
Calculate margin in a long position when
stock price changes
Define maintenance margin
Calculate the stock price at which you will g
FI 4260
4. Directional Strategies
2) PIPE Strategy
1
Objectives
Explain what is PIPE.
Explain why the convertible bond that converts
into a specific dollar value of the underlying stock
is market neutral.
Discuss the risks involved in PIPEs investment
Dis
Answer all questions. Each question is worth one point.
1. According to John Bogle, about _ of the real returns on all mutual funds was consumed
by mutual fund expenses, advisory fees, sales loads, and commissions paid by mutual funds.
(a) 5%
(b) 10%
(c
10-4. Change in net working capital equals the increase in accounts receivable and
inventory less the increase in accounts payable : $8,000 + $15,000 - $16,000 :
$7,000.
The change in taxes will be EBIT X marginal tax rate = $900,000 X .34 =
$306,000.
A p
Exam P
Raise Your Odds with Adapt
Basic Probability Relationships
Pr = Pr + Pr Pr
Pr = Pr + Pr + Pr
Pr Pr
Pr + Pr
Pr + = 1 Pr
Law of Total Probability
Pr = .-/0 Pr -
GENERAL PROBABILITY
PROBABILITY
GENERAL
De
FI 4260
2. Long-Short Equity and Relative
Value Strategies (II)
1
Definitions of Market Neutrality
How do we make a long/short equity portfolio with
$10 million of initial capital market neutral? It has $9
million long and $6 million short shares.
Dollar
FI 4260
2. Long-Short Equity and Relative
Value Strategies-3
1
Convertible Arbitrage
Convertible bonds are usually issued below their
fair value
Issuers offered discount to sell the issue
Below investment grade rating of issuers meant limited
demand
Sma
FI 4260
3. Event Driven Strategies
2). Distressed Securities
1
Outlines
What is distressed security investing?
The advantages for hedge funds to operate in the
segment of distressed securities
Value distressed securities
Economic distress vs. financial di
FI 4260
4. Directional Strategies
1) Global Macro Strategy
i) Carry Trades
1
Objectives
Contrast directional strategy with the original A.W.
Jones model
Describe the key features of global macro strategy
Explain the underlying principle of carry trades.
D
FI 4260
2. Long-Short Equity and Relative
Value Strategies
1
Objective
After this Module You Should be Able to Understand:
2
Mechanics of Long/Short Equity strategy
Sources of returns for Long/Short strategy
Valuation-based versus quantitative approach
of