Hedge Fund Modeling and Analysis Using Excel and VBA

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2012-03-13
  • Publisher: Wiley
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Hedge Fund Analysis and Modeling Using Excel and VBA is a practical and implementation driven text that will guide readers through real modeling and analysis exercises for hedge funds, enabling them to identify risk and return factors across their investments. Starting with an overview of Hedge Funds and covering the key styles and strategies adopted by hedge fund managers, the book then moves on to look at Hedge Fund data sources - a key area in understanding the strengths and weaknesses of a hedge funds style and strategy. The book then discusses Hedge Fund performance measures, both basic and risk-adjusted, and how to model hedge fund returns. Finally, the book covers more sophisticated Hedge Fund analysis, and risk management techniques.The book features a DVD, which includes Excel and VBA spreadsheets with step by step audio and visual tutorials, and classroom style video tutorials on key modeling aspects. This book will serve as a complete course in Hedge Fund Modeling and Analysis and will arm Hedge Funds with the full range of tools they need to manage their risks and capitalize on the return profiles of their investment styles.

Author Biography

PAUL DARBYSHIRE gained his PhD in Theoretical Physics from King’s College London and then began his career working has a Quantitative Analyst and Trader at HSBC on the Exotic Derivatives and Structured Products desk. He has subsequently been involved in the development and implementation of a variety of trading and risk management platforms for a number of major investment banks around the globe. Over the past several years Paul has been responsible for the analysis and design of cutting edge algorithms in the development of behavioural finance models at Oxford University. Paul has also provided many private equity firms, hedge funds and asset management companies with consultancy in areas such as dynamic portfolio optimisation, trading platform design, software engineering and risk management.

DAVID HAMPTON gained his PhD in Electrical Engineering from the Queen’s University of Belfast and an international MBA from Institut Superieur de Gestion in Paris, New York and Tokyo before joining Bank of America Capital Markets in London. David was previously an Adjunct Finance Professor at Skema Business School in Sophia Antipolis where he taught Financial Engineering and Excel/VBA Programming at the MSc level. At EDHEC Business School in Nice, he was responsible for managing their range of five MSc courses as Assistant Dean of the Financial Economics Track. An NFA registered CTA since 1997, David has been active as a consultant to the hedge fund community and as a Hedge Fund Manager with particular expertise in Global Macro Managed Futures and Long Short Equity investment styles.

Both David and Paul are Directors of darbyshirehampton; an innovative quantitative research, advisory, and consultancy firm specialising in hedge funds and the alternative investment industry. Website: www.darbyshirehampton.com.

Table of Contents

Prefacep. xi
The Hedge Fund Industryp. 1
What Are Hedge Funds?p. 1
The Structure of a Hedge Fundp. 4
Fund Administratorsp. 5
Prime Brokersp. 5
Custodian, Auditors and Legalp. 6
The Global Hedge Fund Industryp. 7
North Americap. 8
Europep. 10
Asiap. 11
Specialist Investment Techniquesp. 12
Short Sellingp. 12
Leveragep. 14
Liquidityp. 15
New Developments for Hedge Fundsp. 16
UCITS III Hedge Fundsp. 16
The European Passportp. 19
Restrictions on Short Sellingp. 20
Major Hedge Fund Strategiesp. 23
Single and Multi Strategy Hedge Fundsp. 23
Fund of Hedge Fundsp. 25
Hedge Fund Strategiesp. 27
Tactical Strategiesp. 28
Global Macrop. 28
Managed Futuresp. 31
Long/Short Equityp. 36
Pairs Tradingp. 38
Event-Drivenp. 42
Distressed Securitiesp. 42
Merger Arbitragep. 46
Relative Valuep. 49
Equity Market Neutralp. 49
Convertible Arbitragep. 50
Fixed Income Arbitragep. 54
Capital Structure Arbitragep. 56
Swap-Spread Arbitragep. 57
Yield CurveArbitragep. 58
Hedge Fund Data Sourcesp. 61
Hedge Fund Databasesp. 61
Major Hedge Fund Indicesp. 65
Non investable and Investable Indicesp. 66
Dow Jones Credit Suisse Hedge Fund Indexesp. 68
Liquid Alternative Betasp. 70
Hedge Fund Researchp. 73
Hedge Fund netp. 77
FTSE Hedgep. 77
FTSE Hedge Momentum Indexp. 78
Greenwich Alternative Investmentsp. 79
GAI Investable Indicesp. 80
Morningstar Alternative Investment Centerp. 83
MSCI Hedge Fund Classification Standardp. 83
MSCI Investable Indicesp. 85
EDHEC Risk and Asset Management Research Centre (www.edhec-risk.com)p. 86
Database and Index Biasesp. 88
Survivorship Biasp. 89
Instant History Biasp. 90
Benchmarkingp. 91
Tracking Errorp. 92
Weighting Schemesp. 95
Statistical Analysisp. 99
Basic Performance Plotsp. 99
Value Added Monthly Indexp. 99
Histogramsp. 102
Probability Distributionsp. 105
Populations and Samplesp. 106
Probability Density Functionp. 107
Cumulative Distribution Functionp. 108
The Normal Distributionp. 109
Standard Normal Distributionp. 110
Visual Tests for Normalityp. 111
Inspectionp. 111
Normal Q-Q Plotp. 112
Moments of a Distributionp. 114
Mean and Standard Deviationp. 114
Skewnessp. 117
Excess Kurtosisp. 119
Data Analysis Tool: Descriptive Statisticsp. 120
Geometric Brownian Motionp. 122
Uniform Random Numbersp. 125
Covariance and Correlationp. 126
Regression Analysisp. 131
Ordinary Least Squaresp. 131
Coefficient of Determinationp. 133
Residual Plotsp. 134
Jarque-Bera Normality Testp. 135
Data Analysis Tool: Regressionp. 138
Portfolio Theoryp. 142
Mean Variance Analysisp. 142
Solver: Portfolio Optimisationp. 145
Efficient Portfoliosp. 148
Risk-Adjusted Return Metricsp. 151
The Intuition behind Risk Adjusted Returnsp. 152
Risk Adjusted Returnsp. 154
Common Risk Adjusted Performance Ratiosp. 157
The Sharpe Ratiop. 160
The Modified Sharpe Ratiop. 162
The Sortino Ratiop. 163
The Drawdown Ratiop. 167
Common Performance Measures in the Presence of a Market Benchmarkp. 170
The Information Ratiop. 172
The M Squared Metricp. 173
The Treynor Ratiop. 174
Jensen's Alphap. 178
The Omega Ratiop. 181
Asset Pricing Modelsp. 185
The Risk Adjusted Two Moment Capital Asset Pricing Modelp. 185
Interpreting Hp. 189
Static Alpha Analysisp. 191
Dynamic Rolling Alpha Analysisp. 193
Multi factor Modelsp. 195
The Choice of Factorsp. 196
A Multi Factor Framework for a Risk Adjusted Hedge Fund Alpha League Tablep. 202
Alpha and Beta Separationp. 208
Dynamic Style Based Return Analysisp. 210
The Markowitz Risk Adjusted Evaluation Methodp. 214
Hedge Fund Market Risk Managementp. 223
Value at Riskp. 223
Traditional Measuresp. 226
Historical Simulationp. 226
Parametric Methodp. 229
Monte Carlo Simulationp. 230
Modified Varp. 233
Expected Shortfallp. 236
Extreme Value Theoryp. 239
Block Maximap. 240
Peaks over Thresholdp. 241
Referencesp. 245
Important Legal Informationp. 249
Indexp. 251
Table of Contents provided by Ingram. All Rights Reserved.

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