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Preface | |
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Introduction to Alternative Investments | |
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What Is an Alternative Investment? | |
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Alternative Investments by Exclusion | |
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Alternative Investments by Inclusion | |
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Structures among Alternative Investments | |
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Investments Are Distinguished by Return Characteristics | |
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Investments Are Distinguished by Methods of Analysis | |
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Goals of Alternative Investing | |
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Overview of This Book | |
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The Environment of Alternative Investments | |
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The Participants | |
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Financial Markets | |
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Regulations | |
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Taxation | |
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Statistical Foundations | |
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Frequency and Probability Distributions | |
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Compounding Multiple Time Period Returns | |
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Return Distributions and Autocorrelation | |
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Moments of the Distribution: Mean, Variance, Skewness, and Kurtosis | |
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Computing Sample Statistics | |
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More on Standard Deviation and Variance | |
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Testing for Normality | |
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Other Measures of Risk | |
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Estimating Value at Risk (VaR) | |
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Time Series Return Volatility Models | |
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Conclusion | |
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Risk, Return, and Benchmarking | |
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Benchmarking | |
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Asset Pricing Models | |
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Three Methods of Models | |
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Cross-Sectional versus Time-Series Models | |
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Single-Factor and Ex Ante Asset Pricing | |
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Empirical Analyses with the CAPM | |
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Multifactor Models | |
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Alternative Asset Benchmarking | |
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Conclusion | |
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Correlation, Alternative Returns, and Performance Measurement | |
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Correlation | |
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Internal Rate of Return | |
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Problems with IRR | |
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Returns Based on Notional Principal | |
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Distribution of Cash Waterfall | |
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Performance Measures | |
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Alpha and Beta | |
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Overview of Beta and Alpha | |
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Ex Ante versus Ex Post Alpha | |
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Inferring Ex Ante Alpha from Ex Post Alpha | |
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Return Attribution | |
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Ex Ante Alpha Estimation and Persistence | |
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Return Drivers | |
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Summary of Alpha and Beta Analysis | |
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Hypothesis Testing in Alternative Investments | |
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Four Steps of Hypothesis Testing | |
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A Test Assuming Normality | |
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Tests with Inferential Statistics | |
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Sampling and Testing Problems | |
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Cumulative Returns and Performance | |
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Statistical Issues in Analyzing Alpha and Beta | |
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Summary of Alpha and Beta Estimation | |
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Conclusion | |
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Real Assets | |
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Land, Infrastructure, and Intangible Real Assets | |
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Land | |
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Timber and Timberland | |
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Farmland | |
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Infrastructure | |
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Intellectual Property | |
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Valuation and Volatility | |
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Historical Risks and Returns | |
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Real Estate Fixed-Income Investments | |
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Residential Mortgages | |
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Commercial Mortgages | |
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Mortgage-Backed Securities Market | |
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Collateralized Mortgage Obligations | |
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Real Estate Investment Trusts | |
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Risks and Returns of Mortgage REITs | |
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Real Estate Equity Investments | |
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Real Estate Development | |
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Valuation and Risks of Real Estate Equity | |
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Alternative Real Estate Investment Vehicles | |
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Real Estate and Depreciation | |
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Real Estate Equity Risks and Returns | |
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Risks and Returns of Equity REITs | |
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Hedge Funds | |
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Introduction to Hedge Funds | |
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Distinguishing Hedge Funds | |
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Hedge Fund Types | |
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Hedge Fund Fees | |
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Conclusion | |
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Hedge Fund Returns and Asset Allocation | |
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Describing the Hedge Fund Universe | |
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Mean, Variance, Skewness, and Kurtosis of Strategies | |
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Categorizing Hedge Fund Strategies | |
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Should Hedge Funds Be Part of an Investment Program? | |
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Do Hedge Funds Undermine the Financial Markets? | |
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Hedge Fund Indices | |
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Conclusion | |
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Macro and Managed Futures Funds | |
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Major Distinctions between Strategies | |
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Global Macro | |
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Returns of Macro Investing | |
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Managed Futures | |
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Systematic Trading | |
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Systematic Trading Styles | |
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Prior Empirical Research | |
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Conclusion | |
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Analysis of Historical Returns Conclusion | |
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Event-Driven Hedge Funds | |
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The Sources of Most Event Strategy Returns | |
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Activist Investing | |
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Merger Arbitrage | |
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Distressed Securities Funds | |
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Event-Driven Multistrategy Funds | |
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Relative Value Hedge Funds | |
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Convertible Bond Arbitrage | |
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Volatility Arbitrage | |
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Fixed-Income Arbitrage | |
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Relative Value Multistrategy Funds | |
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Equity Hedge Funds | |
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Sources of Return | |
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Market Anomalies | |
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The Fundamental Law of Active Management | |
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Implementing Anomaly Strategies | |
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The Three Equity Strategies | |
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Conclusion | |
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Funds of Hedge Funds | |
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Benefits and Costs of Diversification | |
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Investing in Multistrategy Funds | |
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Investing in Funds of Hedge Funds | |
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Fund of Funds Historical Returns | |
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Conclusion | |
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Commodities | |
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Commodity Futures Pricing | |
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Forward and Futures Contracts | |
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Rolling Contracts | |
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The Term Structure of Forward Prices | |
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Backwardation and Contango | |
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Returns on Futures Contracts | |
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Commodities: Applications and Evidence | |
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Commodity Investing for Diversification | |
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Commodity Investing for Return Enhancement | |
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Investing in Commodities without Futures | |
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Commodity Exposure through Futures Contracts | |
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Three Fallacies of Roll Return | |
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Commodity Futures Indices | |
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Commodity Risks and Returns | |
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Historical Risks and Returns | |
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Private Equity | |
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Introduction to Private Equity | |
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Private Equity Terminology and Background | |
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Private Equity as Equity Securities | |
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Private Equity as Debt Securities | |
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Trends and Innovations in Private Equity | |
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Equity Types of Private Equity | |
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Venture Capital versus LBOs | |
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The Underlying Businesses of Venture Capital | |
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Venture Capital Funds | |
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Venture Capital Risks and Returns | |
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Leveraged Buyouts (LBOs) | |
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Leveraged Buyout Risks and Returns | |
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Debt Types of Private Equity | |
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Mezzanine Debt | |
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Distressed Debt | |
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Risks of Distressed Debt Investing | |
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Structured Products | |
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Credit Risk and the Structuring of Cash Flows | |
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An Overview of Credit Risk | |
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Modeling Credit Risk | |
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Structural Model Approach to Credit Risk | |
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Reduced-Form Model Approach to Credit Risk | |
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Structuring Using Collateralized Debt Obligations | |
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Conclusion | |
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Credit Derivatives | |
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Credit Derivative Markets | |
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Credit Default Swaps | |
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Other Credit Derivatives | |
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Risks of Credit Derivatives | |
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Conclusion | |
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Collateralized Debt Obligations | |
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Introduction to Collateralized Debt Obligations | |
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Balance Sheet CDOs versus Arbitrage CDOs | |
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Cash-Funded CDOs versus Synthetic CDOs | |
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Cash Flow CDOs versus Market Value CDOs | |
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Credit Risk and Enhancements | |
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New Developments in CDOs | |
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Risks of CDOs | |
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Risk Management and Portfolio Management | |
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Lessons from Hedge Fund Failures | |
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Problems Driven by Market Losses | |
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Failures Driven by Fraud | |
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Conclusion | |
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Risk Analysis | |
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Investment Strategy Risks | |
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Market Risk | |
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Operational Risk | |
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Investment Process Risk | |
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Controlling Operational Risk | |
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Aggregating the Risks of a Fund | |
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Portfolios with Options | |
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Conclusion | |
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Due Diligence of Fund Managers | |
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Screening with Three Fundamental Questions | |
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Structural Review | |
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Strategic Review | |
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Administrative Review | |
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Performance Review | |
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Portfolio Risk Review | |
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Legal Review | |
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Reference Checks | |
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Measuring Operational Risk | |
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Regression, Multivariate, and Nonlinear Methods | |
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Single-Factor Models and Regression | |
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Multiple-Factor Models and Regression | |
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Nonlinear Returns | |
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Changing Correlation | |
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Applications of Multifactor Models | |
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Hedge Fund Performance Persistence | |
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Portfolio Optimization and Risk Parity | |
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Mean-Variance Portfolio Optimization | |
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Complications to Mean-Variance Optimization | |
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Risk Budgeting | |
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Risk Parity | |
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Portfolio Management, Alpha, and Beta | |
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The Estimation of Alpha and Beta | |
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The Separation of Alpha and Beta | |
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Portable Alpha | |
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Alpha, Beta, and Portfolio Allocation | |
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Conclusion | |
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Appendix: Data Sources | |
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Index | |