How to assess hedge fund performance through non-parametric discounting

The approach proposed in this white paper overcomes two important limitations of the linear methodology: it captures the nonlinear exposure of a hedge fund strategy to several risk factors, and it is not limited to nonlinear shapes resembling standard option payoff patterns.

This methodology is applied to various hedge fund indices as well as to individual hedge funds, considering a set of risk factors including equities, bonds, credit, currencies and commodities.

The main message that emerges from the analysis on the performance of hedge fund strategies is that exposure to higher-moment risks on the various factors matters.