Hedge Fund Modeling and Analysis Using Excel and VBA

Preface xi
 
1 The Hedge Fund Industry 1
 
1.1 What Are Hedge Funds? 1
 
1.2 The Structure of a Hedge Fund 4
 
1.2.1 Fund Administrators 5
 
1.2.2 Prime Brokers 5
 
1.2.3 Custodian, Auditors and Legal 6
 
1.3 The Global Hedge Fund Industry 7
 
1.3.1 North America 8
 
1.3.2 Europe 10
 
1.3.3 Asia 11
 
1.4 Specialist Investment Techniques 12
 
1.4.1 Short Selling 12
 
1.4.2 Leverage 14
 
1.4.3 Liquidity 15
 
1.5 New Developments for Hedge Funds 16
 
1.5.1 UCITS III Hedge Funds 16
 
1.5.2 The European Passport 19
 
1.5.3 Restrictions on Short Selling 20
 
2 Major Hedge Fund Strategies 23
 
2.1 Single- and Multi-Strategy Hedge Funds 23
 
2.2 Fund of Hedge Funds 25
 
2.3 Hedge Fund Strategies 27
 
2.3.1 Tactical Strategies 28
 
2.3.1.1 Global Macro 28
 
2.3.1.2 Managed Futures 31
 
2.3.1.3 Long/Short Equity 36
 
2.3.1.4 Pairs Trading 38
 
2.3.2 Event-Driven 42
 
2.3.2.1 Distressed Securities 42
 
2.3.2.2 Merger Arbitrage 46
 
2.3.3 Relative Value 49
 
2.3.3.1 Equity Market Neutral 49
 
2.3.3.2 Convertible Arbitrage 50
 
2.3.3.3 Fixed Income Arbitrage 54
 
2.3.3.3.1 Capital Structure Arbitrage 56
 
2.3.3.3.2 Swap-Spread Arbitrage 57
 
2.3.3.3.3 Yield Curve Arbitrage 58
 
3 Hedge Fund Data Sources 61
 
3.1 Hedge Fund Databases 61
 
3.2 Major Hedge Fund Indices 65
 
3.2.1 Non-investable and Investable Indices 66
 
3.2.2 Dow Jones Credit Suisse Hedge Fund Indexes 68
 
3.2.2.1 Liquid Alternative Betas 70
 
3.2.3 Hedge Fund Research 73
 
3.2.4 HedgeFund.net 77
 
3.2.5 FTSE Hedge 77
 
3.2.5.1 FTSE Hedge Momentum Index 78
 
3.2.6 Greenwich Alternative Investments 79
 
3.2.6.1 GAI Investable Indices 80
 
3.2.7 Morningstar Alternative

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.