TY - JOUR
T1 - Tail risk hedging for mutual funds using equity market state prices
AU - O'Neill, Michael J.
AU - Liu, Zhangxin (Frank)
PY - 2016/11
Y1 - 2016/11
N2 - This paper proposes a method for generating unbiased predictors of downside and tail volatility for individual mutual funds, using theoretical market state prices and applying these to fund payoffs. The method is validated as a predictor of market downside and tail volatility. The Fund Volatility Index-Lower Partial Moment (FVX -) is then proposed as a forward-looking hedge of downside volatility for funds, calibrated and assessed on a database of 13,202 individual funds. The method proves to be unbiased with high forecast accuracy and is capable of capturing individual fund skewness.
AB - This paper proposes a method for generating unbiased predictors of downside and tail volatility for individual mutual funds, using theoretical market state prices and applying these to fund payoffs. The method is validated as a predictor of market downside and tail volatility. The Fund Volatility Index-Lower Partial Moment (FVX -) is then proposed as a forward-looking hedge of downside volatility for funds, calibrated and assessed on a database of 13,202 individual funds. The method proves to be unbiased with high forecast accuracy and is capable of capturing individual fund skewness.
UR - http://www.scopus.com/inward/record.url?scp=84994353698&partnerID=8YFLogxK
U2 - 10.1177/0312896215615170
DO - 10.1177/0312896215615170
M3 - Article
SN - 0312-8962
VL - 41
SP - 687
EP - 698
JO - Australian Journal of Management
JF - Australian Journal of Management
IS - 4
ER -