Options on Hedge Funds under the High Water Mark Rule
Atlan, Marc; Geman, Hélyette; Yor, Marc (2005), Options on Hedge Funds under the High Water Mark Rule. https://basepub.dauphine.fr/handle/123456789/3170
Type
Document de travail / Working paperLien vers un document non conservé dans cette base
http://hal.archives-ouvertes.fr/hal-00012382/en/Date
2005Éditeur
Université Paris-Dauphine
Ville d’édition
Paris
Pages
27
Métadonnées
Afficher la notice complèteRésumé (EN)
The rapidly growing hedge fund industry has provided individual and institutional investors with new investment vehicles and styles of management. It has also brought forward a new form of performance contract: hedge fund managers receive incentive fees which are typically a fraction of the fund net asset value (NAV) above its starting level - a rule known as high water mark. Options on hedge funds are becoming increasingly popular, in particular because they allow investors with limited capital to get exposure to this new asset class. The goal of the paper is to propose a valuation of plain-vanilla options on hedge funds which accounts for the high water market rule. Mathematically, this valuation leads to an interesting use of local times of Brownian motion. Option prices are numerically computed by inversion of their Laplace transforms.Mots-clés
Options on hedge funds; High-water mark; Local time; Excursion theoryJEL
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