The Research Of Optimal Investment Strategy Of Hedge Funds

With the development of hedge funds in the world, the assets under management have reached $2.13 trillion till present. The manager needs to adjust their investment strategy to obtain the most excess returns. So it is very meaningful to study the optimal investment strategy of hedge funds. Some scholars have obtained many meaningful results based on some factors, such as compensation contracts and so on. However, since economic complexity, more and more factors are needed to introduced into the model. Thus, in order to theoretical modeling of investment strategies making more in line with today’s economic situations, we introduce the two factors of the Knightian uncertainty of volatility of asset prices and the inflation into our model.When we conduct our investment, we will face two types of uncertainty:one of them is the risk which is very familiar to us, it refers to the uncertainty of an event occurring whose probability is known, and the other one is Knightian uncertainty. The so-called Knightian uncertainty refers to the one that the probability of occurrence of each outcome for events is still unknown.Due to the influence of the economic crisis in recent years, many countries, including China, adopted a slack monetary policy and fiscal policy, which led to the increasingly serious inflation. Although we cannot be sure of the trend of the inflation in the future, we can characterize it by the method of stochastic analysis. Therefore it is feasible and meaningful to consider the inflation and the Knightian uncertainty in our issue.The arrangement of this thesis is as follows:The first chapter is Introduction, which discusses the development of hedge funds, the effect of the inflation and the Knightian uncertainty, and sums up the promotion of the domestic and foreign scholars on the hedge fundsThe second chapter studies a model of hedge funds leverage where a manager maximizes the management and incentive fees, and the risk asset prices are disturbed by G-Brown motion. We deduce the relevant G-HJB equation of the value function with specific boundary conditions through the stochastic calculus and the stochastic dynamic programming method under nonlinear expectations, and obtain the optimal investment leverage, give the economic analyses.The third chapter investigates a model of optimal investment strategy of hedge funds which maximizes both managers and investors’income. In the model, the influence of inflation was analyzed. We deduce the optimal investment leverage under inflation, then simulate the theoretic results and explain their economic meaning.The last chapter summarizes the results and introduces the research direction in future.