The cost of capital for alternative investments
By: Jakub W. Jurek, Erik Stafford
Contributors: Stafford, Erik; Harvard Business School
Series: Working paper / Harvard Business School -- 12-013; Working paper (Harvard Business School) -- 12-013
Publisher: Harvard Business School
Published: 2011
Place of publication: Boston]
Language: eng
Number of pages: 27
Description: This paper studies the cost of capital for alternative investments. We document that the risk profile of the aggregate hedge fund universe can be accurately matched by a simple index put option writing strategy that offers monthly liquidity and complete transparency over its state-contingent payoffs. The contractual nature of the put options in the benchmark portfolio allows us to evaluate appropriate required rates of return as a function of investor risk preferences and the underlying distribution of market returns. This simple framework produces a number of distinct predictions about the cost of capital for alternatives relative to traditional mean-variance analysis.
Notes: "September 2011" -- Publisher's website.

Includes bibliographical references.