Optimal risk taking under high-water mark contract with jump risk

•This paper studies the effects of jump risk on the hedge fund manager’s optimal risk taking.•The optimal risk taking under jump-diffusion risk is not a simple combination of that under pure-jump risk and pure-diffusion risk.•Increasing jump intensity or jump size reduces the fund manager’s risk tak...

Full description

Saved in:
Bibliographic Details
Published in:Finance research letters 2021-01, Vol.38, p.101460, Article 101460
Main Authors: Mu, Congming, Yan, Jingzhou, Liang, Zhian
Format: Article
Language:English
Subjects:
Hedge fund
High-water mark
Jump risk
Portfolio choice
Risk taking
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:•This paper studies the effects of jump risk on the hedge fund manager’s optimal risk taking.•The optimal risk taking under jump-diffusion risk is not a simple combination of that under pure-jump risk and pure-diffusion risk.•Increasing jump intensity or jump size reduces the fund manager’s risk taking. This paper studies the effects of jump risk in returns on the hedge fund manager’s optimal risk taking under high-water mark contract. The results show that the fund manager’s optimal risk taking under jump-diffusion risk is not a simple combination of that under pure-jump risk and pure-diffusion risk. The increase in jump intensity and jump size discourages the fund manager’s risk choice.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2020.101460