The second book in Darbyshire and Hampton's Hedge FundModelling and Analysis series, Hedge Fund Modelling and AnalysisUsing MATLAB® takes advantage of the huge library ofbuilt-in functions and suite of financial and analytic packagesavailable to MATLAB®. This allows for a more detailed analysisof some of the more computationally intensive and advanced topics,such as hedge fund classification, performance measurement andmean-variance optimisation. Darbyshire and Hampton's firstbook in the series, Hedge Fund Modelling and Analysis UsingExcel & and VBA, is seen as a valuable supplementary textto this book.Starting with an overview of the hedge fund industry the bookthen looks at a variety of commercially available hedge fund datasources. After covering key statistical techniques and methods, thebook discusses mean-variance optimisation, hedge fundclassification and performance with an emphasis on risk-adjustedreturn metrics. Finally, common hedge fund market risk managementtechniques, such as traditional Value-at-Risk methods, modifiedextensions and expected shortfall are covered.The book's dedicated website, darbyshirehampton.comprovides free downloads of all the data and MATLAB®source code, as well as other useful resources.Hedge Fund Modelling and Analysis Using MATLAB®serves as a definitive introductory guide to hedge fund modellingand analysis and will provide investors, industrypractitioners and students alike with a useful range oftools and techniques for analysing and estimating alpha and betasources of return, performing manager ranking and market riskmanagement.

Preface xi1 The Hedge Fund Industry 11.1 What are Hedge Funds? 11.2 The Structure of a Hedge Fund 41.2.1 Fund Administrators 41.2.2 Prime Brokers 51.2.3 Custodian, Auditors and Legal 61.3 The Global Hedge Fund Industry 61.3.1 North America 81.3.2 Europe 91.3.3 Asia 101.4 Specialist Investment Techniques 101.4.1 Short Selling 101.4.2 Leverage 121.4.3 Liquidity 131.5 New Developments for Hedge Funds 141.5.1 UCITS III Hedge Funds 141.5.2 The European Passport 171.5.3 Restrictions on Short Selling 172 Hedge Fund Data Sources 192.1 Hedge Fund Databases 192.2 Major Hedge Fund Indices 202.2.1 Non-Investable and Investable Indices 202.2.2 Dow Jones Credit Suisse Hedge Fund Indices 222.2.3 Hedge Fund Research 282.2.4 FTSE Hedge 322.2.5 Greenwich Alternative Investments 332.2.6 Morningstar Alternative Investment Center 352.2.7 EDHEC Risk and Asset Management Research Centre 392.3 Database and Index Biases 392.3.1 Survivorship Bias 402.3.2 Instant History Bias 412.4 Benchmarking 422.4.1 Tracking Error 433 Statistical Analysis 453.1 Basic Performance Plots 453.1.1 Value Added Index 453.1.2 Histograms 473.2 Probability Distributions 493.2.1 Populations and Samples 513.3 Probability Density Function 523.4 Cumulative Distribution Function 533.5 The Normal Distribution 543.5.1 Standard Normal Distribution 553.6 Visual Tests for Normality 563.6.1 Inspection 563.6.2 Normal Probability Plot 563.7 Moments of a Distribution 583.7.1 Mean and Standard Deviation 583.7.2 Skew 603.7.3 Kurtosis 623.8 Covariance and Correlation 633.9 Linear Regression 673.9.1 Coefficient of Determination 693.9.2 Residual Plots 693.9.3 Jarque-Bera Test 734 Mean-Variance Optimisation 774.1 Portfolio Theory 774.1.1 Mean-Variance Analysis 774.1.2 An Optimisation Problem 814.1.3 Sharpe Ratio Maximisation 854.2 Efficient Portfolios 875 Performance Measurement 975.1 The Intuition Behind Risk-Adjusted Returns 975.1.1 Risk-Adjusted Returns 995.2 Absolute Risk-Adjusted Return Metrics 1035.2.1 The Sharpe Ratio 1055.2.2 The Modified Sharpe Ratio 1065.2.3 The Maximum Drawdown Ratio 1075.3 Market Model Risk-Adjusted Return Metrics 1105.3.1 The Information Ratio 1115.3.2 The Treynor Ratio 1135.3.3 Jensen's Alpha 1185.3.4 GH1 Metric 1195.3.5 The M2 Metric 1205.3.6 The GH2 Metric 1235.4 MAR and LPM Metrics 1255.4.1 The Sortino Ratio 1255.4.2 The Omega Ratio 1275.4.3 The Upside Potential Ratio and Group Rankings 1295.5 Multi-Factor Asset Pricing Extensions 1315.5.1 The Choice of Factors 1336 Hedge Fund Classification 1376.1 Financial Instrument Building Blocks and Style Groups 1376.2 Hedge Fund Clusters and Classification 1386.2.1 Metric Definitions 1406.2.2 Creating Dendrograms 1406.2.3 Interpreting Dendrograms 1417 Market Risk Management 1557.1 Value-at-Risk 1557.2 Traditional VaR Methods 1597.2.1 Historical Simulation 1597.2.2 Parametric Method 1617.2.3 Monte-Carlo Simulation 1627.3 Modified VaR 1657.4 Expected Shortfall 1667.5 Extreme Value Theory 1727.5.1 Block Maxima 1747.5.2 Peaks Over Threshold 174References 179Index 183