Risk modelling of alternative investments

Abstract

Alternative investments present an intensively grow domain which characterizes by relatively high risk. Our research focus to complex evaluation of such investment’s risks. There were formed special sample from ETF corresponding alternative investments. Sample was structured in 10 classes of alternative investments. Risk evaluation involve applying different approaches. First approach grounding on vola-tility conception and include a number of risk measures. Special attention was paid to consider risk from asymmetry analysis, which reveals domination of negative skew of return`s distribution. Second approach estimates risk at the frameworks of a Value-at-Risk methodology. VaR and CVaR estimations were examined by comparative analysis. Third approach use sensitivity analysis with returns of two chosen market indices. They are S&P500 and AGG. Only two classes from considered ETF`s classes (hedge funds and long short) indicates sensitivity to changes of S&P500 returns. A separate area of research was fitting probability distribution function. Four type of distrbutions were identified as a best fitting. The most recurrent distribution turned out to be four parametric Burr distribution. ETF classes are differing by risk level and risk characteristics, which should be taking into account in asset allocation process. Modelling investment risk for alternative investments should use complex attitude to risk analysis and evaluation.