Risk management for hedge funds: Introduction and overview

Although risk management has been a well-plowed field in financial modeling for more than two decades, traditional risk management tools such as mean-variance analysis, beta, and Value-at-Risk do not capture many of the risk exposures of hedge-fund investments. In this article, I review several unique aspects of risk management for hedge funds-survivorship Was, dynamic risk analytics, liquidity, and nonlinearities-and provide examples that illustrate their potential importance to hedge-fund managers and investors. I propose a research agenda for developing a new, set of risk analytics specifically designed for hedge-fund investments, with the ultimate goal of creating risk transparency without compromising the Proprietary nature of hedge-fund investment strategies.