Jakub Jurek
Bio sketch: Jakub W. Jurek joined the faculty at the Department of Economics at Princeton University in July 2008, and teaches courses on fixed income and asset pricing. His research focuses on theoretical and empirical finance, and emphasizes the role of market structure in price formation. Jakub’s recent research develops option-based methods for the valuation of collateralized debt obligations (CDOs) and models of market liquidity.
Jakub holds an undergraduate degree in Applied Mathematics and a Ph.D. in Business Economics, both from Harvard University. Prior to entering graduate school, he worked in the quantitative equity strategy groups at Goldman Sachs and AQR Capital Management, LLC. He has also served as a consultant to Grantham, Mayo, van Otterloo, LLC, a Boston-based investment management company, and the Harvard Management Company.
Abstract: 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.
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