"Performance Fees with Stochastic Benchmark" by Prof. Gu Wang (WPI and PSTAT)

Event Date: 

Monday, March 13, 2023 - 3:30pm to 4:30pm

Event Location: 

  • South Hall 5607F

Research Seminar by Gu Wang, Associate Professor, Department of Mathematical Sciences, Worcester Polytechnic Institute. Prof Wang is currently visiting UCSB for the Winter 2023 quarter.

Title: Performance Fees with Stochastic Benchmark

Abstract: A hedge fund manager invests the fund in a constant investment opportunity, and receives high-water mark fees when the fund reaches a new maximum relative to a stochastic benchmark, aiming to maximize the expected power utility from fees in the long run. The manager's optimal portfolio includes a Merton component with the risk aversion parameter shifted towards one, and a hedging component against the risk in the benchmark, both of which depend on how the fund investment opportunity compares to the benchmark