Form PF and Hedge Funds: Risk-Measurement Precision for Option Portfolios
Journal of Alternative Investments, Vol. 18, No. 4, 2006
Posted: 25 Mar 2016 Last revised: 22 May 2019
Date Written: March 23, 2016
Abstract
The Securities and Exchange Commission’s Form PF is the implementation of Congress’s post-crisis mandate for risk reporting by hedge funds to help protect investors and monitor systemic risk. We extend the methodology of Flood, Monin, and Bandyopadhyay [2015] to assess the risk measurement tolerances of Form PF for portfolios including options exposures. We generate a range of simulated portfolios of equities and equity options, where the weights are calibrated so that portfolios appear identical on Form PF. We assess the measurement tolerances of Form PF by examining the minimum-maximum range of actual risk exposures as measured directly from portfolio details. We find that the possible range of variation is significant. For portfolios that include options but do not report value at risk on Form PF, the range is especially large.
Keywords: Hedge funds; Form PF; data quality; systemic risk; risk monitoring
Suggested Citation: Suggested Citation
Phillip Monin
Board of Governors of the Federal Reserve System ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States