Hedge fund risk and VAR uncertainty

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On first encounter, the term ‘hedge fund’ seems counter-intuitive. Hedging, after all, is a method for reducing risk. Why then are hedge funds, with Long-Term Capital Management (LTCM) as exhibit one, such risky investment vehicles? The answer, of course, is that ‘hedge fund’ is something of a misnomer. These vehicles might better be called ‘convergence-arbitrage investment funds’.

Traditional pension and mutual funds sell shares to investors and distribute the proceeds among a variety of

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