Ex-ante evaluation of investment performance fees using spread options

This dissertation analyses ex-ante asymmetric performance fee structures used by South African Mutual Funds and estimates performance fees some time before the fees are paid. Certain parties might benefit from having a reasonable estimate of its value. We use spread option theory to value ex-ante performance fees. The data consist of monthly benchmark and fund gross returns from December 1999 to October 2014. The theoretical value of ex-ante performance fees is a function of spread volatility, therefore high spread volatilities give rise to high ex-ante performance fees. Ex-ante performance fee estimates are highly sensitive to the correlation between the fund and benchmark and a low positive correlation gives rise to a high ex-ante performance fee. The distribution of ex-ante performance fees is positively skewed because of the maximum function in the payoff. Ex-ante performance fee estimates obtained are lower than the actual performance fees paid.

Grantor dc:publisher.institution

Division of Actuarial Science

Year dc:date.issued

2017

Author dc:creator

• Dube, Tinashe Alison

Advisor dc:contributor.advisor

• Van Biljon, Andrew

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/27070

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/27070