Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2011
  • Working Paper
  • HBS Working Paper Series

The Cost of Capital for Alternative Investments

By: Jakub W. Jurek and Erik Stafford
  • Format:Print
  • | Language:English
  • | Pages:41
ShareBar

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.

Keywords

Cost of Capital; Financial Liquidity; Investment; Investment Return; Mathematical Methods; Risk and Uncertainty

Citation

Jurek, Jakub W., and Erik Stafford. "The Cost of Capital for Alternative Investments." Harvard Business School Working Paper, No. 12-013, September 2011. (NBER Working Paper Series, No. 19643, November 2013.)
  • Read Now

About The Author

Erik Stafford

Finance
→More Publications

More from the Authors

    • June 2022
    • Faculty Research

    Ocean Carriers (Abridged) Courseware

    By: Erik Stafford
    • 2022
    • Faculty Research

    Uniform Rate Setting and the Deposit Channel

    By: Juliane Begenau and Erik Stafford
    • March 2022
    • Faculty Research

    Exchanging Salary for Stock Options at a Startup

    By: Erik Stafford
More from the Authors
  • Ocean Carriers (Abridged) Courseware By: Erik Stafford
  • Uniform Rate Setting and the Deposit Channel By: Juliane Begenau and Erik Stafford
  • Exchanging Salary for Stock Options at a Startup By: Erik Stafford
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College