Alternative Investments: Hedge Funds and Commodities
This paper aims to present the role of alternative investment in a well diversified portfolio. In particular, it will concentrate on hedge funds and commodities. Several steps are taken to achieve that. First, the alternative investments are defined. Then, the paper concentrates on hedge funds. It defines them, talks about their history, their absolute return strategies, loss aversion, how heterogeneous they are, and also about the risks they involve. The following part is concerned with commodities. The definition of the commodities is given as well as their classification. Also, the report presents the methods of pricing and the participants that use the commodities’ market. This is followed by the benefits of the alternative investments together with the benefits of each of the two investments separately. Then, the paper lists the risks of them. In the end, a conclusion is given.