Investors often choose to invest in hedge funds because their returns do not correlate with market returns. In this way, investors achieve diversification of their portfolio. However, since returns of hedge funds, especially after deducting all the costs, are not as high as they were at the end of the previous century, a different form of investing is needed. With the discussed replication strategy, we can achieve the same returns as with hedge funds, and eliminate some of the problems common to investing in hedge funds. Copulas play a crucial role in discussed strategy, we use them in the second and the third step of the strategy. Copulas are multivariate cumulative distribution functions with margins that are uniform on the interval [0,1]. We use them to describe dependence between random variables.
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