Risk Management, a Practical Guide
Total Page:16
File Type:pdf, Size:1020Kb
Load more
Recommended publications
-
Transition Management Explained
Transition Management Explained INVESTED. TOGETHER.™ Contents 1. Introduction page 3 2. What is transition management? page 4 The transition manager 3. Is using a transition manager right for you? page 5 What are the potential benefits of working with a transition manager? Other potential benefits What are the drawbacks for working with a transition manager? Should we employ a transition manager for every transition event? Can our in-house team manage the transition? Should our outgoing manager transition the assets? Can our incoming manager do the job for us? Should we allow our investment consultant to manage transitions? Should we use a transition manager when funding from or into cash (i.e., for “one-sided events”)? 4. Transition costs page 10 Explicit costs Implicit costs 5. Transition risks page 12 Financial risks Operational risks 6. Minimizing costs and risks page 13 Minimizing explicit costs Minimizing spread and market impact Managing opportunity cost Minimizing operational risks 7. The life cycle of a transition page 17 Stage 1 – Pre-execution (planning) Stage 2 – Execution Stage 3 – Post-execution (reporting) 8. Choosing the right transition manager for you page 19 Don’t focus on brokerage commission alone Guidelines for choosing a transition manager 9. Glossary page 23 Russell Investments // Transition Management Explained 1 Introduction Interest in transition management (TM) has been rising in recent times, thanks to two driving factors. First, in a tough market environment where every basis point counts, TM can represent a significant source of cost savings and can positively contribute to total portfolio returns. Second, recent news coverage on lack of transparency and the departure of some providers from the marketplace has turned the investment spotlight back on this industry. -
Markit Credit Default Swap Calculator User Guide
Markit Credit Default Swap Calculator User Guide November 2010 Markit Credit Default Swap Calculator User Guide Strictly private and confidential Contents Introduction ................................................................................................................................................................... 3 Instruments Covered .................................................................................................................................................. 3 Functionality Overview ............................................................................................................................................... 3 CDS Reference Entity and Contract Terms ............................................................................................................... 3 Credit Curve ............................................................................................................................................................... 3 Calculation Results and Details .................................................................................................................................. 3 Yield Curve ................................................................................................................................................................. 3 Accessing the Calculator ............................................................................................................................................. 4 Quick Start .................................................................................................................................................................... -
North Carolina Supplemental Retirement Plans Investment Performance March 31, 2015
North Carolina Supplemental Retirement Plans Investment Performance March 31, 2015 Services provided by Mercer Investment Consulting, Inc. Table of Contents Table of Contents 1. Capital Markets Commentary 2. Executive Summary 3. Total Plan 4. US Equity 5. International Equity 6. Global Equity 7. Inflation Responsive 8. US Fixed Income 9. Stable Value 10. GoalMaker Portfolios 11. Disclaimer Capital Markets Commentary Performance Summary: Quarter in Review Market Performance Market Performance First Quarter 2015 1 Year DOMESTIC EQUITY DOMESTIC EQUITY Russell 3000 1.8 Russell 3000 12.4 S&P 500 1.0 S&P 500 12.7 Russell 1000 1.6 Russell 1000 12.7 Russell 1000 Growth 3.8 Russell 1000 Growth 16.1 Russell 1000 Value -0.7 Russell 1000 Value 9.3 Russell Midcap 4.0 Russell Midcap 13.7 Russell 2000 4.3 Russell 2000 8.2 Russell 2000 Growth 6.6 Russell 2000 Growth 12.1 Russell 2000 Value 2.0 Russell 2000 Value 4.4 INTERNATIONAL EQUITY INTERNATIONAL EQUITY MSCI ACWI 2.3 MSCI ACWI 5.4 MSCI ACWI Small Cap 4.4 MSCI ACWI Small Cap 3.2 MSCI AC World ex US 3.5 MSCI AC World ex US -1.0 MSCI EAFE 4.9 MSCI EAFE -0.9 MSCI EAFE Small Cap 5.6 MSCI EAFE Small Cap -2.9 MSCI EM 2.2 MSCI EM 0.4 FIXED INCOME FIXED INCOME Barclays T-Bill 1-3 months 0.0 Barclays T-Bill 1-3 months 0.0 Barclays Aggregate 1.6 Barclays Aggregate 5.7 Barclays TIPS 5-10 yrs 1.4 Barclays TIPS 5-10 yrs 2.9 Barclays Treasury 1.6 Barclays Treasury 5.4 Barclays Credit 2.2 Barclays Credit 6.7 Barclays High Yield 2.5 Barclays High Yield 2.0 Citi WGBI -2.5 Citi WGBI -5.5 JP GBI-EM Global Div. -
Managing Volatility Risk
Managing Volatility Risk Innovation of Financial Derivatives, Stochastic Models and Their Analytical Implementation Chenxu Li Submitted in partial fulfillment of the Requirements for the degree of Doctor of Philosophy in the Graduate School of Arts and Sciences COLUMBIA UNIVERSITY 2010 c 2010 Chenxu Li All Rights Reserved ABSTRACT Managing Volatility Risk Innovation of Financial Derivatives, Stochastic Models and Their Analytical Implementation Chenxu Li This dissertation investigates two timely topics in mathematical finance. In partic- ular, we study the valuation, hedging and implementation of actively traded volatil- ity derivatives including the recently introduced timer option and the CBOE (the Chicago Board Options Exchange) option on VIX (the Chicago Board Options Ex- change volatility index). In the first part of this dissertation, we investigate the pric- ing, hedging and implementation of timer options under Heston’s (1993) stochastic volatility model. The valuation problem is formulated as a first-passage-time problem through a no-arbitrage argument. By employing stochastic analysis and various ana- lytical tools, such as partial differential equation, Laplace and Fourier transforms, we derive a Black-Scholes-Merton type formula for pricing timer options. This work mo- tivates some theoretical study of Bessel processes and Feller diffusions as well as their numerical implementation. In the second part, we analyze the valuation of options on VIX under Gatheral’s double mean-reverting stochastic volatility model, which is able to consistently price options on S&P 500 (the Standard and Poor’s 500 index), VIX and realized variance (also well known as historical variance calculated by the variance of the asset’s daily return). -
Credit Derivatives: Macro-Risk Issues
Credit Derivatives: Macro-Risk Issues Credit Derivatives, Macro Risks, and Systemic Risks by Tim Weithers University of Chicago April 20, 2007 Abstract In this paper, some of the “bigger picture” risks associated with credit derivatives are explored. After drawing a distinction between the market’s perception of credit and “real credit” as reflected in the formal definition of a “credit event”, an examination of the macro drivers of credit generally (which might then prove to be one of the catalysts for larger scale concerns with credit derivatives) is undertaken; these have been fairly well researched and documented. Next, the most frequently cited concerns with the modern credit derivative marketplace are enumerated: the exceedingly large notional traded in credit default swaps alone relative to (i.e., integer multiples of) the outstanding supply of debt (bonds and loans) in any single name, the increasing involvement of the hedge fund community in these products, and the operational concerns (lack of timely confirmations,…) which have come to light (and been publicly and roundly criticized) in the last year or two. The possibilities of associated systemic risk are subsequently considered. Credit derivatives deal with risk, involve the transfer of risk, and are, potentially, risky in and of themselves. As in any “new”market, there have been some “glitches”; some of these issues have already been addressed by the market participants and some of these entail the evolving modelling of these instruments. A brief look at the auto downgrade in March 2005 resulted in some “surprises”; part of the concern with these new (and sometimes complex) credit derivative instruments is their proper hedging, risk management, and valuation. -
Hedging Volatility Risk
Journal of Banking & Finance 30 (2006) 811–821 www.elsevier.com/locate/jbf Hedging volatility risk Menachem Brenner a,*, Ernest Y. Ou b, Jin E. Zhang c a Stern School of Business, New York University, New York, NY 10012, USA b Archeus Capital Management, New York, NY 10017, USA c School of Business and School of Economics and Finance, The University of Hong Kong, Pokfulam Road, Hong Kong Received 11 April 2005; accepted 5 July 2005 Available online 9 December 2005 Abstract Volatility risk plays an important role in the management of portfolios of derivative assets as well as portfolios of basic assets. This risk is currently managed by volatility ‘‘swaps’’ or futures. How- ever, this risk could be managed more efficiently using options on volatility that were proposed in the past but were never introduced mainly due to the lack of a cost efficient tradable underlying asset. The objective of this paper is to introduce a new volatility instrument, an option on a straddle, which can be used to hedge volatility risk. The design and valuation of such an instrument are the basic ingredients of a successful financial product. In order to value these options, we combine the approaches of compound options and stochastic volatility. Our numerical results show that the straddle option is a powerful instrument to hedge volatility risk. An additional benefit of such an innovation is that it will provide a direct estimate of the market price for volatility risk. Ó 2005 Elsevier B.V. All rights reserved. JEL classification: G12; G13 Keywords: Volatility options; Compound options; Stochastic volatility; Risk management; Volatility index * Corresponding author. -
Var and Other Risk Measures
What is Risk? Risk Measures Methods of estimating risk measures Bibliography VaR and other Risk Measures Francisco Ramírez Calixto International Actuarial Association November 27th, 2018 Francisco Ramírez Calixto VaR and other Risk Measures What is Risk? Risk Measures Methods of estimating risk measures Bibliography Outline 1 What is Risk? 2 Risk Measures 3 Methods of estimating risk measures Francisco Ramírez Calixto VaR and other Risk Measures What is Risk? Risk Measures Methods of estimating risk measures Bibliography What is Risk? Risk 6= size of loss or size of a cost Risk lies in the unexpected losses. Francisco Ramírez Calixto VaR and other Risk Measures What is Risk? Risk Measures Methods of estimating risk measures Bibliography Types of Financial Risk In Basel III, there are three major broad risk categories: Credit Risk: Francisco Ramírez Calixto VaR and other Risk Measures What is Risk? Risk Measures Methods of estimating risk measures Bibliography Types of Financial Risk Operational Risk: Francisco Ramírez Calixto VaR and other Risk Measures What is Risk? Risk Measures Methods of estimating risk measures Bibliography Types of Financial Risk Market risk: Each one of these risks must be measured in order to allocate economic capital as a buer so that if a catastrophic event happens, the bank won't go bankrupt. Francisco Ramírez Calixto VaR and other Risk Measures What is Risk? Risk Measures Methods of estimating risk measures Bibliography Risk Measures Def. A risk measure is used to determine the amount of an asset or assets (traditionally currency) to be kept in reserve in order to cover for unexpected losses. -
Asset-Liability Management: Theory, Practice, Implementation, and the Role of Judgment John R
REPORT Asset-Liability Management: Theory, Practice, Implementation, and the Role of Judgment John R. Brick, Brick & Associates, Inc. Foreword by Harold M. Sollenberger, Professor Emeritus, Michigan State University Acknowledgments Most research involves the collective efforts of numerous individuals who should be rec- ognized. This report is no exception. First, Ben Rogers of the Filene Research Institute was instrumental in encouraging me to weave the various components of a complex topic— asset-liability management—together into a single readable and reasonably comprehen- sive source. Ben’s goal was to meet what he correctly perceived as a pressing educational need in light of new regulations, one of which requires a certain level of financial knowledge for directors. To lay the groundwork for this research, the staff at Brick & Associates, Inc., conducted numerous risk assessments and analyses of the savings and loan (S&L) industry as it existed in the late 1970s, just prior to its col- lapse due to rising interest rates in the early 1980s. This analytical work was followed up continually with helpful comments, sugges- tions, and criticism of the many drafts and earlier research underlying the report. I am most grateful to Krista Heyer, Kerry Brick Zsigo, Bridget Balesky, and Jeff Brick for their insight and significant contribution to the literature on interest rate risk management. Finally, the comments and suggestions of the Filene reviewers and editors took the report to yet another level, for which I am also grateful. Filene thanks its generous supporters for making this important research possible. ASSET-LIABILITY MANAGEMENT: THEORY, PRACTICE, IMPLEMENTATION AND THE ROLE OF JUDGMENT TABLE OF CONTENTS (Rev. -
CNBC.Com Financial-Decoupling.Html
CNBC.com https://www.cnbc.com/2020/12/16/msci-deletes-chinese-stocks-in-sign-of-us-china- financial-decoupling.html CHINA MARKETS Stock index giant MSCI to remove some Chinese stocks under U.S. pressure PUBLISHED WED, DEC 16 202012:31 AM ESTUPDATED WED, DEC 16 20202:16 AM EST Evelyn Cheng @CHENGEVELYN KEY POINTS • MSCI, one of the largest stock index companies in the world, announced Tuesday that it would remove 10 Chinese securities from its indexes. • The announcement follows similar moves by S&P Dow Jones Indices, FTSE Russell and U.S.-based trading app Robinhood to limit customers’ exposure to the affected Chinese stocks. • MSCI plans to launch versions of the indexes that keep the deleted names. BEIJING — Global investors are turning cautious on investing in some Chinese companies named in a U.S. government executive order. MSCI, one of the largest stock index companies in the world, announced Tuesday that it would remove 10 Chinese securities from its indexes effective at the close of businesses on Jan. 5, 2021. The removals follow U.S. President Donald Trump’s order on Nov. 12 that bans American companies and individuals from owning shares of Chinese companies that the White House alleges supports China’s military. “This itself is not economically earthshaking, but it is something that makes you take note because it was pretty quick how all this happened,” said James Early, CEO of investment research firm Stansberry China. “It’s not MSCI. It’s market participants driving this. ... They’re doing this because the market is telling them they have to.” MSCI said in a release its decision was based on responses from more than 100 market participants worldwide, who noted the “extensive presence” of U.S. -
FM First China Fund, LLC
FM First China Fund, LLC JANUARY 2020 INVESTMENT OBJECTIVE FM First China Fund, LLC (the "Fund") invests in publicly-traded companies that either derive a majority of their revenues from, or maintain a majority of their assets in, mainland China. The investment objective of the Fund is to achieve long-term capital appreciation using a value-oriented approach modeled after the investment style of New York-based First Manhattan Co. The local team, with a deep network in China, seeks to apply a time-tested Western value approach to investing in what they view as an inefficient Eastern market. We manage a relatively concentrated portfolio where, based on the average of quarter end holdings since inception, the Fund’s top ten holdings have represented more than 60% of its assets under management. PERFORMANCE & FUND STATISTICS The tables below set forth performance and other information for the Fund (after fees and expenses) as of 12/31/2019.1,2,3 FM First MSCI China Hang Seng Fund vs. MSCI Period-End AUM Year China Fund Index Index China Index ($ million)4 2019 4 1 . 7 % 23.5% 13.0% +18.2 317 2018 ( 1 2 . 2 % ) (18.9%) (10.5%) +6.7 230 2017 4 7 . 8 % 54.1% 41.3% (6.3) 248 2016 ( 1 3 . 4 % ) 0.9% 4.3% (14.3) 173 2015 9 . 6 % (7.8%) (3.9%) +17.4 211 2014 2 . 5 % 8.0% 5.5% (5.5) 191 2013 2 1 . 3 % 3.6% 6.6% +17.7 146 2012 3 4 . 8 % 22.7% 27.5% +12.1 44 2011 ( 1 1 . -
Portfolio Structuring and the Value of Forecasting
Research Foundation Briefs PORTFOLIO STRUCTURING AND THE VALUE OF FORECASTING Jacques Lussier, PhD, CFA, Editor In partnership with CFA Montréal Named Endowments The CFA Institute Research Foundation acknowledges with sincere gratitude the gen- erous contributions of the Named Endowment participants listed below. Gifts of at least US$100,000 qualify donors for membership in the Named Endow- ment category, which recognizes in perpetuity the commitment toward unbiased, practitioner-oriented, relevant research that these firms and individuals have expressed through their generous support of the CFA Institute Research Foundation. Ameritech Meiji Mutual Life Insurance Company Anonymous Miller Anderson & Sherrerd, LLP Robert D. Arnott Nikko Securities Co., Ltd. Theodore R. Aronson, CFA Nippon Life Insurance Company of Japan Asahi Mutual Life Nomura Securities Co., Ltd. Batterymarch Financial Management Payden & Rygel Boston Company Provident National Bank Boston Partners Asset Management, L.P. Frank K. Reilly, CFA Gary P. Brinson, CFA Salomon Brothers Brinson Partners, Inc. Sassoon Holdings Pte. Ltd. Capital Group International, Inc. Scudder Stevens & Clark Concord Capital Management Security Analysts Association of Japan Dai-Ichi Life Company Shaw Data Securities, Inc. Daiwa Securities Sit Investment Associates, Inc. Mr. and Mrs. Jeffrey Diermeier Standish, Ayer & Wood, Inc. Gifford Fong Associates State Farm Insurance Company Investment Counsel Association Sumitomo Life America, Inc. of America, Inc. T. Rowe Price Associates, Inc. Jacobs Levy Equity Management Templeton Investment Counsel Inc. John A. Gunn, CFA Frank Trainer, CFA John B. Neff Travelers Insurance Co. Jon L. Hagler Foundation USF&G Companies Long-Term Credit Bank of Japan, Ltd. Yamaichi Securities Co., Ltd. Lynch, Jones & Ryan, LLC Senior Research Fellows Financial Services Analyst Association For more on upcoming Research Foundation publications and webcasts, please visit www.cfainstitute.org/learning/foundation. -
Hedge Performance: Insurer Market Penetration and Basis Risk
CORE Metadata, citation and similar papers at core.ac.uk Provided by Research Papers in Economics This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: The Financing of Catastrophe Risk Volume Author/Editor: Kenneth A. Froot, editor Volume Publisher: University of Chicago Press Volume ISBN: 0-226-26623-0 Volume URL: http://www.nber.org/books/froo99-1 Publication Date: January 1999 Chapter Title: Index Hedge Performance: Insurer Market Penetration and Basis Risk Chapter Author: John Major Chapter URL: http://www.nber.org/chapters/c7956 Chapter pages in book: (p. 391 - 432) 10 Index Hedge Performance: Insurer Market Penetration and Basis Risk John A. Major Index-based financial instruments bring transparency and efficiency to both sides of risk transfer, to investor and hedger alike. Unfortunately, to the extent that an index is anonymous and commoditized, it cannot correlate perfectly with a specific portfolio. Thus, hedging with index-based financial instruments brings with it basis risk. The result is “significant practical and philosophical barriers” to the financing of propertykasualty catastrophe risks by means of catastrophe derivatives (Foppert 1993). This study explores the basis risk be- tween catastrophe futures and portfolios of insured homeowners’ building risks subject to the hurricane peril.’ A concrete example of the influence of market penetration on basis risk can be seen in figures 10.1-10.3. Figure 10.1 is a map of the Miami, Florida, vicin- John A. Major is senior vice president at Guy Carpenter and Company, Inc. He is an Associate of the Society of Actuaries.