Risk Management for Complex Energy Portfolios
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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. -
Franklin Investors Securities Trust
STATEMENT OF ADDITIONAL INFORMATION FRANKLIN INVESTORS SECURITIES TRUST March 1, 2021 Class Contents A A1 C R R6 Advisor Franklin Adjustable U.S. Goals, Strategies and Risks ........... 2 Government Securities Fund FISAX FAUGX FCSCX — FAURX FAUZX Officers and Trustees ................ 59 Franklin Floating Rate Daily Access Fund FAFRX — FCFRX — FFRDX FDAAX Fair Valuation. 65 Franklin Low Duration Total Proxy Voting Policies and Procedures .... 65 Return Fund FLDAX — FLDCX FLDRX FLRRX FLDZX Management and Other Services ....... 69 Franklin Total Return Fund FKBAX — FCTLX FTRRX FRERX FBDAX Portfolio Transactions ................ 74 Distributions and Taxes ............... 75 This Statement of Additional Information (SAI) is not a prospectus. It contains infor- Organization, Voting Rights and mation in addition to the information in the Funds’ (hereafter “the Fund”) prospectus. Principal Holders .................... 86 The Fund’s prospectus, dated March 1, 2021, which we may amend from time to Buying and Selling Shares. 89 time, contains the basic information you should know before investing in the Fund. The Underwriter ..................... 96 You should read this SAI together with the Fund’s prospectus. Performance ....................... 98 The audited financial statements and Report of Independent Registered PublicAc - Miscellaneous Information .............101 counting Firm in the Fund’s Annual Report to shareholders, for the fiscal year ended Description of Ratings ................101 October 31, 2020, are incorporated by reference (are legally a part of this SAI). For a free copy of the current prospectus or annual report, contact your investment representative or call (800) DIAL BEN/342-5236. Mutual funds, annuities, and other investment products: • are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency of the U.S. -
Risk Parity an Alternative Approach to Asset Allocation
FEATURE Risk Parity An Alternative Approach to Asset Allocation Alexander Pekker, PhD, CFA®, ASA, Meghan P. Elwell, JD, AIFA®, and Robert G. Smith III, CIMC®, AIF® ollowing the financial crisis of tors, traditional RP strategies fall short respectively, but a rather high Sharpe 2008, many members of the of required return targets and leveraged ratio, 0.86. In other words, while the investment management com- RP strategies do not provide enough portfolio is unlikely to meet the expected F munity, including Sage,intensified their potential benefits to outweigh their return target of many institutional inves- scrutiny of mean-variance optimization risks. Instead we advocate a liability- tors (say, 7 percent or higher), its effi- (MVO) and modern portfolio theory based approach that incorporates risk ciency, or “bang for the buck” (i.e., return (MPT) as the bedrock of asset alloca- budgeting, a key theme of RP, as well as per unit of risk, in excess of the risk-free tion (Elwell and Pekker 2010). Among tactical asset allocation. rate), is quite strong. various alternative approaches to asset How does this sample RP portfo- What is Risk Parity? allocation, risk parity (RP) has been in the lio compare with a sample MVO port- news lately (e.g., Nauman 2012; Summers As noted above, an RP portfolio is one folio? A sample MVO portfolio with a 2012), especially as some hedge funds, where risk, defined as standard deviation return target of 7 percent is shown in such as AQR, and large plan sponsors, of returns, is distributed evenly among table 2. Unlike the sample RP portfolio, such as the San Diego County Employees all potential asset classes;1 table 1 shows the MVO portfolio is heavily allocated Retirement Association, have advocated a sample (unleveraged) RP portfolio toward equities, and it has much higher its adoption. -
Factors That Shape an Organisation‟S Risk Appetite: Insights from the International Hotel Industry
Oxford Brookes University FACTORS THAT SHAPE AN ORGANISATION‟S RISK APPETITE: INSIGHTS FROM THE INTERNATIONAL HOTEL INDUSTRY Xiaolei Zhang Thesis submitted in partial fulfilment of the requirements of the award of Doctor of Philosophy December 2016 ABSTRACT Since the 2008 global financial crisis, a major challenge for the Board of Directors (BoD) and risk managers of large, public corporations has been to clearly define and articulate their company‟s risk appetite. Considered as a business imperative to ensure successful enterprise risk management, risk appetite has been widely discussed among practitioners and, more recently, academics. Whilst much emphasis has been placed upon defining risk appetite and identifying the ways in which an organisation‟s risk appetite statement can be articulated, the literature has largely ignored the critical idea that risk appetite is not a „static picture‟, but changes over time according to a variety of factors residing in the organisation‟s internal and external contexts. Using the international hotel industry as research context, this study explores the underlying factors that shape an organisation‟s risk appetite. Building on the „living organisation‟ thinking and employing the „living composition‟ model as a conceptual lens, this thesis integrated several strands of literature related to risk appetite, organisational risk taking and individual risk taking, and developed a conceptual framework of factors that shape an organisation‟s risk appetite. Given the scarcity of risk appetite research, an exploratory, qualitative approach was adopted and the fieldwork was conducted in two stages: stage one served to gain a generic-business perspective of the main factors that shape an organisation‟s risk appetite. -
Pillar 3 Disclosures 2019
Pillar 3 Disclosures 2019 Metals | Energy | Agriculture | Financial Futures & Options www.marexspectron.com CONTENTS 1 INTRODUCTION 3 2 DISCLOSURE POLICY 3 3 SCOPE AND APPLICATION OF DIRECTIVE REQUIREMENTS 4 4 RISK MANAGEMENT 6 5 GROUP CAPITAL RESOURCES 13 6 GROUP CAPITAL RESOURCES REQUIREMENT 15 7 ASSET ENCUMBRANCE 22 8 LEVERAGE 22 9 REMUNERATION CODE 23 2 1 INTRODUCTION The Capital Requirements Directive (‘the Directive’), the European Union’s implementation of the Basel II Accord, establishes a regulatory framework comprising of three ‘Pillars’: • Pillar 1 sets out the minimum capital required to meet a firm’s credit, market and operational risks; • Pillar 2 requires a firm to undertake an Internal Capital Adequacy Assessment Process (‘ICAAP’) that establishes whether the Pillar 1 capital is adequate to cover all the risks faced and, if not, calculates the additional capital required. The ICAAP is reviewed by the Financial Conduct Authority (‘FCA’) through a Supervisory Review and Evaluation Process (‘SREP’); and • Pillar 3 requires a firm to disclose specific information concerning its risk management policies and procedures as well as the firm’s regulatory capital position. From 1 January 2014, Marex Spectron Group Limited (‘the Group’) was required to comply with Basel III requirements, which are implemented through the Directive and the Capital Requirement Regulation (‘CRR’), collectively referred to as CRD IV. These regulations are also implemented in the UK through the Prudential Sourcebook for Investment firms (IFPRU) and Prudential Sourcebook for Banks, Building Societies and Investment firms (BIPRU). This document contains the disclosures outlined in Part Eight of the CRR and FCA BIPRU 11, fulfilling the disclosure requirements under these regimes and making them accessible to clients and market participants. -
Model Risk Management: Quantitative and Qualitative Aspects
Model Risk Management Quantitative and qualitative aspects Financial Institutions www.managementsolutions.com Design and Layout Marketing and Communication Department Management Solutions - Spain Photographs Photographic archive of Management Solutions Fotolia © Management Solutions 2014 All rights reserved. Cannot be reproduced, distributed, publicly disclosed, converted, totally or partially, freely or with a charge, in any way or procedure, without the express written authorisation of Management Solutions. The information contained in this publication is merely to be used as a guideline. Management Solutions shall not be held responsible for the use which could be made of this information by third parties. Nobody is entitled to use this material except by express authorisation of Management Solutions. Content Introduction 4 Executive summary 8 Model risk definition and regulations 12 Elements of an objective MRM framework 18 Model risk quantification 26 Bibliography 36 Glossary 37 4 Model Risk Management - Quantitative and qualitative aspects MANAGEMENT SOLUTIONS I n t r o d u c t i o n In recent years there has been a trend in financial institutions Also, customer onboarding, engagement and marketing towards greater use of models in decision making, driven in campaign models have become more prevalent. These models part by regulation but manifest in all areas of management. are used to automatically establish customer loyalty and engagement actions both in the first stage of the relationship In this regard, a high proportion of bank decisions are with the institution and at any time in the customer life cycle. automated through decision models (whether statistical Actions include the cross-selling of products and services that algorithms or sets of rules) 1. -
EFAMA Response to ESMA Discussion Paper on UCITS OTC
EFAMA Reply to ESMA’s Discussion Paper on the Calculation of counterparty risk by UCITS for OTC financial derivative transactions subject to clearing obligations (ESMA/2014/876) EFAMA is the representative association for the European investment management industry. EFAMA represents through its 27 member associations and 63 corporate members almost EUR 17 trillion in assets under management of which EUR 10.6 trillion managed by 55,000 investment funds at end June 2014. Just under 36,000 of these funds were UCITS (Undertakings for Collective Investments in Transferable Securities) funds. For more information about EFAMA, please visit www.efama.org Preliminary Remarks EFAMA welcomes the opportunity to respond to the ESMA Discussion paper on the Calculation of counterparty risk by UCITS for OTC financial derivative transactions subject to clearing obligations (ESMA/2014/876). We understand that the contributions sought will concur to refine the “working assumptions” presented in the discussion paper in view of a further consultation and possibly further recommendations to the European Commission for amendments to the relevant parts of the UCITS directive. Considering the clearing options potentially available to UCITS as “financial counterparties” under EMIR - i.e. (i) become a direct member of a CCP, (ii) become client to a Clearing Member (CM), and (iii) enter into an indirect clearing arrangement – and the prevailing market practices, we acknowledge that, at this stage, option (ii) is certainly the most viable one. Already in its revised Q&A on Risk Management and Calculation of Global Exposure and Counterparty Risk for UCITS in December 2013, we took note of ESMA’s choice to not be too prescriptive on the clearing model chosen by UCITS and the recent discussion paper further reflects this by well illustrating the pros and cons behind direct and indirect clearing arrangements. -
Development of Risk Management for Power Generating Companies in Developing Countries
Sustainable Development and Planning VII 859 Development of risk management for power generating companies in developing countries A. Domnikov, G. Chebotareva & M. Khodorovsky Academic Department of Banking and Investment Management, Ural Federal University named after the first President of Russia B.N. Yeltsin, Russia Abstract One of the facets in the development process of power generating companies is to achieve a high level of investment potential. Taking into account the unstable development of the world economy and world-wide transformations in the global power sector, one of the lines aimed at the solution of the problem set is to improve the corporate management system for the sectorial, including investment-related, risk. This article presents a comparative analysis of alternative proprietary approaches to the assessment of risks specific for power generating companies in developing countries, which are characterised by elevated level of inflation, dearness of credit, and volatility of primary commodity markets. During the performed study, specific requirements were developed relating to the up-to-date sectorial risk management system for power generating companies in developing countries under the conditions characterised by multi-criteria nature and uncertainty of factors in business conduct. Keywords: electric power industry, developing countries, power generating company, business competitiveness, investor attractiveness, sectorial risks, risk expert assessment, statistical distribution. 1 Introduction It is common knowledge that electric power industry, one of the most important sectors of economy in any country, exerts versatile and profound effect on the operation of both industrial and non-industrial outfits. The power sector appears for a factor of global corporate competitiveness enhancement and an economic development driver (Domnikov et al. -
ABSTRACT LUCY, ZACHARY MARC. Analysis of Fixed Volume Swaps For
ABSTRACT LUCY, ZACHARY MARC. Analysis of Fixed Volume Swaps for Hedging Financial Risk at Large-Scale Wind Projects (Under the direction of Dr. Jordan Kern). Large scale wind power projects are increasingly selling power directly into wholesale electricity markets without the benefits of stable (fixed price) off-take agreements. As a result, many wind power producers are incentivized to use financial hedging contracts to mitigate exposure to price risk. One particular hedging contract - the “fixed volume price swap” - has gained prevalence, but it poses several liabilities for wind power producers that reduce its effectiveness. In this paper, we explore problems associated with fixed volume swaps and examine two different interventions to improve contract performance for wind power producers. Using a hypothetical wind power project in the Southwest Power Pool (SPP) market as a case study, we first look at how “shape risk” (an imbalance between actual wind power production and hourly production targets specified by contract terms) negatively impacts contract performance and whether this could be remedied through improved contract design. Using a multi-objective optimization algorithm, we find examples of alternative contract parameters (hourly wind power production targets) that are more effective at increasing revenues during low performing months and do so at a lower cost than conventional fixed volume swaps. Then we examine how “basis risk” (a discrepancy in market prices between the “node” where the wind project injects power into the grid, and the regional hub price) can negatively impact contract performance. We statistically manipulate basis risk as a proxy for the effects of increased transmission and its effect on contract performance. -
Developing the Risk Appetite Framework of a General Insurance Business
DEVELOPING THE RISK APPETITE FRAMEWORK OF A GENERAL INSURANCE BUSINESS Prepared by the Risk Appetite for General Insurance Working Party David Koob, James Basman, Stephen Britt, Andy Cohen, Ben Cooper, Darryl Ferreira, Angela Tartarow, Andy White This paper has been prepared for the Actuaries Institute. This paper has been prepared for the Actuaries Institute. The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the Institute and the Council is not responsible for those opinions. 2016 Actuaries Institute The Institute will ensure that all reproductions of the paper acknowledge the Author/s as the author/s, and include the above copyright statement. Institute of Actuaries of Australia ABN 69 000 423 656 Level 2, 50 Carrington Street, Sydney NSW Australia 2000 t +61 (0) 2 9239 6100 f +61 (0) 2 9239 6170 e [email protected] w www.actuaries.asn.au 1 CONTENTS 1 INTRODUCTION ............................................................................................................................... 4 1.1 Purpose of paper ..................................................................................................................... 4 1.2 Historical Context .................................................................................................................... 4 1.3 Risk Appetite in Enterprise Risk Management ........................................................................ 5 1.4 APRA’s expectations in CPS 220 .......................................................................................... -
CAIA Member Contribution Long Term Investors, Tail Risk Hedging, And
CAIA Member Contribution Long Term Investors, Tail Risk Hedging, and the Role of Global Macro in Institutional Andrew Rozanov, CAIA Portfolios Managing Director, Head of Permal Sovereign Advisory 24 Alternative Investment Analyst Review Long Term Investors 1. Introduction This paper focuses on two related topics: the tension between the fundamental premise of long-term investing and the post-crisis pressure to mitigate tail risks; and new approaches to asset allocation and the potential role of global macro strategies in institutional portfolios. To really understand why these issues are increasingly coming to the fore, it is important to recall the sheer magnitude of losses suffered by sovereign wealth funds and other long-term investors at the peak of the recent financial crisis and to appreciate how shocked they were to see large double-digit percentage drops, not only in their own portfolios, but also in portfolios of institutions that many of them were looking to as potential role models, namely the likes of Yale and Harvard university endowments. Losses for many broadly diversified, multi-asset class portfolios ranged anywhere from 20% to 30% in the course of just a few months. In one of the better publicized cases, Norway’s sovereign fund lost more than 23%, or in dollar equivalent more than $96 billion, an amount that at the time constituted their entire accumulated investment returns since inception in 1996. Some of the longer standing sovereign wealth funds in Asia and the Middle East, which had long invested in a wide range of alternative asset classes such as private equity, real estate and hedge funds, are rumoured to have done even worse in that infamous year. -
Focus on Findings for the Energy and Utilities Sector 2 Contents
Accenture 2013 Global Risk Management Study Focus on findings for the Energy and Utilities sector 2 Contents About the research 4 Executive summary 5 Key findings 7 Section 1 10 Current market pressures Section 2 12 Managing regulatory and compliance risks Section 3 14 Managing emerging and operational risks Section 4 20 Risk capability goals for 2015 Section 5 24 Four things to do differently Research and interviews were conducted by Accenture and Oxford Economics, who collaborated to write this report. 3 About the research This report on energy and utilities firms is a sector- specific supplement to the Accenture 2013 Global Risk Management Study.1 This report is based on a quantitative survey taken in 2013 of executives from 105 organizations in the energy and utilities industries. Respondents were C-level executives involved in risk management decisions. Organizations were split among Europe (30.5%), North America (27%), Latin America (12%), and Asia Pacific (30.5%). Just over half the companies had annual revenues between $1 billion and $5 billion, and 48%, had annual revenues over $5 billion. Respondents included Chief Risk Officers (CROs, 30%), Chief Executive Officers (CEOs, 17%), Chief Financial Officers (CFOs, 31%), and Chief Compliance Officers (CCOs, 22%). We also conducted in-depth interviews in 2013 with senior leaders at nine energy and utilities companies across regions. These provide supporting insights for our data- driven research, while presenting useful perspectives from companies in the sector. 4 Executive summary