Event-Driven Hedge Funds

Question 1

Corporate event risk

Answer 1

Dispersion in economic outcomes due to uncertainty regarding corporate events.

Question 2

Selling Insurance

Answer 2

Earning relatively small returns for providing protection against risks, no the literal process of offering traditional insurance policies.

Question 3

Long Binary Call Option

Answer 3

One payout when the referenced price exceeds the strike price at expiration and a lower payout or no payout in all other cases.

Question 4

Long Binary Put Option

Answer 4

One payout when the referenced price is lower than the strike price at expiration and a lower payout or no payout in all other cases.

Question 5

Corporate Governance

Answer 5

Processes and people that control the decisions of a corporation.

Question 6

Activist Investment Strategy

Answer 6

Involves efforts by shareholders to use their rights such as voting power or the threat of such power, to influence corporate governance to their financial benefit as shareholders.

Question 7

Shareholder activism

Answer 7

Efforts by one or more shareholders to influence the decisions of a firm in a direction contrary to the initial recommendations of the firm’s senior management.

Question 8

Proxy battle

Answer 8

Fight between the firm’s current management and one or more shareholder activists to obtain proxies(favorable votes) from shareholders.

Question 9

Free Rider

Answer 9

Person or entity that allows others to pay initial costs and then benefits from those expenditures.

Question 10

Agency Theory

Answer 10

Studies the relationship between principals and agents.

Question 11

Principal - agent relationship

Answer 11

One person or group