Part 3 - Insurance and Investment Risk Flashcards Preview

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Flashcards in Part 3 - Insurance and Investment Risk Deck (5)
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1

How can market risk be offset?

Market neutral: ARBITRAGE (take out all market risk using offsetting positions in different investments

Market netural: SECURITIES HEDGING (invest equally long and short in the same market sector to exploit mis-pricing)

2

What do Basel rules promote re: Investment risk?

Building capital that can be drawn down when the markets are becoming stressed

3

What is positive and negative alpha?

Positive = Over performance

Negative = Under performance

(risk adjusted return = actual return - expected return)

4

What do investment mandates do?

Set out the rules;

assumptions
objectives
constraints
conditions
of how a portfolio will be managed

5

What are the Greeks?

Metrics to measure the risk

Alpha: measures risk-adjusted return

Beta: measures volatility of a share against the market as a whole