run a scenario analysis, Risk Management

The Investment Committee of UoM has suggested that it may be time to take some "insurance" on the U.S. equity portfolio, given "rich valuations" in the U.S. Equity markets.

As the CRO, they suggest that you look into designing this "insurance" program for the U.S. Equity Portfolio, leaving the mechanics and logistics up to you. Excited about this project, you initially think about purchasing Put Options on the several different stock positions in the portfolio (over 300 individual securities in multiple industries). Though, you realize various complexities with this approach: (1) Various securities have thinly traded options, and some don't have any at all; (2) Option expirations are dissimilar for dissimilar securities; (3) Some options can only be purchased in the OTC market (dealing with the OTC market brings many more complexities, such as paperwork and credit risk); and (4) Even if options were available for all the underlying securities, buying, selling and monitoring all those option positions could be a recipe for a serious headache.

Explain the appropriate number of option contracts to purchase, and run a scenario analysis to explain what the net payoff of the U.S. Equity Portfolio given the following market scenarios:

  • Market up +20%

 

  • Market down -20%

 

  • Market flat 0%

 

Posted Date: 3/19/2013 3:10:49 AM | Location : United States







Related Discussions:- run a scenario analysis, Assignment Help, Ask Question on run a scenario analysis, Get Answer, Expert's Help, run a scenario analysis Discussions

Write discussion on run a scenario analysis
Your posts are moderated
Related Questions
Here is a basic risky decision problem: Using the template below, sketch the results of a sensitivity analysis on P(Deal Succeeds) for a risk-neutral decision maker. How hi

(i) Describe your notion of "marine biodiversity" with an appropriate illustration? (ii) Name the different levels at which marine biodiversity can be depicted in the marine en

Define the meaning of Risk  Risk can be described as the probability that expected return from security won't materialize. Every investment involves uncertainties which make f

Question: (a) (i) Explain what is meant by Discretionary Access Control and Mandatory Access Control. (ii) What is the difference between the two types of access contro

Evaluate risk management models • ERM approach • ISO31000:2009 • M_O_R Framework • GRC Capability Model

Determination  of risk  assessment  policy  should  be  included  as  a specific  component  of  risk management Risk assessment policy  sets the guidelines for value judgments

What is Industry Risk An industry may be viewed as group of companies which compete with each other to market a homogeneous product. Industry risk is that portion of an  inv

How do you carry out stress testing in a mortgage banking institution?

the difference between binomial model and black-scholes formulation of derivative pricimg

Question: a) (i) Define and explain the term environmental management'. (ii) State three principles of sustainable development in relation to environmental sustainability.