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
Question 1: (a) Explain what is meant by the term „incident handling? in the context of information security. (b) Describe the main features of an effective incident manag

Determine any qualitative factors or information in the annual reports and accounts for Home Retail Group plc for 2011, containing the report if the audit committee, that you as th

The project life cycle programme from the outline planning permission through subsequent scrutiny, design, tender, construction, commissioning and handover. It should justify and r

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

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

Which of the following statements about group insurance underwriting principles is (are) true? I. If a plan is contributory, 100 percent of the eligible employees must be covered.

Case: You are a partner in a first time PE fund. Against all chances, you have been able to raise $300M from investors. The business plan based on which you got the funds from

Question: (a) What are the two major types of risk analysis? (b) Which type is generally used in risk analysis of information systems and why? (c) Explain the methodology

policies for non-cash generating assets

Risk Management The major risks involved in the implementation of syringe management plan include the following. Ideas to manage them are as well mentioned along with the risks