run a scenario analysis, Risk Management

Assignment Help:

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%

 


Related Discussions:- run a scenario analysis

Describe the difference between risk and uncertainty, Problem: (a) Desc...

Problem: (a) Describe the difference between risk and uncertainty. Give an example to illustrate your answer. (b) Name three common measures of risks and outline their p

Implementation of syringe management plan, Risk Management The major ri...

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

State the types of international risk, International Risk: International r...

International Risk: International risk can include exchange rate risk and country risk. (i) Exchange Rate Risk: All investors who invest internationally in today's increasing

Determination of risk assessment policy, Determination  of risk  assessment...

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

Risk assessment exercise, Question : Safety World Ltd is a new company...

Question : Safety World Ltd is a new company that employs 110 people and provides contracting carpentry services to several organisations throughout the country. Some employe

HW, From CMEGROUP website – Look up / Report a FUTURES closing price...

From CMEGROUP website – Look up / Report a FUTURES closing price over 3 consecutive days, and determine your $$ Profit or Loss each of the 2 in-between days. Assume you

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd