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

Informal sector, explain importance of informal sector in economy

explain importance of informal sector in economy

Decide and adopt methods to manage the risk, There are 5 primary steps in a...

There are 5 primary steps in assessing risk in the workplace wrt to H&S, identify 3 and discuss the what actions should be taken to manage or negate the risks posed - The sect

Describe the term ecosystem, Question: (i). Describe the term ‘ecosyste...

Question: (i). Describe the term ‘ecosystem' (ii). What are the major ecosystems in the tropical marine environment. (iii). State and describe four main ecological/eco

Determine the optimum prices and outputs, The basic question in this case i...

The basic question in this case is whether Jetliners and Acme Airline should work together to develop a new super sized airframe or should each company seek to develop its own vers

List principles of sensible risk management, Question 1: (a) List ten p...

Question 1: (a) List ten principles of sensible risk management. (b) There is a legal duty for employers to prevent ill-health which can be caused by work. Describe the step

Determine the optimal for investor, The investor has constant wealth 1 and ...

The investor has constant wealth 1 and is offered to invest in shares of a project that either gains 3/2 or loses 1 with equal probabilities. Therefore, if the investor obtains sha

Explain mechanisms of financial system for risk transferred, Explain about ...

Explain about the mechanisms of financial system for risk to be transferred. Financial systems also give mechanisms for risk to be transferred. For instance insurance contracts

What is business risk - non-systematic risk, What is Business Risk - Non-Sy...

What is Business Risk - Non-Systematic Risk Risk of doing business in a particular industry or environment is known as business risk. For instance, as one of the largest steel

Currency hedging for exporting and importing company, I want an assignment ...

I want an assignment on a exporting and importing company and how does it do currency hedging and reduce the risk of currency fluctuation

Report of the audit committee , Determine any qualitative factors or inform...

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

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