Optimal portfolio selection, Financial Management

Assignment Help:

Optimal Portfolio Selection:

The next step involves selecting the optimal portfolio. The strategic asset allocation will have overriding importance in pension fund management. Asset classes will be selected on the basis of their match with liabilities in terms of correlation and volatility, rather than on the basis of expected return. Every pension scheme will have a scheme-specific funding standard that reflects the maturity structure of the liabilities of the scheme. The optimal portfolio selection consists of various techniques of modeling the efficient frontier; selecting the optimal portfolio based on the expected risk and return is one of the best possible methods.

Risk Sensitivity Analysis

Once the portfolio has been selected and implemented, a risk sensitivity analysis of the same under different possible parameters must be made; and accordingly, the asset-liability management techniques have to be decided upon and implemented.

Review of the Investment Policy

Following the risk sensitivity analysis of the portfolio, the investment policy must be reviewed to decide whether it complies with the fund's mission, risk tolerance factors, investment objectives, policy asset mix, investment manager structure and also whether it complies with the standards set in the performance evaluation.

Optimization of the Manager Structure

This involves deciding the type of manager required to head the fund, whether active or passive, balanced or specialist, etc. Different funds have different investment objectives and as such the same type of manager may not suit all the pension fund structures. Once the decision is made, the selection process of the manager must be initiated.

Performance Monitoring and Evaluation

The final step is monitoring the performance, both quantitatively and qualitatively. This includes attribution and style analysis, compliance with the policies; and it is not limited to the fund itself, but also involves monitoring the status of the capital markets and the status of satisfaction of the investors. Risk Adjusted Net Value Added (RANVA), EVA, and VAR are some important tools to measure the performance of the pension fund.

 


Related Discussions:- Optimal portfolio selection

Bond indenture, Bond Indenture An indenture builds the formal conditio...

Bond Indenture An indenture builds the formal conditions of a lending relationship between a borrower and a lender. It is a written record, and it outlines most important func

Important areas of personal financial management, Gary and Joyce Yau, both ...

Gary and Joyce Yau, both 30, last month bought their dream house in London, Ontario. The purchase price was $450,000 plus addition fees such as taxes, legal fees, administration fe

Objectives of working capital management, Q. Objectives of working capital ...

Q. Objectives of working capital management? The objectives of working capital management are habitually stated to be profitability and liquidity. These objectives are habitual

Case study - japanese loans and forwards, Japanese banks borrow in yen and ...

Japanese banks borrow in yen and purchase spot dollars from their Western counterparties. Therefore the Western banks are left holding the yen for the time of the loan (three month

Forms of bank finance, Q. Forms of Bank Finance? A firm can draw funds ...

Q. Forms of Bank Finance? A firm can draw funds from a bank within the maximum credit limit sanctioned. It can draw funds in the following forms: 1) Overdraft 2) Cash Cre

Factors considered for analyzing sovereign rating, Table 1:  ...

Table 1:  Politics Stability of the existing government structure National/provincial government r

Corporate governance features, Corporate Governance features Corporat...

Corporate Governance features Corporate compliance: The BOD should make sure that corporation obeys with all related laws, governance practices, regulations, accounting an

What is control risk, What is Control risk That material misstatement c...

What is Control risk That material misstatement could take place and not be detected, or prevented on a timely basis, by accounting and internal control systems. All audits

Step-up (step down) notes, These types of securities have more ...

These types of securities have more than one coupon rate and each subsequent coupon rate is higher (or lower) than the previous coupon rate. For

Explain the benefits and drawbacks of financial hedging, What are the benef...

What are the benefits and drawbacks of financial hedging of the firm’s operating exposure vis-a-vis operational hedges (like relocating manufacturing site)? Answer:  Financial he

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