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Samenvatting Risk Management
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Samenvatting Risk Management 2015 Tilburg University Minor Finance
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Risk Management UVT
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Risk Management Summary
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By: stefkolen • 8 year ago
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Basic InformationGoing Long
When an investor goes long - that is, enters a contract by agreeing to buy and receive
delivery of the underlying at a set price - it means that he or she is trying to profit from an
anticipated future price increase.
Going Short
A speculator who goes short - that is, enters into a futures contract by agreeing to sell and
deliver the underlying at a set price - is looking to make a profit from declining price levels.
By selling high now, the contract can be repurchased in the future at a lower price, thus
generating a profit for the speculator.
The duration number is a complicated calculation involving present value, yield, coupon,
final maturity and call features. Fortunately for investors, this indicator is a standard data
point provided in the presentation of comprehensive bond and bond mutual
fund information. The bigger the duration number, the greater the interest-rate risk or reward
for bond prices.
LIBOR= The London Interbank Offered Rate is the average of interest rates estimated by each of
the leading banks in London that it would be charged were it to borrow from other banks
S = current price of stock
Su= Price in upstate
Sd= Price in downstate’
Underlying= The price of the underlying is the main factor that determines prices of
derivative securities, warrants and convertibles. Thus, a change in an underlying results in a
simultaneous change in the price of the derivative asset that is linked to it. In most cases,
the underlying is a security such as a stock (in the case of options) or a commodity (in the
case of futures)
1
,Chapter 1
What is Risk? - “A possible future event which if it occurs will lead to an undesirable
outcome.” - “Risk is the possibility of suffering loss.”
A hedge is a financial position – often a derivative - put on to reduce the impact of a
risk one is exposed to…”
Tactical Risk Management : Involves the hedging of contracts or other explicit
future commitments of the firm such as exchange rate risk. The treasurer of the firm
typically executes such tactical currency hedging without consideration of other
hedging or insurance activities carried out in the firm, even when the risks across
units are significantly correlated.
‘Strategic’ Risk Management (also called ‘Integrated Risk Management’)
Involves the identification and assessment of the collective risks that affect firm
value and the implementation of a firm-wide strategy to manage those risks. How
do exchange rate fluctuations affect the value of the entire firm as well as the firm’s
competitive environment, including the pricing of its products, the quantity sold, the
costs of its inputs, and the response of other firms within the same industry.
A call option is a security which conveys the right to buy a specified quantity of an
underlying asset at a contractually agreed price at or before a fixed date. A put
option is a security which conveys the right to sell a specified quantity of an
underlying asset at a contractually agreed price at or before a fixed date.
PUT Option
A forward contract is an agreement between 2 parties to buy (sell) a well-defined
asset at a pre-specified price at a well-defined future point in time. Positions: -
Long: obligation to buy - Short: obligation to sell
2
, Chapter 2
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