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Summary Risk management for Midterm
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  • Tilburg University (UVT)

Summary of notes in class with instructions for Risk Management. Taken from videos of class of the theory and the tutorials. Also completed with the slides posted on campus. Perfect to study the first part of the course of risk management

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Document information

  • December 13, 2023
  • 82
  • 2023/2024
  • Class notes
  • Martijn boons martijn boons
  • All classes

Subjects

  • riskmanagement
  • excel
  • midterm
  • notes
  • summary

Written for

  • Tilburg University (UVT)
  • Economics
  • Unknown

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Risk Management

31/08


2 examenes:
Midterm en Octubre
Final en diciembre

,VIDEO 1: Introduccion (read slides)

VIDEO 2: To hedge or not to hedge (Part 1)




}
Pt= Price at the and of the month
Pt-1= price at the beginning of the month
Ct= capital shield (example a dividend)




The return is how much money you earn by investing in this asset

,Short selling:
- It means to sell (rather than buy) an asset you do not own
- You sell it a price of Pt-1, and on a later date t, you buy a the asset
8at the Price t) and return it to the broker
- This transaction makes sense if you think the asset's price is going to
decrease

Difference in return:




Shorting is costly:
- Pay a fee the broker to borrow the asset
- Your maximum potential loss is unlimited
- Is definitely more risky

Example of short selling:




You need to compensate the lender for the money of the dividend as well

, Variance is a measure of risk:




You divide by T-1 because you lose 1 degree of freedom by estimating
already, that is why you divide by T-1.


Example: Firm ABC




Variance of Multi period returns:
- IID (identical and independently distributed)
- NOT identical: time-varying expected returns and volatility
- NOT independent_ some autocorrelation at high frequencies

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