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    Risk Management: Lathiefa Rusli Faris Yulianto

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    Indirasari Cynthia SetyoParwati
    This document discusses risk management, including quantifying risk through measures like duration, beta, and correlation for bonds and stocks, allocating risk through products, cash flows, and credit, and managing risk through assessing probability over time and making decisions. It addresses topics like quantifying price risk for fixed income and equities, credit risk, the relationship between products and cash flows, and how managing risk involves qualifying probability.

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    Risk Management: Lathiefa Rusli Faris Yulianto

    Uploaded by

    Indirasari Cynthia SetyoParwati
    13 views17 pages
    This document discusses risk management, including quantifying risk through measures like duration, beta, and correlation for bonds and stocks, allocating risk through products, cash flows, and credit, and managing risk through assessing probability over time and making decisions. It addresses topics like quantifying price risk for fixed income and equities, credit risk, the relationship between products and cash flows, and how managing risk involves qualifying probability.

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    Risk Management

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    This document discusses risk management, including quantifying risk through measures like duration, beta, and correlation for bonds and stocks, allocating risk through products, cash flows, and credit, and managing risk through assessing probability over time and making decisions. It addresses topics like quantifying price risk for fixed income and equities, credit risk, the relationship between products and cash flows, and how managing risk involves qualifying probability.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    13 views17 pages

    Risk Management: Lathiefa Rusli Faris Yulianto

    Uploaded by

    Indirasari Cynthia SetyoParwati
    This document discusses risk management, including quantifying risk through measures like duration, beta, and correlation for bonds and stocks, allocating risk through products, cash flows, and credit, and managing risk through assessing probability over time and making decisions. It addresses topics like quantifying price risk for fixed income and equities, credit risk, the relationship between products and cash flows, and how managing risk involves qualifying probability.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 17

    Risk Management

    Lathiefa Rusli
    Faris Yulianto
    Risk Management

    1. Quantifying Risk
    2. Allocating Risk
    3. Managing Risk
    Quantifying Risk – Bond price risk

    Duration is a measurement of a fixed income


    security’s price sensitivity to a given yield.

    Convexity means that prices fall when yields


    rise and that prices rise when yields fall by
    modified duration.
    Quantifying Risk – Equity price risk
    Beta is a statistical measure of the expected
    increase in value of one variable for a one-
    unit increase in the value of another variabl
    e. (Requires min two series data)
    It can give us a measure of a bond’s price s
    ensitivity in relation to another series.

    Correlation coefficient : (relations)


    1. Positive correlation coefficient
    2. Negative correlation coefficient
    3. Zero correlation coefficient
    Cost of Carry (SRT)

    It is difference between a spot and forward


    duration or convexity calculation. It deals
    with a security that has a forward settlemen
    tdate instead of an immediate one.

    The condition of duration’s contribution will


    depend on whether carry is positive or
    negative.
    R in SRT could not have some risk (risk free) because
    we do not want to confuse the risks embedded within
    the underlying spot with the risks associated with the
    underlying spot’s cost of carry.
    Variables that are Required in Solving Option
    Value

    1. Price of the underlying security


    2. The risk free rate
    3. Time to expiration
    4. Volatility
    5. The strike price
    Quantifying Risk – Credit risk

    Credit risk is quantified as the credit premiums


    that investors assign to the securities they buy
    and sell. It is mostly fluid risk and clearly a con
    sideration that will be unique in definition and
    relevance to the investor considering it.
    Allocating Risk

    It talks on how risk is allocated in the context of


    products, cash flows, and credit. Risk can someh
    ow be compartmentalized and then doled out t
    he on the basis of some established criteria.
    Product Interrelationship

    Bond credit spreads tend to narrow whe


    n yield levels are declining. In general, w
    hen the equity market is in a rallying mo
    de, the bond market is too.
    Cash Flow Interrelationship

    Payoff profile is a simple illustration of h


    ow the return of a particular cash flow ty
    pe increases or decreases as its prices ris
    es or falls.
    Credit risk always exist in its own right, and whi
    le it can take on a rather explicit shape in the f
    orm of different market products, it is also can
    be transformed by an issuer’s particular choice
    of cash flows.

    While investments with greater credit risks ofte


    n provide greater returns as compensation for
    that added risk, riskier investment also can me
    an poor performance
    Managing Risk

    Managing risk can be qualified and allocated


    on a day to day basis. Through the investor, m
    anaging risk begins with one fundamental con
    sideration. It is about probability. When a prob
    ability assessment is made, decision inevitably
    follow.
    Managing of risk consists of :
    1. Probability
    2. Time
    3. Probability

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