Description: Is Risk/Return a sound tool for decision-making? No. It is not consistent, not objective, distorts decision and degrades governance. Why? What shall we do then?

Description: The impact of Fed’s QE program on the financial markets has been enormous and profound. The tapering and the eventual removal of the stimulus will be equally enormous and profound, and may be disruptive. To adapt to the potential regime change in near future, some investment strategies have been proposed: (1) shorten duration to focus on the short end of the yield curve and create laddered portfolios; (2) reduce allocation to high yield bonds; (3) rotate out interest rate sensitive sectors such as utilities; and (4) use interest rate derivatives to hedge the interest rate uncertainties lying ahead. On the other hand, contrarians who see the QE program continuing may stay the course and consider (1) adding duration, (2) gaining exposure to high yield bonds, and (3) increasing allocation to utilities and telecoms.

Description: This report reviews the academic literature on risk aggregation and diversification as well as the regulatory approaches. We will point out the advantages and disadvantages of the different approaches with a focus on model risk issues.

Description: The paper demonstrates that the most popular rationalization for evolving glide paths is flawed and should be discarded. The paper also demonstrates that glide paths should generally evolve for investors that endeavor to optimize outcomes and reevaluate their portfolios regularly.

Description: Derives appropriate hedge ratios for CPPI strategies, taking into account discrete hedge times and market dislocations (gap risk).

Description: Read the August 2017 issue of Risks & Rewards published by the Investment Section.

Description: This article deals with enterprise risk management and how the techniques contained within the discipline can help prevent unforeseen large mistakes in strategy, product design, and product management

Description: Risk management and capital budgeting are two critical components of the corporate decision process. They often need to be considered jointly at the corporate level because of their natural interaction through the dependent risk exposures and other synergetic relationships within an intricate corporate structure in a dynamic business environment. . This paper develops an integrated framework that aligns these two important corporate strategies across business divisions to optimize the streamlined enterprise strategic goal in a multi-period setting. The proposed integrated framework can serve as a practical guideline for corporate executives to optimally coordinate capital budgeting and risk management at the enterprise level.

Description: Recently, there has been growing interest among insurance and investment experts to focus on the use of a tail conditional expectation as a measure of risk, since it shares properties that are considered desirable and applicable in a variety of situations. This paper examines above risk measure in the case of a multivariate gamma portfolio. We demonstrate the explicit formulas for tail conditional expectation and based on it capital allocation when the proposed multivariate model consists of dependent and independent gamma marginals

Description: This article presents the background around the Post Retirement Needs and Risk call for essays focused on: (1) defined contribution plan risk management strategies; (2) decumulation strategies for retirement and (3) long-term care financing. The important essays from that exercise are presented in this Pension Section News publication along with interviews of the winning authors.