Risk Management

A and C will offer the same mean return yet less variance than B. This is pictured

35) The correlation between an interest rate on a debt instrument and the level of security is: C

Repeat part (a) if it is known that the standard deviation of such flights is 1.7 minutes.

The Standard Deviation is much smaller at 6.2% compared to Stock A. “Standard deviation is calculated based on the mean.” (WHAT IS STANDARD DEVIATION, n.d.) The space of each data point from the mean is squared, summed and averaged to find the variance. The difference is a result of taking the mean of the data points, subtracting the mean from each data point individually, squaring each of these results and then taking another mean of these squares. Ordinarily, the smaller a stock’s standard deviation, the less volatile or risky it is. The higher the standard differential, the more scattered the profits are, consequently is more dangerous. The additional 1% of the profit produced by Stock A is not worth the risk associated with Stock

* The Tier 1 capital ratio is defined as Tier 1 regulatory capital divided by RWA. OSFI has established a target Tier 1 capital ratio of 7%.

The idea behind the variance-covariance is similar to the ideas behind the historical method -except that we use the familiar curve instead of actual data. The advantage of the normal curve is that we automatically know where the worst 5% and 1% lie on the curve. They are a function of our desired confidence and the standard deviation ( ):

a) Weighting of Capital Structure: Use of book values of capital rather than the market values

23.   The variation of a sampling distribution is tighter than the variation of the underlying process distribution. TRUE

where the average coincided with or acted as, support and in a downtrend, similar to

p. 20-21) BASF’s ratio is in line and right where it should be; furthermore, considered satisfactory in regards to this measure.

the same variance) as the moving average fllters already considered. Figs 3.2(a) and (b) can be

Where R_t is logarithm of nominal or real exchange rate and m is the number of periods which can be range from 4 to 12.In this paper, we will use the moving average of the standard deviation of exchange rate as the measure of exchange rate volatility by using the real exchange rate and the order m is set to be 12. Koray and Lastrepes (1989) have shown that the moving average of the standard deviation of the exchange rate captures the variation in the

One well accepted description of risk management is the following: risk management is a systematic approach to setting the best course of action under uncertainty by identifying, assessing, understanding, acting on and communicating risk issues. In order to apply risk management effectively, it is vital that a risk management culture be developed. The risk management culture supports the overall vision, mission and objectives of an organization. Limits and boundaries are established and communicated concerning what are acceptable risk practices and outcomes. Since risk management is directed at uncertainty related to future events and outcomes, it is

The data is not stationary since it does not exhibit a certain state of statistical equilibrium showing that the variance changes with time. Performing a log transformation still produces a non-stationary process in which case we should difference the series before continuing.

These features are particularly prevalent when returns are sampled over small intervals such as daily returns. However, consistent with theory, returns sampled over monthly intervals tend to conform to normality. The interested student is referred to the BHP case study in Table 1.4 (on page 32 of the text), which compares the difference in distributional properties of returns as the sampling interval is increased.