Part 4 - Risk And Risk Management Flashcards
1
Q
What can reduce Omega Ratio
A
Higher volatility
Higher kurtosis
lower skewness
Increase target return
2
Q
What is Capital at Risk for Managed Futures
A
The total loss that would be incurred should each position hit its stop loss price level on that day.
Does not account for long and short positions and therefore overstates risk
3
Q
Three key observations on Delta Hedging
A
- Delta hedging is not a directional bet
- Efficiently priced stocks produce trading strategies with an NPV of zero
- Delta hedging is partly a bet on volatility
4
Q
Observations on rebalancing delta-neutral option portfolios
A
- Infrequent re-hedging is a bet on positive autocorrelation
- Frequent re-hedging is a bet on negative autocorrelation
- Re-hedging is more effective for short-dated options that are near the money