Senior's management's determination of the risk tolerance of the organization, the elements of its optimal risk exposure strategy, and the framework for oversight of the risk management function
Portfolio that plot inside the minimum-variance frontier are
inefficient
Asset class rebalancing is part of the 〇〇 step
feedback
〇〇 bias is an information-processing bias in which people estimate the importatnce of a phenomenon or the probability of an outcome based on how easily information is recalled
Availability
Issurance is an example of 〇〇 a risk
transferring
DB plan requires the plan sponsor to specify the obligation stated in terms of the retirement income benefits owned to 〇〇
participants
Risk management comprises all the decisions and actions needed to best achieve organizational or personal objectives while 〇〇
bearing a tolerable level of risk
Risk governance is the 〇〇 process and guidance that directs risk management activities to align with and support the overall enterprise
top-down
A benchmark is used as a relative return objective and a good benchmark should be 〇〇
investable
A return objective can be a 〇〇
required rate of return
The return objective 〇〇 be consistent with the client's risk objective
consistent
The correlation between the risk-free asset and the optimal risky portfolio is expected to be
zero
A 〇〇 investor would maximize return irrespective of risk
risk-neutral
As a result of overconfidence bias, investors may hold 〇〇 diversified portfolios
poorly
〇〇 bias may lead investors to continue to hold classes of assets with which they are familiar
Endowment
As a result of 〇〇 bias, investors may hold investments in a loss position longer than justified by fundamental analysis, in the hope that they will return to breakeven
loss-aversion
In 〇〇, a phenomenon's rate of incidence in a larger population is negrected in favor of specific information
base-rate neglect
Overconfidence can also be involved in predicting growth rates, potentially leading growth stocks to be overvalued, leading to the 〇〇
value anomaly
the holding of investments that have experienced losses too long, and the selling of investments that have experienced gains too quickly
The disposition effect
Strageic asset allocation results from combining the constraints and objectives articulated in 〇〇 and long-term capital market expectations regarding the asset classes
IPS
The diversification ratio of a portfolio is 〇〇
standard deviation of the equally weighted portfolio's returns to the average standard deviation of the individual securities' returns
3つのFinancial risks
Credit / Liquidity / Market
Periodically, or when a certain threshold deviation from the policy weight has been breached, the portfolio should be 〇〇 back to the policy weights
rebalanced
The risk-free asset is 〇〇 with the other assets in the portfolio
uncorrelated
As a result of regret-aversion. bia, investors may engage in 〇〇 behavior
herding
〇〇 is an emotional bias in which people tend to avoid making decisions out of fear that the decision will turn out poorly
Regret-aversion bias
As a result of 〇〇 bias, investors may borrow excessively to finance present consumption
self-control
Dividends on 〇〇 are paid out to the shareholders whereas mutual funds usually reinvest the dividends
ETFs
ETFs are generally structured as 〇〇 funds
open-end
In statistical factor models data mining may generate many spurious factors that are devoid of any 〇〇
economic meaning
〇〇 risk is risk related to the economic system that cannot be eliminated by holding a diversified portfolio
Systematic
Adding assets classes with low correlation improves the 〇〇
risk-return trade-off (more return for similar risk)
when evaluating the return distribution of an asset class, the probability of extreme return is assessed by the distribution's 〇〇
kurtosis
Reflecting low barriers to entry, large wealth management firms have introduced 〇〇 solutions to service certain customer segments and appeal to a new generation of investors
robo-adviser
Rapid growth in robo-advisory assets is based on several industry trends including growing demand from "〇〇, and young investors
mass affluent
Momentum can be partly explained by 〇〇 biases
availability, hindsight, and loss aversion
The 〇〇 extends a favorable evaluation of some characteristics to other characteristics
halo effect
An insurance company's 〇〇 account is typically invested conservatively in a diverse allocation of fixed-income securities, while an 〇〇 account targets a higher return
general / surplus
〇〇 involves the establishment of a reserve to cover losses
Self-insurance
【英単語】risk appetite
リスク選好
Wherea risk tolerance focuses on the appetite for risk and what is and is not acceptable, 〇〇 has a more specific focus on how that risk is taken
risk budgeting
Risk budgeting quantifies and allocates the tolerable risk by specific metrics. Four well-known single-dimension measures that are often used are 〇〇
standard deviation, beta, value at risk, and scenario loss
Portfolio diversification 〇〇 the systematic risk of individual assets in a portfolio
does not reduce
The 〇〇, or 〇〇 is a more subjective factor based on the client's psychology
willingness to take a risk / risk attitude
Risk-averse investors make investment decisions that maximize return 〇〇
for the same amount of risk
〇〇 line is plotted on a graph with the excess return of a security on the y-axis and the excess return of the market on the x-axis
Security characteristic
〇〇 or 〇〇 is priced and investors are compensated for holding assets or portfolios based only on that investment's systematic risk
Systematic / non-diversifiable risk
Investment constraints can be determined by the 〇〇 or by the 〇〇
client / law
The ability to take risk is measured mainly in terms of objective factors, such as 〇〇
time horizon, expected income, the level of wealth relative to liabilities
A client's overall risk 〇〇 is a function of the client's ability to bear risk and his or her risk attitude, which might be considered as the client's willingness to take risk
tolerance
Capital market line does not apply to all securities or assets but only to portfolios on the 〇〇
efficient frontier
Total risk and systematic risk are equal only for efficient portfolios because those portfolios have 〇〇
no diversifiable risk remaining
Markowitz efficient frontier contains all portfolios of risky assets that 〇〇 will choose
rational, risk-averse investors
A curve that conects the minimum-variance portfolios for all possible returns
Minimum-variance frontier
the curve that lies above and to the right of the global minimum-variance portfolio
Markowitz efficient frontier
The client's utility function affects their 〇〇 to take risk
willingness
Under a contingent claim, one of the counterparties determines 〇〇
whether and when the trade will settle
A warrant is a type of 〇〇, which is an example of a contingent claim
option
A futures contract's 〇〇 reduces conterparty credit risk
variation margin
Long-term historical data on the risk-return trade-off of securities show that investors are
risk averse
In the portfolio management process, deciding on an asset allocation is part of the 〇〇 step
execution
The focus on the strategic asset allocation is the result of a number of important investment principles. One principle is that a portfolio's 〇〇 risk accounts for most of its change in value over the long term
systematic
The focus on the strategic asset allocation is the result of a number of important investment principles. One such principle is that the returns to groups of similar assets 〇〇 exposure to certain sets of systematic factors
predictably reflect
The decision to deliberately deviate from the policy exposures to systematic risk factos with the intent to add value based on forecasts of the near-term returns of those asset classes is called 〇〇
tactical asset allocation
The 〇〇 point on the minimum-variance frontier is the global minimum-variance portfolio
left-most
〇〇 plans typically have lower costs/risk to the company
Defined contribution (DC)
The key to a defined contribution (DC) plan is the employee accepts the 〇〇 and is responsible for ensuring that there are enough assets in the plan to meet their needs upon retirement
investment and inflation risk
Under 〇〇 plans, employers are responsible for the contributions made to a DB plan and bear the risk associated with adequately funding the benefits offered to employees
Defined benefit (DB)
The market model is likely to used to predict 〇〇 in a future period
company-specific returns
The sensitivity of the derivative price to a small change in the value of the underlying asset
Delta
Wherea delta is a first-order risk, 〇〇 is considered a second-order risk because it reflects the risk of changes in delta
Gamma
A numerical meausre of how sensitive an option's delta to a change in the calue of the underlying
Gamma
A first-order measure of the change in the derivative price for a change in the volatility of the underlying
Vega
Derivatives are also sensitive to changes in interest rates, which are reflected in a measure called 〇〇
Rho
The intercept on the y-axis of the security characteristic line is 〇〇
Jensen's alpha
【英単語】distinctive needs
独特のニーズ
The slope of the security market line is the 〇〇
market risk premium
The sharp ratio, also called the 〇〇, is the slope of the capital allocation line
reward-to-variability ratio
〇〇 risk is relevant for an investor when he holds a portfolio that is not fully diversified
Total
アルマrncratic risk
single company or industry (だからこそ、分散によってリスクを低下させられる)
〇〇 or 〇〇 is a common tail loss measure, defined as the weighted averaga of all loss outcomes in the statistical distribution that exceed the VaR loss
Conditional VaR or CVaR
Another tail risk metric in the credit risk space that is analogous to CVaR is 〇〇, which answers the question for a debt security, if the underlying company or asset defaults, how much do we loss on average ?
expected loss given default
Smart beta strategies feature somewhat 〇〇 management fees and 〇〇 portfolio turnover relative to passive market-cap weighted strategies
high / high
When defining asset classes, the paired correlations of assets within an asset class should be 〇〇
positive
The investor's optimal portfolio lies on the 〇〇
capital allocation line (CAL)
If it is optimal for an investor to allocate no wealth to the risk-free asset, the investor's optimal portfolio will lie on the 〇〇. However, this is not "always" the case
efficient frontier
As the number of assets in an equally weighted portfolio becomes large, the portfolio's variance of returns approaches the 〇〇 between the individual asset's returns
average covariance
The 〇〇 is important too, both in their ex ante demands on how companies approach risk and in the likely ex post reaction in the event of disasters
government and regulatory
The 〇〇 provides the best behavioral explanation of the value stock anomaly
halo effect
The 〇〇 is an information-processing bias in which a person answers a question differently based on the way in which it is asked or framed.
framing bias
quantitative risk objectives can be 〇〇 or 〇〇 or a combination of the two
absolute / relative
Measures of 〇〇 include the variance or standard deviation of returns and value at risk
absolute risk
〇〇 investment characteristic is usually related to the stock returns whose distribution is concentrated to the right
Negatively skewed
Two assets are correctly priced according to the CAPM. If the assets have the same expected variance of returns but different expected returns, the two assets must have different levels of 〇〇
both systematic risk and unsystematic risk
An investor bears more risk than initially thought because of the failure to consider the interaction of credit risk and market risk. This type of risk interaction is 〇〇
wrong-way risk
The risk tolerance of endowments is typically 〇〇
high
The risk tolerance of banks is 〇〇
quite low
The risk tolerance of an organization should reflect both an 〇〇 and 〇〇 view. The 〇〇 view asks what level of loss will leave the organization unable to meet critical objectives. The 〇〇 view asks what sources of uncertainty or risk the organization faces
inside / outside
In contrast to a contingent claim, a forward commitment creates counterparty risk for
both the long and the short positions
The Procedures section of an investment policy statementn explains the steps to keep the 〇〇
IPS current
The strategic asset allocation is a means of providing the investor with exposure to the 〇〇 risks of asset classes in proportions that meet the risk and return objectives
systematic
The set of rules that guide the process of restoring the portfolio's original exposures to 〇〇 factors is known as the rebalancing policy
systematic risk
ETFs can be transacted (and are priced) 〇〇
interday
Setting a limit for value at risk (VaR) describes self-insurance, an example of 〇〇
risk acceptance
According to capital market theory, the only type of risk that is priced is 〇〇
systematic risk
Returns on similar assets reflect exposures to certain sets of 〇〇
systematic factors
Open-end 〇〇 typically have a larger required minimum investment than ETFs
mutual funds
〇〇 mutual funds have a fixed number of shares outstanding
Closed-end
According to modern portfolio thoery, the risk captured by an asset's standard deviation 〇〇 the risk of that asset's returns in the context of a diversified portfolio
overstates
Investors must be compensated for accepting 〇〇 risk because that risk cannot be diversified away
systematic
The 〇〇 to a benchmark is the tracking error against the S&P 500 index
risk relative
Insurance has a 〇〇 correlation with other assets. Insurance gives a positive return when other assets lose value, but pays nothing if other assets maintain their value
negative
When a bank invests its excess reservesのbank's return objectiveはTo earn a return that exceeds the interest rate the bank pays on its 〇〇
deposits
As one moves to the right along an investor's efficient frontier, a set increase in risk is most likely lead to subsequentially 〇〇 increases in expected return
smaller
The correlation between the returns of a risk-free asset and a portfolio of risky assets is 〇〇
zero
With respect to derivatives, 〇〇 is a second-order risk
Gamma
Risk management is a process by which an organization or individuals defines the 〇〇 of risk to be taken with the 〇〇 of maximizing the portfolio's value
level / goal
〇〇, also sometimes referred to as unsystematic risk, is the inherent risk involved in investing a specific asset, such as a stock
Idosyncratic
〇〇 bias is an emortional bias in which people value an asset more when they own it than when they do not
Endowment
A combination of the risk-free asset and a risky asset can result in a better risk-return trade-off than an investment in only one type of asset because the risk-free asset has 〇〇 correlation with the risky asset
zero
Three priamry types of financial risks
Market risk / Credit risk / Liquidity risk
Security analysis is conducted in the 〇〇 step
execution
Risk management is a part of the 〇〇 step
execution
When forming asset classes for a strategic asset allocation, the defined asset classes should approximate the relevant 〇〇
investable universe
A portfolio risk budgeting process using only a single simple risk measure can provide 〇〇 benefits to the organization
substantial
The information ratio is calculated as Jensen's alpha divided by a security's 〇〇
nonsystematic variance
The information ratio measures the abnormal return per unit of risk added by the security to a well-diversified portfolio. The larger the information ratio is, the 〇〇 the security
more valuable
Base-rate neglect is connected to 〇〇 bias
representatibeness
〇〇 is the notion of bearing a risk that is considered undesirable but too costly to eliminate by external means. It may involve the establishment of a reserve to cover losses
Self-insurance
The risk-free asset could be combined with a risky portfolio to create capital allocation line. A specific CAL that uses the market portfolio as the optimal risky portfolio is known as the 〇〇
capital market line
CAPM asserts that the expected returns of assets vary only by their 〇〇 as measured by beta
systematic risk
The investor's policy with respect to rebalancing asset class weights is detailed in the Strategic Asset Allocation section or the Rebalancing Policy section that typically are included in the 〇〇
appendices
A successful portfolio risk budget lead to investment in assets with the highest return per 〇〇
unit of risk
The information ratio measures the 〇〇 return per unit of risk added by the security to a well-diversifed portfolio
abnormal
【英単語】A is relevant for B
AはBにとって重要である
〇〇, the difference between the return of the actively managed portfolio and the return of the passive portfolio, is a measure of risk-adjusted return
Alpha
With respect to behavioral finance, an explnation for the overeaction anomaly is 〇〇
loss aversion
If the correlation between assets in a two-asset portfolio is less than one, the standard deviation of the portfolio is 〇〇 the weighted average standard deviation of the individual assets
less than
The 〇〇 rate of a mortgage-pass through security is lower than the mortgage rate on the underlying pool
pass-through rate
The pass-through rate is lower than the mortgage rate on the underlying pool of morgages by an amount equal to the 〇〇
servicing and other administrative fees
Individual investors bear investment risk when participating in 〇〇 plans
defined contribution pension
SCL is a plot of the excess return of the security on the excess return of the market. 〇〇 is the intercept and the beta is the slope
Jensen's alpha
The market risk premium is the slope of the 〇〇
security market line
As an example of an 〇〇, the client may want to achieve a particular percentage rate of return
absolute objective
〇〇 focuses on the appetite for risk and what is and is not acceptable
Risk tolerance
In IPS, Appendices details 1) 〇〇 2) 〇〇
Strategic asset allocation / Rebalancing policy
The 〇〇 include conservatism bias, confirmation bias, representativeness bias, illusion of contorol bias, and hindsight bias
belief perseverance bias
With the introduction of return-generating models, particularly the 〇〇, we are able to decompose total variance into systematic and nonsystematic variances
single-index model
Adding assets classes with low correlation will only improve the risk-return trade-off if the 〇〇 of the added asset class does not exceed its diversification effect
stand-alone risk
A UK-based company issuing Japanese yen-denominated bonds to investors domiciled in Japan is an example of a 〇〇
foreign bond
A 〇〇 is a bond issued by a foreign company in the domestic market of the country in whose currency the bond is denominated
foreign bond
All else being equal, the 〇〇 the correlation, the lower the portfolio risk
lower
The CAPM-derived expected return is used as a 〇〇 or 〇〇 for discounting forecast cash flow to arrive at a valuation
hurdle rate / cost of capital
Under the 〇〇 approach, investors use shareholder power to influence corporate behavior to achive targeted ESG objectives along with financial returns
engagement/active ownership
The decision whether to use a nominal or real return objective is part of the 〇〇 step
planning
The Treynor ratio is a simple extension of the 〇〇 and resolves the 〇〇's first limitation by substituting beta for total risk
Sharp ratio
If a risk-free asset is available, an investor's optimal portfolio is the point of tangency between the 〇〇 and the investor's 〇〇
capital allocation line / indifference curve
Overlaying each individual's indifference curves on the 〇〇 will provide us with the optimal portfolio for that investor
capital allocation line
The optimal investor portfolio lies on the capital allocation line and any portfolio on tha capital allocation line lies above the efficient frontier (with the only exception being the 〇〇)
optimal risky portfolio
The slope of SML is the 〇〇
market risk premium
SCL is a plot of the excess return of the security on the excess return of the market. Jensen's alpha is the intercept and the 〇〇 is the slope.
beta
〇〇 is the return resulting from the manager's security selections
Alpha
In the context of risk management, entering an interest rate swap is an example of 〇〇
risk shifting
With expected return on the Y-axis and portfolio risk as measured by standard deviation on the X-axis, a risk-averse investor's indifference cuves will curve 〇〇
upward
〇〇 measures the difference between a portfolio's actual returns and its expected returns based on the CAPM
Jensen's alpha
The minimum required investment in ETFs is usually 〇〇 than that of mutual funds
smaller
〇〇 can often be corrected or eliminated through information, education, and advice
A portfolio' investment strategy relies on a particular element of the tax code to produce superior after-tax returns for high-net-worth individuals. Because of this strategy, the portfolio faces a high level of 〇〇 risk
compliance
Banks have a 〇〇 horizon and high liquidity needs
short-term
〇〇 is the process of deciding on the amount of risk to assume in a portfolio, and subdividing that risk over the sources of investment return (eg. strategic asset allocation, tactical asset allocation, and security selection)
Risk budgeting
The most common implementation of a single-index model is the 〇〇
market model
A limitation of the 〇〇 is that it is a single-period model that does not consider multi-period implications or investment objectives of future periods, which can lead to myopic and suboptimal investment decisions
CAPM
The 〇〇 section explains how to respond to various contingencies
Procedures
The belief that attractive characteristics of some firms mean they are automatically good stocks to own is an example of the 〇〇
