Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-23T07:40:50.264Z Has data issue: false hasContentIssue false
  • English
  • Français

Seeking diversification through efficient portfolio construction using cash-based and derivative instruments

Published online by Cambridge University Press:  13 August 2013

M. W. Jones
Get access Rights & Permissions [Opens in a new window]

Abstract

Diversification across asset classes has declined markedly in the last decade and concerns abound about the ability (or lack) of the financial system to weather another 2008-like event. There is a growing volume of academic literature seeking to derive measurement variables for detecting systemic risk. There is clearly a role for the actuarial profession within this discussion and we hope that this paper can engender further discussions and papers on this specific issue.

Just as diversification across conventional asset classes has decreased there has been greater attention paid to the broader array of potential investment strategies that can be accessed via derivatives. The paper explores the prudent management of derivatives in pension funds and general asset portfolios to improve portfolio efficiency both in terms of implementing investment strategies and in broadening the range of investment opportunities for building an efficient investment portfolio from a risk-based perspective.

Keywords

Investment diversificationsystemic riskabsorption ratioeffective factorscash-based instrumentsderivativesfuturesswapsrisk-based investingquantitative risk measuresleverage
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 19 , Issue 2 , July 2014 , pp. 468 - 498
Copyright
Copyright © Institute and Faculty of Actuaries 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

References

Brinson, G.P., Hood, L.R., Beebower, G.L. (1986). Determinants of portfolio performance. Financial Analysts Journal, 42, July/August 1986, 39–45.CrossRefGoogle Scholar
Brinson, G.P., Singer, B.D., Beebower, G.L. (1991). Determinants of portfolio performance II: an update. Financial Analysts Journal, May/June 1991, pp. 40–48.CrossRefGoogle Scholar
Fleming, B., Kroeske, J. (2011). How to construct a properly diversified portfolio. Professional Adviser (September 2011).Google Scholar
Hull, J.C. (2011). Options, Futures and Other Derivatives, 8th ed. Pearson.Google Scholar
Kritzman, M., Li, Y., Page, S., Rigobon, R. (2010). Principal components as a measure of systemic risk. MIT Sloan Research Paper No.4785-10. Available at SSRN: http://ssrn.com/abstract=1633027CrossRefGoogle Scholar

Additional references

Billio, M., Getmansky, M., Lo, A.W., Pelizzon, L. (2010). Measuring Systemic Risk in the Finance and Insurance Sectors (March 10, 2010). MIT Sloan Research Paper No.4774-10. Available at SSRN: http://ssrn.com/abstract=1571277Google Scholar
Fenn, D.J., Porter, M.A., Williams, S., McDonald, M., Johnson, N.F., Jones, N.S. (2011). Temporal Evolution of Financial Market Correlations. Physical Review, E 84, 026109.Google ScholarPubMed
Golts, M., Jones, G.C. (2010). Diversification, Volatilities, and the Supercurrency: The FX Markets Since Bretton Woods. Risk Management eJournal 05/2010; DOI:10.2139/ssrn.1607722.Google Scholar
Meucci, A. (2009). Managing diversification. SYMMYS; Kepos Capital Risk, pp. 74–79, May 2009.Google Scholar