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

Published online by Cambridge University Press:  13 August 2013

M. W. Jones
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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 

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References

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Additional references

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