Hi Guys, i just did the 2012 past paper Q6D. The question is
the primary characteristic of pension investments that would be considered low risk under:
-
asset only approach
-
liability relative approach
The answer provided stated that 1. low corrlation with pension asset and 2. high correlation with pension liability
I understand the answer but may i know if i could score mark if i answer that 1. low volatility of the asset’s return and 2. low volatility of the excess return between pension asset’s return and pension lability’s return. It is because in my perception, low risk is measured by volatility of the return.