Frank Meinrod is in charge of the risk management committee for Alpha Portfolio Managers. Recently, the value of one of the company’s bond positions has decreased due to a potential steep rate hike by the Federal Reserve. Meinrod believes that the rate hike will be moderate and that the decline in the bond portfolio value is temporary. Which of the following is the best action for Meinrod to take? Meinrod should advise the risk management committee that they should:
A) take no action at all. B) hedge the position by selling interest rate futures. C) hedge the position by buying interest rate futures.
As a risk measurement, value at risk may be superior to standard deviation because:
A) VAR may capture market participant’s attitudes towards risk more completely. B) the statistical properties of VAR are more widely understood. C) most market participants calculate VAR in the same manner.