What about illiquidity? - UBS guest speaker

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Из курса от партнера University of Geneva

Portfolio and Risk Management

721 оценки

University of Geneva

Portfolio and Risk Management

721 оценки

Курс 3 из 5 — Specialization Investment Management

In this course, you will gain an understanding of the theory underlying optimal portfolio construction, the different ways portfolios are actually built in practice and how to measure and manage the risk of such portfolios. You will start by studying how imperfect correlation between assets leads to diversified and optimal portfolios as well as the consequences in terms of asset pricing. Then, you will learn how to shape an investor's profile and build an adequate portfolio by combining strategic and tactical asset allocations. Finally, you will have a more in-depth look at risk: its different facets and the appropriate tools and techniques to measure it, manage it and hedge it. Key speakers from UBS, our corporate partner, will regularly add a practical perspective on these different topics as you progress through the course.

Из урока

Risk Management

This fourth and final week is dedicated to risk. We will start by looking in more depth at different sources of risk such as illiquidity and currency risk but also at the different tools available to investors to perform risk management. But how should we measure risk? We will see that it may be valuable to go a step beyond standard deviation, the risk measure we used so far, and look at the Value-at-Risk and Expected Shortfall which focus on potential large losses. Finally, we will use the financial instruments at our disposal to hedge market and currency risk.

Defining forwards and options - Forwards10:08

Defining forwards and options - Options11:44

Risk as volatility?4:21

What about illiquidity? - UBS guest speaker2:56

Currency risk - Return7:35

Currency risk - Risk6:11

Познакомьтесь с преподавателями

University of Geneva- Tony Berrada
SFI Associate Professor of Finance
Geneva Finance Research Institute
University of Geneva- Ines Chaieb
SFI Associate Professor of Finance
Geneva Finance Research Institute
University of Geneva- Jonas Demaurex
Teaching Assistant
Geneva Finance Research Institute
University of Geneva- Rajna Gibson Brandon
SFI Senior Chaired Professor of Finance and Managing Director of the GFRI
Geneva Finance Research Institute
University of Geneva- Michel Girardin
Lecturer in Macro-Finance - Project Leader for the "Investment Management" specialization
Geneva Finance Research Institute
University of Geneva- Philipp Krueger
SFI Assistant Professor of Finance
Geneva Finance Research Institute
University of Geneva- Kerstin Preuschoff
Associate Professor of Neurofinance and Neuroeconomics
Geneva Finance Research Institute
University of Geneva- Olivier Scaillet
SFI Senior Chaired Professor of Finance and Vice-dean (research) at GSEM
Geneva Finance Research Institute

[MUSIC]

Hello, I'm Carolina Moura-Alves and I work for UBS Wealth Management.

I'm the Head of Fixed Income Strategies.

Today I would like to talk to you about illiquidity in a risk management context.

When we analyze different investment opportunities, be it bonds, equities,

hedge funds, a key consideration is the liquidity of the specific investment.

What we mean by that is that we must always ask ourselves the questions.

If I want to sell my bonds, equity, etc., how quickly can I do it?

Furthermore, will the price be impacted by the fact that I want to sell?

If the answer to both question is respectively, very quickly and

no price impact, then investment is very liquid.

Conversely if the answer is the opposite, then the investment illiquid.

The ability to sell an investment quickly and without price impact

is usually very valuable to investors, which is why, in financial markets,

we often talk of the illiquidity premia and illiquidity risk.

The illiquidity premia is the additional investment return we

as investors demand as compensation for assuming illiquidity risk.

And the illiquidity risk is, as the name indicates, the risk that the particular

investment will turn out to be more illiquid than investors anticipate.

An example of such a scenario is the period during the global financial crisis

in 2008, 2009.

When corporate bonds which investors have traditionally assumed to be liquid,

proved to be anything but.

Now why would investors ever assume illiquidity risk?

Because illiquidity risk often translate into higher expected returns on

the investment.

Remember, illiquidity premia which comes with the compensate investors for

your illiquidity risks.

However, it is essential investors manage the illiquidity risk appropriately and

do not introduce what we call liquidity mismatches in their portfolios.

For example, suppose I have cash and

I'm looking for an investment opportunity for the next 12 months.

And that after 12 months, I want to sell my investment to buy a house, a car,

something else.

It would be very unwise to put the cash in investments, which cannot be sold or

liquidated in the next five years.

It would not help me at all with my stated goal of buying the house or

the car in the 12 months.

This time arising in compatibility between the 12 months and

the 5 years is what we call liquidity mismatch, and

it's a crucial focus of risk management in an investment context.

I hope I showed you the role illiquidity plays in a portfolio context and

the importance of managing the associated risks appropriately.

Thank you for listening.

[MUSIC]

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