Vol2 Institution P431 insurance, increase, objective, interest, liability

joehogue

P431, Q2.B, for return objective, why we should focus on total return approach? is there any other approach which is not total return approach? why we can't focus on yield approach +inflation protected?

P436, Q8.B, for insurance company, what's the liability? It is mentioned that interest rate change and pass of time will affect liability duration, for this question, liability duration is shorted, how pass of time can cause duration to be shorter? can increase of interest rate cause duration to be shorter?

P442 Q8A, it is mentioned in the last three paragraph, invest in high yielding and long duration bonds, the duration of the liabilities will shrink...., I think it is wrong, invest in high yield and long term bond will cause the assset duration to be high, the duration of the liability will not be affected. text is wrong

P443, second paragraph, it is mentioned that policy suurender increase as interest rate increases, and the liability duration will be reduced, but why? I can't see any logic connnection, it will cause the liability to be low, but not the duration, isn't it?

P466, Q6A. how pension liability can be hedged by derivatives? does it mean as interest rate decrease, PV of PBO increase, liability increase, thus we should buy interest rate put and gain from derivative position?

in case of droping interest rate, should we use norminal bond or real bond to hedge the liability?

former

call me francisgy, lets discuss

liangfeng

Francisgy, if you ask your questions without making us refer to the books to understand what you are trying to ask, you will probably get more response than you currently do.

thommo77

I already make reference, for example, P466 means page 466 for vol2 textbook, Q6A means the question number six section A, hope you understand

pennyless

any person can help?

Colum

dude, hire a tutor

Roflnadal

P431, Q2.B, for return objective, why we should focus on total return approach? is there any other approach which is not total return approach? why we can't focus on yield approach +inflation protected?

You should focus on Total Return approach because you need to know it to pass the exam. What is the point of focusing on other methods? I am sure there are lots of other methods to consider. DOES IT MATTER?

P436, Q8.B, for insurance company, what's the liability? It is mentioned that interest rate change and pass of time will affect liability duration, for this question, liability duration is shorted, how pass of time can cause duration to be shorter? can increase of interest rate cause duration to be shorter?

The liability for an insurance company is paying claims in a timely manner. ehhhhh not sure if i want to thinka bout your other questions...

P442 Q8A, it is mentioned in the last three paragraph, invest in high yielding and long duration bonds, the duration of the liabilities will shrink...., I think it is wrong, invest in high yield and long term bond will cause the assset duration to be high, the duration of the liability will not be affected. text is wrong

You are wrong. The text is never wrong. What is this blasphemy?!!

P443, second paragraph, it is mentioned that policy suurender increase as interest rate increases, and the liability duration will be reduced, but why? I can't see any logic connnection, it will cause the liability to be low, but not the duration, isn't it?

SAYYY WHAA??? interest rates go up, people surrender their policies so they can reinvest in the newer higher paying instruments. When surrenders go up, liquidity needs increase and this shortens duration.


P466, Q6A. how pension liability can be hedged by derivatives? does it mean as interest rate decrease, PV of PBO increase, liability increase,

Primarily parallel shifts in interest rates, but with functional duration and key rate duration, you can manage more closely, just more expensive to rebalance. What are you really asking here? What is going on? Just post one or two questions at a time buddy and you'll get it down. Good luck man, I am happy to help you as much as possible, but you cant go listing 30 questions. CP is the only one i can think of who would answer them to the extent you need so maybe you should try him.