Silver and Shrewsbury continue their discussion regarding hedging the economic and market risks for a DB plan. Shrewsbury explains that any hedging program can fall short of its objective owing to a number of risks. Silver believes they can use various instruments to hedge interest rate risk but that certain risks can be more difficult to address. He tells Silver, “One risk you face in hedging the liabilities is that the yield of high-quality bonds is used in the discounting process, whereas most investment solutions use a more diversified and lower-quality portfolio of corporate bonds. Conversely, you can face the opposite problem, if you use Treasury futures or interest rate swaps to hedge the liabilities.”
Q. The risk that Silver describes to Shrewsbury in hedging the liabilities is most likely:
- model risk.
- spread risk.
- liquidity risk.
Solution
B is correct.
老师model risk和spread risk有那些不同？ model risk is about assumptions?
