Alternative Investments and the Mismanagement of Risk by Dimitris N. Chorafas (auth.)

By Dimitris N. Chorafas (auth.)

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The warning about the risk of exposure wins thumbs up. 4 are of the bread-and-butter derivatives type. There are no exotics where the risks will be much higher. A typical hedge fund portfolio today may include plenty of much more sophisticated derivatives instruments than those written in this table. Notice also that those instruments with OBS risk may have only credit risk, or market risk, or both. Two basic criteria underpin this classification. 4 Some financial instruments with OBS of accounting loss; only issuera OBS risk is involved, no holder OBS risk Instrument OBS risk Credit risk 1.

Nobody can escape the aftermath of overgearing. N. Chorafas, Alternative Investments and the Mismanagement of Risk © Dimitris N. Chorafas 2003 Are Alternative Investments Inherently Risky? 29 US$400 trillion while the world’s GDP stood at US$30 trillion. Although hedge funds seem to be the most geared entities of the ‘new economy’, the whole global economy itself has been leveraged about 13 times over. This has an evident impact on capitalisation and on the potential for lost wealth. Mary Meeker, a Morgan Stanley analyst, estimated that US$727 billion in wealth was lost by the fall in the market value of about 362 internet companies between December 1999 and mid-July 2001.

Sure I can. ’ ‘I raffled him off just like I said I would. ’ ‘Just the guy who won. ’ 2 Are Alternative Investments Inherently Risky? 1. Introduction The golden rule in investments is the higher the leverage, the greater the amount of risk assumed and (hopefully) profits gained. Unlike most end-investors, traders know from experience that leveraged positions are risky because the market can turn against them, and that they can also lose their company in the process. Exposure is so much higher when going short, because there is absolutely no yardstick on how high or how low the market can go.

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