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Risk Management Report for Cheep Petrol - Essay Example

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Risk Management Report for Cheep Petrol

Abstract: Developing a framework for analyzing the investment allocation and investment structure decisions facing institutions. Our model should incorporate two key features: i) value-maximizing institutions should have a well-founded concern with risk management; and ii) not all the risks they face can be hedged frictionless in the capital market. This approach allows us to show how institutional-level risk management considerations should factor into the pricing of those risks that cannot be easily hedged. Several applications should be examined, including: the evaluation of proprietary trading operations; and the pricing of unhedgeable derivatives portfolios.
One of the fundamental roles of investments of the companies and other financial intermediaries is to invest in illiquid financial assets--assets that, because of their information-intensive nature, cannot be traded frictionless in the capital markets. The standard example of such an illiquid asset is to have a bond portfolio.
Below were given developed diversified portfolios with varying risk/return profiles from conservative to aggressive. They are designed to help you choose a real-world portfolio suited to your investment goals, time horizon, and risk profile.
Asset allocation is th...
Asset allocation attempts to increase potential return and reduce risk in portfolios over time.

Research has shown asset allocation decisions are the most important factor affecting overall portfolio performance. While this process can be performed on any portfolio with two or more assets, it is most commonly applied to the asset classes mentioned above-stocks, bonds, and cash. Studies between 1991 and 1995 demonstrated that allocation choices between these broad classes may account for more than 90% of the return of the portfolio.
So as per the above time tested factor it is advisable to select Portfolio 'B' of the above mentioned portfolio structures. But it does not mean that there is no other way than these three options. With a little change in it $15 bn can be put in the form of cash which can be used in investing in real estate, sudden infrastructure needs, mutual funds and the investments which are announced suddenly due to different changes in Market.
As it is mentioned that the risk should be minimised and the investment should be in adventurous $22.5 bn can be put in bonds. These bonds can be affected by policies of the Government.
As an option the stock market is also considered and for the minimum risk jut 25%, that is, $12.5bn dollars is advised to be invested.
The idea behind this diversification into different investments is that each asset class will generally have different levels of return and risk and behave differently. While one asset class may be increasing in value, another may be decreasing or not increasing as much and vice versa. Since every investor wants to maximize return and minimize risk, the decision of not putting all the eggs in one basket can be followed ...Show more


Through its many years of involvement in the energy business, CP has developed a broad base of customers in petrol industry. In addition, CP has over years of experience in the refining business. At CP a team of energy derivative experts that provides optimal solutions using state-of-the-art techniques…
Author : berylpagac
Risk Management Report for Cheep Petrol essay example
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