The following video is borrowed from the Certified Private Equity Professional training program. In this video, you will learn the history of private equity from its origins to the current state of this massive industry.
Video Transcript/Summary: The strategies and tips provided within this video module include:
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I hope that this video has given you a better understanding of the history of private equity.
In the following video recorded in Liechtenstein, Richard Wilson discusses family office operations. In this video, Richard covers the three typical family office business models: outsource model; expert generalist model; and the institutional model.
Video Transcript/Summary: The strategies and tips provided within this video module include:
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I hope this video has provided you with a good overview of the three most popular family office business models.
The following video is borrowed from the Certified Hedge Fund Professional training program and covers option risks. This video explains what is option risks and covers the delta, the gamma, the vega, the theta, the correlation and the strike map.
Video Transcript: The strategies and tips provided within this video module include:
In this short video, we will discuss options risk. We will define each risk and how this affects a portfolio of options along with a brief description of how to hedge these types of risks. The risks that will be discussed are “The Delta” “The Gamma” “The Vega” “The Theta” correlation risk within options and strike map risk. The Delta is the theoretical directional exposure an investor has to an underlying asset. Delta is generally measured in percentage terms which is then converted into shares or contracts. For example, the delta of an after money call option is approximately 50% on one options contract which is 100 shares. The theoretical exposure to any movement in the underlying market is 50 shares. A $1 move in either direction leaving all other factors unchanged would create a penal of $50 or minus $50.
The delta of an option moves to one as a call goes deep in the money. It moves to zero as a call goes deep out of the money. When trading options the delta is usually the largest and most sensitive risk. For portfolio manager and risk managers, tracking directional risk, the delta is generally the most important factor. To hedge the delta of an option, an investor can either initiate an offsetting position in the underlying shares, contracts or use other options. For example, if an investor purchased one option of an apple that was at the money, the investor could hedge the delta by shorting 50 shares of apple stock.
Gamma risk, deals with the second-order effect for options. Gamma is the first derivative of the delta and is used when trying to gauge the price of an option relative to the amount it is in or out of the money. Gamma not only affects the price of an option but additionally the delta of the option, the higher the gamma of the option, the greater the change in the delta relative to any underlying movement in the price of underlying assets. Positive gamma risk generally is associated with long options positions while negative gamma risk is associated with short options positions. The second-order can quickly change giving definite strike prices of options within a portfolio and as an important risk for portfolio managers to understand.
In practical terms, positive gamma will produce increases in delta as the market moves higher. So if you started at, at the money and the market moved higher, the gamma would increase the number of shares from 50 to 60. The same would occur if you had positive gamma on the downside. If you started with 50 shares and the market moved lower, your gamma would decrease the number of shares you had theoretically from a delta of 50 to a delta of 40. And investor receives the benefit of gamma by purchasing options which requires an investor to pay premium which also equals the value of an option. Investors can hedge their gamma by buying and selling options.
The next order of risk is volatility or vega risk. The volatility or vega risk of a financial security is also known as implied volatility of a portfolio. The vega of a portfolio is the change in the value of a portfolio due to the perceived change and how much the financial instrument will move over the course of time. Implied volatility is a measurement used in the pricing evaluation of options and it is generally quoted in percentage terms. Vega is generally reported as a dollar figure for 1% move of implied volatility. To hedge vega, investors need to use options to mitigate this risk. Long option positions create positive vega while short options positions create negative vega.
Theta is the Greek term for time decay and represents risks relative to time. The decay of time for a long position is not linear and therefore time decay grows more quickly as an option approaches expiration. The theta of a portfolio shows the amount of dollar gain or loss from one day of holding the securities in a portfolio.
Correlation risk comes from exotic options such as spread options which have exposure of a portfolio to the correlation of these options and are priced and valued using the relative correlation as an input parameter. The options are sensitive to the change in the underlying correlation of one security relative to another. This risk in embedded into the pricing of specific types of options. The hedge — to hedge this type of risk, an investor needs to buy or sell similar types of options.
Lastly, we will discuss strike risk or strike map risk which is a measurement of the exposure to a specific prices across a portfolio. This concept allows a trader to understand specific exposure as prices move up and down a price scale. Each price might generate positive or negative delta, gamma and vega as the financial instrument moves up and down the price scale. When risk limits are calculated in an option portfolio, a risk manager needs to understand not only the current risks but what could occur if the market moves to another strike price.
For example, you might have in a specific tenor bucket say, three months, a short call at $25 on a security and a long call at $20. As the market moves higher in price away from the long call and to the short call, the positive gamma and vega that is received will change to negative gamma and vega as the market continues higher. The risk manager also needs to be aware of other tenor buckets which will create positive and negative gamma. Along put, as the market goes a little slower will become less and less positive gamma and negative — positive gamma along put will become less positive gamma and vega and more short gamma and vega as the market goes lower.
Strike map risk requires the risk manager to look at all the strikes within a portfolio to understand the relative risks as the markets begin to move.
I hope you that this video better explained option risks, the delta, the gamma, the vega, the theta, the correlation and the strike map.
The following video is borrowed from the Certified Hedge Fund Professional training program and covers directional and non-directional risk. This video explains what is directional risk, what is non-directional risk, types of directional risk, types of non-directional risk, and the advantages and disadvantages of directional and non-directional risk.
Video Transcript/Summary: The strategies and tips provided within this video module include:
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Transcript for Directional and Non-Directional Risk
In this short video we will discuss directional and non-direction risks. The topics that we will cover include what is a directional risk, the types of direction risks there are, what a non-directional risks is and the types of non-directions risks that affect a portfolio as well as the advantages and disadvantages of the different types of risks.
Taking direction risks as an investors entails initiating exposure to the direction of movement of a financial instrument. For example if a portfolio manager believes the price of RBM stock will move higher or lower, he will take a position that is either long the instrument or short the instrument which is considered initiating directional risk. These directional exposures are measured by first order or linear approximations. A long position means that an investor benefits if the market moves higher, while a short position means that an investor benefits if the underlying market moves lower.
The beta which has been discussed in prior videos is the systematic risk for exposure to general market movements. Beta is calculated using regression analysis. You could think a beta as the tendency of a securities returns to respond to swings in the overall market. A beta of 1 which corresponds to a square of 1 indicates that a securities price will move with the market. A beta of less than 1 means that a security will be less volatile than the overall market. A beta of greater 1 indicates a securities price will be more volatile than the market.
DV01 or the dollar value of interest rate is the exposure an investor has to interest rates. This could come from direct directional exposure due to speculation in the interest rate market on interest rate instruments or having exposure due to present value on assets that have future values. Additionally, options have exposure to interest rates which generate DV01. Investors can gain exposure to interest rates in numerous ways which include purchasing or selling bonds, buying or selling year-old contracts, investing in the interest rates white market or using the overnight repurchase agreements. There are hundreds of products that produce interest rate exposure to government rates, corporate rates or municipal rates.
Duration is a term that is used to determine the measurement of how long in years it takes the price of a bond to be repaid by its internal cash flows. As prices our bonds move higher. The yields on a bond will move lower. Duration talks about the tenor of an interest rate curve. Bonds with higher durations carry more risk in general and have a higher price volatility than bonds with lower durations or lower tenors. The pricing yield of interest rates and measurements are inverse.
There are numerous types of non-direction risk. Non-directional risks include non-linear exposures to hedge positions and exposures to volatility. These non-directional exposures are measured by exposures to differences in price movement or quadratic exposures. A basis risk may rise when a position involves two products that are similar but not exact. For example, if a portfolio manager has a position where they are long light sweet crude oil and short medium sweet crude oil, the difference between light and sweet is considered a basis and there is a relative movement differential.
This also can occur in the interest rates sector with similar bonds. For example, there is trading of on the run bonds which are the newest bonds issued by the government or off the run bonds which are bonds that are not the newest bonds. The difference between the two is a basis. When trading a basis, the portfolio manager is speculating on the widening or contracting of the two instrument relative to one another. Stock investors will trade pairs of stocks where there are long one stocks such as Coke and short Pepsi against it. This type of highly correlated pair creates a basis.
Residual risk is a risk which is common in many portfolios. It is the risks that occur after all known risks have been calculated. This type of risk can be covered with a liquidity reserve as a back stop. Convexity risk deal with the second order effect of interest rates. It is the probability of loss resulting from adverse changes in the price of a trading position due to changes in the yield of the underlying asset. The convexities associated with the interest rate curve and the differential and the movements in one tenor relative to another.
Directional risks have the advantage of liquidity and are generally transparent. They benefit in an investor by allowing him to easily enter and exit the marketplace. In general, directional risks are volatile and can quickly move in an adverse direction. A non-directional risks are generally market-neutral and are not correlated with general market direction. They usually have a beta of zero relative to a market. This type of risk are usually less volatile when compared to directional risk but the liquidity can be weak and the markets can be opaque.
I hope you that this video has given you a better understanding of what is directional risk, what is non-directional risk, types of directional risk, types of non-directional risk, and the advantages and disadvantages of directional and non-directional risk.
In the following video recorded in Zurich Switzerland, Richard Wilson explains the crystal clear advantage for a unique selling proposition. Richard shows how having a crystal clear advantage can give you an edge on your competition.
Video Transcript/Summary: The strategies and tips provided within this video module include:
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I hope you now have a better understanding of why having a crystal clear unique selling proposition is advantageous.
In the following video recorded in Zurich Switzerland, Richard Wilson explains the core satellite investing model. Richard reveals why so many investors including family offices, pension funds, endowments and others use the core satellite investing model.
Video Transcript/Summary: The strategies and tips provided within this video module include:
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I hope you enjoyed this free video on the core satellite investing model.
In the following video recorded in Sao Paulo, Brazil at the Latin American Family Office Summit, Richard Wilson talks for nearly a half hour on a variety of topics related to family offices. Richard covers the key factors driving family office growth, where the global hot spots are and why this industry is growing so quickly. If you’d like to learn more about family offices please visit https://FamilyOffices.com
Video Transcript/Summary: The strategies and tips provided within this video module include:
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I hope you enjoyed this free video on family offices. If you’d like to learn more about family offices visit this page: https://FamilyOffices.com
In the following video recorded in Zurich Switzerland, Richard Wilson shares his experience as a global speaker on family offices, capital raising and alternative investments. Richard most recently served as the Opening Day Chairman of the GAIM Conference, the hedge fund and family office industry’s oldest and biggest conference.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Coming soon.
If you’d like to have Richard Wilson speak at your family office or capital raising event send him an e-mail to Richard at HedgeFundGroup.com and he’ll send you a brochure.
In the following video recorded in Zurich Switzerland, Richard Wilson shares his experience as a global speaker on family offices, capital raising and alternative investments. Richard most recently served as the Opening Day Chairman of the GAIM Conference, the hedge fund and family office industry’s oldest and biggest conference.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Coming soon.
If you’d like to have Richard Wilson speak at your family office or capital raising event send him an e-mail to Richard at HedgeFundGroup.com and he’ll send you a brochure.
In the following video recorded in Zurich Switzerland, Richard Wilson explains the process for starting a family office. Richard has interviewed many family offices in researching his upcoming book on the family office industry. If you are looking to start a family office then this will be a very informative video.
Video Transcript/Summary: The strategies and tips provided within this video module include:
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If you are looking for information on how to start a family office, I hope that this video has given you a good place to start.
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