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Risk Assessment Techniques for Split Capital Investment Trusts

Published online by Cambridge University Press:  10 May 2011

A. T. Adams  and
J. B. Clunie
A. T. Adams
Affiliation:
The Management School, University of Edinburgh, William Robertson Building, 50 George Square, Edinburgh EH8 9JY, U.K., Email: A.Adams@ed.ac.uk
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Abstract

The split capital investment trust crisis brought into focus the need for more reliable risk assessment techniques for shares in the sector. We discuss the strengths and weaknesses of traditional pricing and risk description measures for split capital investment trusts (e.g. gross redemption yield, cover, hurdle rates) and ways of making these more useful. We then examine the application of traditional option pricing techniques and discuss the problems encountered in this approach. Finally, we propose the use of stochastic modelling to deal more effectively with the complexities involved in both pricing shares and understanding their risks.

Keywords

Risk AssessmentSplit Capital Investment TrustsClosed-End FundsOption PricingStochastic Modelling
Type
Papers
Information
Annals of Actuarial Science , Volume 1 , Issue 1 , March 2006 , pp. 7 - 36
Copyright
Copyright © Institute and Faculty of Actuaries 2006

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