Extreme Events – Specimen Question A.8.3
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Question and Answer Summary
You are a financial services entity operating in a regulated
environment in which your capital requirements are defined by a nested stress test
approach as described in Section 8.3.3. Your investment manager has approached
you with a new service which will involve the manager explicitly optimising
your investment strategy to minimise your regulatory capital requirements and
is proposing that you pay them a performance related fee if they can reduce
your capital requirements. Set out the main advantages and disadvantages (to
you) of such a strategy.
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