Hi For the answer to iv)/Q2 on page 19, the last paragraph said, "... completely remove market risk through appropriate investment strategy... cost of the assets being equal to the cost of the guarantees..." So my question is if market risk is not removed, cost of asset is not equal to cost of guarantees? What does it mean? Thanks alot for your help.
The full quote from the Examiners Report is: "In theory it should be possible to completely remove market risk through an appropriate investment strategy in respect of those assets not backing the asset shares (with the cost of the assets being equal to the cost of the guarantees); this is difficult to achieve in practice." I think what the report is saying is that if you invest your assets not backing the asset shares in derivatives that completely remove the risk that the guarantees will bite, then the value of the derivatives will be exactly the same as the cost of guarantees. Best wishes Mark
