Name: Score:
18 Multiple choice questions
Definition 1 of 18
Structural risk is the risk that the immunization strategy does not work due to nonparallel shifts
and twists of the yield curve. Structural risk is directly related to the convexity of the immunizing
portfolio when its convexity is higher than the convexity of the liabilities being immunized. When
immunizing a single liability, structural risk is lowest when a zero-coupon bond portfolio is used to
immunize the portfolio;
Structural Risk
Counter Party Risk
Sensitivity Risk
Credit Risk
, Definition 2 of 18
WML stands for Winners Minus Losers. It's the momentum factor used in extended asset pricing
models like the Carhart 4-Factor Model (which adds momentum to the Fama-French 3-Factor
model).
WML=Return of stocks with high recent returns−Return of stocks with low recent
returnsWML=Return of stocks with high recent returns−Return of stocks with low recent returns
"Winners" = stocks with strong past performance (e.g., top 30% over past 12 months)
"Losers" = stocks with weak past performance
✅ What does a positive sensitivity to WML mean?
If an asset has positive WML exposure, it means:
The asset has a momentum tilt.
It tends to hold or behave like stocks that have recently performed well.
It outperforms when momentum strategies succeed (i.e., when recent winners keep winning)
WML
HML
RMRF
SMB
Definition 3 of 18
DE=DA(M)−DL(M−1)(ΔiΔy)
ΔiΔyΔiΔy= the estimated change in yield of liabilities, i, relative to a unit change in yield of assets,
y.
Short Risk Reversal
Duration of the equity
Structural Risk
Standard deviation
18 Multiple choice questions
Definition 1 of 18
Structural risk is the risk that the immunization strategy does not work due to nonparallel shifts
and twists of the yield curve. Structural risk is directly related to the convexity of the immunizing
portfolio when its convexity is higher than the convexity of the liabilities being immunized. When
immunizing a single liability, structural risk is lowest when a zero-coupon bond portfolio is used to
immunize the portfolio;
Structural Risk
Counter Party Risk
Sensitivity Risk
Credit Risk
, Definition 2 of 18
WML stands for Winners Minus Losers. It's the momentum factor used in extended asset pricing
models like the Carhart 4-Factor Model (which adds momentum to the Fama-French 3-Factor
model).
WML=Return of stocks with high recent returns−Return of stocks with low recent
returnsWML=Return of stocks with high recent returns−Return of stocks with low recent returns
"Winners" = stocks with strong past performance (e.g., top 30% over past 12 months)
"Losers" = stocks with weak past performance
✅ What does a positive sensitivity to WML mean?
If an asset has positive WML exposure, it means:
The asset has a momentum tilt.
It tends to hold or behave like stocks that have recently performed well.
It outperforms when momentum strategies succeed (i.e., when recent winners keep winning)
WML
HML
RMRF
SMB
Definition 3 of 18
DE=DA(M)−DL(M−1)(ΔiΔy)
ΔiΔyΔiΔy= the estimated change in yield of liabilities, i, relative to a unit change in yield of assets,
y.
Short Risk Reversal
Duration of the equity
Structural Risk
Standard deviation
