A Japanese institutional investor has a portfolio valued at f10 billion. The investor expresses his first risk objective as a desire not to lose more than f1 billion in the coming 12-month period. The investor specifies a second risk objective of achieving returns within 4 percent of the return to the TOPIX stock market index, which is the investor’s benchmark. Based on this information, address the following:

Problem 1:

A. Characterize the first risk objective as absolute or relative.

B. Give an example of how the risk objective could be restated in a practical manner.

Problem 2:

A. Characterize the second risk objective as absolute or relative.

B. Identify a measure for quantifying the risk objective.