Dissues the features of a planned economic system.

(7 points) You work in the hedging department of LMN, a company selling variable annuities with a GMWB rider. Your manager is interested in understanding more about volatility management strategies and asks you to prepare a memo. (a) (1.5 points) Describe principal objectives of volatility management strategies of equity-based guarantee products from the perspectives of manufacturer and client respectively. LMN currently uses a capped volatility strategy to manage volatility risks. LMN targets a 60% allocation to the S&P500 index. The trigger level for the company is 30%. The sum of squared daily returns of the portfolio from the last 21 business days is now 0.008] (i.e., ) r =0.0081, where r, = daily return of the portfolio from / business days ago). Assume that there are 252 business days in a year and 100% is the maximum equity allocation. (b) (1.5 points) Determine the equity allocation of the portfolio after any changes driven by the capped volatility strategy. (c) (0.5 points) Describe actions, if any, to take to achieve the changes in equity allocation in part (b). Your co-worker mentions that he had just read about VIX-indexed volatility management strategies. He stated that the VIX-indexed fee rider enables the company to charge clients for all of the hedging costs of the company as they occur and that this in turn makes it a good strategy for dealing with spikes in volatility. (d) (/ point) Critique your coworker's thoughts on VIX-indexed volatility management strategies.LMN is considering adopting a different volatility management strategy that balances both LMN's and the clients' perspectives. The company has been provided the following information on various volatility management strategies. VIX- Joint VIX Capped Target Capital indexed Volatility Volatility Preservation fee & cap fees volatility Reduction in 15% 61% 94% 26% 40% volatility cost Vega 0.40% 0.12% 0.03% 0.36% 0.24% Cumulative fees 100 100 100 101 101 Returns 2000-09 -0.25% -0.55% -0.06% -0.73% -0.61% Returns 2010-17 6.05% 5.40% 2.82% 6.20% 6.06% Volatility 2000-09 11.05% 8. 19% 5.26% 12.92% 11.05% Volatility 2010-17 8.52% 7.60% 4.55% 8.65% 8.51% A consulting firm recommended a joint VIX-indexed and capped volatility strategy as the volatility management strategy. (e) (2.5 points) Evaluate the recommended strategy