Actuarial careers insight: What does a Derivatives Risk Manager/Trader do?

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What does a Derivatives Risk Manager/Trader do?
A Derivatives Risk Manager/Trader helps insurers to hedge capital market risks within their asset-liability portfolio using financial derivatives contracts. An insurer’s hedging objective could be minimising balance sheet fluctuation due to changes in equity, interest rate, forex rates and other market risk factors, or minimising regulatory or economic capital. Part of the role is to work with insurance clients to understand their risk appetite, constraints and hedging requirements. We then design, execute and monitor hedging programs that makes use of derivatives such as futures, forwards, swaps and options to achieve that objective.

How does this role make use of actuarial skills? 
An important part of designing and managing hedging strategies is to understand the underlying liability’s cashflow profile and their sensitivities. They will form the basis of the hedge design and will be contribute to the effectiveness of the strategy. The derivatives principles and techniques we learnt in SP6 also provides a good foundation for this role.

What does your typical day/week look like?
Most of the hedging programs we manage are sensitive to market movements and requires frequent rebalancing. This means we need to observe the changing investment market conditions during the day, and execute derivatives trades based on rebalancing triggers. We would provide regular updates to clients on the investment market changes, how they impact the hedging program and exploring possible program refinements. We would also get involved in projects such as designing new strategies, assessing the effectiveness of client’s internal hedging programs, and providing expertise in derivatives pricing and asset valuation.

What do you enjoy about your role?
I enjoy following the investment market and like to understand what are driving those changes and what they meant for our client’s portfolio. I also enjoy the aspect of communicating with clients to understand their objectives and then working to design solutions to meet their needs.

What was your career path into this role?
I studied financial mathematics in university and got a taste of financial derivatives early on. I applied after graduating because I thought it was interesting to apply the investment knowledge in the insurance space. I haven’t left the role since!

And what do you like to do when not working?
Currently enjoy spending lots of time with my two boys. The younger one was born recently, so he is keeping us busy!