• +1-617-874-1011 (US)
  • +44-117-230-1145 (UK)
Live Chat
Follow Us:

FIN5MRM Market Risk Management Assignment

Group Assignment

Each group consists of one to three students. Send the list of group members with your names and student IDs to Mr Mingyi Li by email (myli@students.latrobe.edu.au) by 1 May 2017. A group name will be randomly assigned by Mr Mingyi Li.

Suppose that you own, on 1 January 2017, a portfolio worth $10 million AUD consisting of investments in four stocks traded on domestic and international markets. Appendix provides the details of the portfolio allocation for each group, including the trading symbol and the trading market of each stock and the Australian dollar (AUD) value of each holding.

Daily closing prices of stocks can be downloaded from yahoo finance

(http://au.finance.yahoo.com/). Consider a historical sampling period of three years from 1st January 2014 through 31st December 2016. Each group needs to submit a written Risk Report for your portfolio and a Supplementary Excel Spreadsheet by 26 May 2017, which should include the following parts:

Part A1: Calculate the 95% daily portfolio VaR using the basic methodology of the historical simulation approach. (2 marks)

Part A2: Calculate the 95% daily portfolio VaR using the exponential weighting methodology of the historical simulation approach. (2 marks)

Part B1: Calculate the 95% daily VaR for the portfolio using the model-building approach. Generate a VaR report for the portfolio based on the model-building approach, which should contain the following elements: (3 marks)

(i). An analysis of the diversification effect (undiversified VaR and diversified VaR) (ii). Marginal VaR

(iii). Component VaR

Part B2: What is relationship between marginal VaR and incremental VaR? (1 mark)

Part B3: On average, what is the relationship between component VaR and individual VaR for a particular position? (1 mark)

Part B4:Marginal VaR in Part B1 are useful tools for risk management. Discuss how to change the portfolio positions to minimizing the portfolio VaR while keeping the portfolio fully invested. Generate a new VaR report based on the risk-minimizing positions. (2 marks)

Part C1:Implement backtesting procedures to evaluate the portfolio VaR determined in Part A1, Part A2 and Part B1, respectively, with unconditional coverage. (2 marks)

Part C2: Implement backtesting procedures to evaluate the portfolio VaR determined in Part A1, Part A2 and Part B1, respectively with conditional coverage. (2 marks)

Part C3: Backtesting is usually conducted on a short horizon, such as daily returns. Explain why. (1 mark)

Part D: Contrast and compare your findings in Part C1 and Part C2 and further comment on the performance of the market risk measurement approaches used in Part A1, Part A2 and Part B1. (4 marks)

The assignment is expected to be done in a professional manner and will be graded under those expectations. This means that grammar, spelling, and overall presentation will have an influence on the score.

The submission of your group assignment includes two parts

  • Submission of a hard copy of the Risk Report to Mr Mingyi Li no later than 4:00PM,

26 May 2017. You are required to attach a signed and dated Statement of Authorship (group) to the front of the submitted hard copy. You do NOT need to submit a hard copy of your Supplementary Excel Spreadsheet.

  • Submission of electronic files of your Risk Report in Word file and the

Supplementary Excel Spreadsheet in Excel file by email to Mr Mingyi Li’s email account: myli@students.latrobe.edu.au by 11:59PM, 26 May 2017.

Appendix: Portfolio allocation for each group, including trading symbols of the five stocks and their holdings in Australian dollar (AUD)

Stock 1

Stock 2

Stock 3

Stock 4

Group 1

Stock Symbol

CBA.AX

PTM.AX

MMM

AAL.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

2

2

2

4

Group 2

Stock Symbol

WBC.AX

FDC.AX

ABT

ABF.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

1

2

4

Group 3

Stock Symbol

ANZ.AX

ANN.AX

ABBV

ADM.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

5

2

1

2

Group 4

Stock Symbol

BHP.AX

CGF.AX

ACN

AGK.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

3

2

2

Group 5

Stock Symbol

NAB.AX

HGG.AX

ACE

AMEC.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

1

3

1

5

Group 6

Stock Symbol

TLS.AX

TAH.AX

ACT

ANTO.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

2

4

1

Group 7

Stock Symbol

WES.AX

FLT.AX

ADBE

ARM.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

2

3

1

4

Group 8

Stock Symbol

CSL.AX

DUE.AX

ADT

AU.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

1

5

1

Group 9

Stock Symbol

WOW.AX

EGP.AX

AES

AV.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

4

1

2

Group 10

Stock Symbol

WPL.AX

ILU.AX

AET

AZN.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

4

4

1

1

Group 11

Stock Symbol

MQG.AX

TWE.AX

AMG

BA.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

4

3

2

1

Group 12

Stock Symbol

RIO.AX

MFG.AX

AFL

BARC.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

3

3

1

Group 13

Stock Symbol

SCG.AX

QUB.AX

A

BATS.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

4

2

2

2

Group 14

Stock Symbol

WFD.AX

DMP.AX

GAS

BG.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

1

1

5

Group 15

Stock Symbol

AMP.AX

IFL.AX

APD

BLND.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

2

1

4

Group 16

Stock Symbol

TCL.AX

ABC.AX

ARG

BLT.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

1

3

5

1

Group 17

Stock Symbol

BXB.AX

SKI.AX

AKAM

BP.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

2

2

2

4

Group 18

Stock Symbol

QBE.AX

ORA.AX

AA

BRBY.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

2

1

4

Group 19

Stock Symbol

SUN.AX

PRY.AX

ALXN

BSY.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

2

3

1

4

Group 20

Stock Symbol

AMC.AX

SGM.AX

ALLE

WEIR.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

2

1

4

Group 21

Stock Symbol

IAG.AX

BSL.AX

AGN

CCL.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

5

1

2

2

Group 22

Stock Symbol

RHC.AX

SPO.AX

ADS

CNA.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

2

3

3

2

Group 23

Stock Symbol

ORG.AX

PPT.AX

ALL

CNE.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

2

3

2

3

Group 24

Stock Symbol

RMD.AX

IOF.AX

ALTR

CPG.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

2

3

1

4

Group 25

Stock Symbol

OSH.AX

WOR.AX

MO

CPI.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

1

3

3

Group 26

Stock Symbol

SYD.AX

CAR.AX

AMZN

CSCG.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

4

2

2

2

Group 27

Stock Symbol

GMG.AX

REC.AX

AEE

DGE.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

2

3

2

Group 28

Stock Symbol

SGP.AX

DLX.AX

AEP

EMG.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

1

3

4

2

Group 29

Stock Symbol

NCM.AX

SKC.AX

AXP

ENRC.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

3

2

3

2

Group 30

Stock Symbol

AZJ.AX

FXJ.AX

AIG

ESSR.L

[Market]

[Australia]

[Australia]

[US]

[UK]

(AUD millions)

1

2

3

4