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 |
