University | The Royal Melbourne Institute of Technology (RMIT) |
Subject | BAFI1026: Derivatives and Risk Management |
BAFI1026 Derivatives and Risk Management Report, RMIT, Singapore: Industry consideration and/or diversification, specific stock’s strengths/positive prospects
Portfolio construction:
Present your initial portfolio, including information on why you have invested in the stocks in your initial portfolio (three stock selections for Portfolio).
- The overall market and macroeconomic condition (3 marks)
- Industry consideration and/or diversification, specific stock’s strengths/positive prospects
- Risk identification:
In this part, you should discuss the risk profile of your portfolio. Use daily historical stock price between 1 October 2017 and 31 August 2022 to calculate the VaR of your Portfolio. The discussion should include the following points:
- Calculation and discussion of the one-day 5%-Value at Risk (95% confidence level) of each stock in your portfolio using a historical simulation approach. That means, if you have four stocks in total, you need VaR for each. (8 marks)
- Calculation and discussion of the five-day 1%-Value at Risk (99% confidence level) of your portfolio using model- a building approach. Show key steps of workings. (3 marks)
- Calculation and discussion of the five-day 1%-Value at Risk (99% confidence level) of your portfolio using a historical simulation approach. (3 marks)
- Discuss the performance of VaR in (b) and (c), by comparing your calculated VaR results and the portfolios’ actual five-day returns (Thursday, 15 Sep 2022 – Wednesday 22 Sep 2022). (3 marks)
- Calculation and discussion of the 5%-Expected Shortfall (CVaR) (95% confidence level) of your portfolio using a historical simulation approach.
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