Reference no: EM132197573
Market risk analysis, measurement, and methodological critique Consider the following information
Assume that you are a global equity investor based in Australia with a mandate to invest in the United States, Japan, Germany, United Kingdom, New Zealand, Hong Kong, Taiwan, South Korea, Singapore, and locally in Australia. You should assume that you are making your asset allocation decision as of 1 July 2002. You have a one- year holding period for your investment and are focussed on generating Australian dollar (AUD) returns.
Data on the relevant share price indices and exchange rates are provided in the Excel workbook titled BANK 3003 Supplementary Assessment Data.xlsx. You should use Excel and any suitable statistical functions in Excel to perform any required calculations.
Your task
Prepare a five-page report (essentially an executive summary), supported by an appropriate Excel workbook, that encompasses the results of the empirical and methodological analyses requested below. Please note that the five pages does not include references.
Using the data provided in BANK 3003 Supplementary Assessment Data.xlsx:
- Calculate an AUD-based return series for each of the share price indices.
- Produce an AUD-based return series for an equally weighted portfolio comprised of all the individual share price indices.
- Prepare and present a table of summary statistics on the returns of the share price indices, and those of the equally weighted portfolio, and comment on the statistical characteristics of each.
- Construct variance-covariance and correlation matrices for the AUD-based returns of the share price indices, and comment on the relationships between the returns of the share price indices.
- Construct value-at-risk (VaR) estimates matched to your holding period based on both the variance-covariance and historical simulation methods. You should do this for each asset and for the equally weighted portfolio.
- Interpret the results of your VaR analyses, and the implications for an investor in an equally weighted portfolio.
- Discuss the pros and cons of the variance-covariance and historical simulation methods, the assumptions required for each methodology to be appropriate, and provide a critical evaluation of each methodology's limitations.
- Would an investor be able to reduce VaR by holding either the global-minimum- variance portfolio or the optimal risky portfolio constructed from these share price indices? [Assume a risk-free rate of 4.65% per annum.] Provide appropriate empirical support for your argument.
Note the following on presentation.
All margins must be at least of two and one-half centimetres, the font size must be 12 point, and use of the Calibri font (or an equivalent) is preferred. All pages should be numbered, with numbers placed at the bottom of the page in the footer section.
Attachment:- Supplementary Assessment Data.rar