Financial Risk Management Assignment 2

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Financial Risk Management Assignment 2
Historical Simulation Implementation

Scenario Your boss (a fund manager) wants you (a risk management analyst) to develop in-house capability to implement historical simulation by Excel
VBA to compute VaR and ES risk measures. This assignment represents the first step in carrying out that task.

Action To start getting familiar with VBA programming, you will take the existing programs discussed in Lecture 3 and work to get it running. Then, you will make some minor changes as an initial step in the program development process.

Instructions Construct an equity only portfolio by holding at least ten stocks from Chinese A share market with initial investment of RMB 1 billion before the market close on Aug 31, 2023 (assuming you buy those stocks at close price). You may select the stocks as well as the weight randomly or at your discretion. In each of the following steps, provide a crisply written answer (as comments at the beginning of each sub function). For the program changes, write a short concise description of the changes you made and why (as comments follow the statement).

Daily stock price and returns data is available from RESSET/DB.

Calculate the one-day 99% VaR and one-day 99% ES on Sep 1, 2023 for your portfolio:

(a) The exponential weighting scheme in Section 13.3 with λ = 0.99. (10 marks)
(b) The volatility-updating procedures in Section 13.3 by EWMA modelwith λ = 0.7. (10 marks)
(c) Combine (a) and (b). (20 marks)
(d) Generate a figure to present the relationship between λ and one-day VaR/ES value (of exponential weighting scheme results in (a), assuming λ in the range of [0.5, 0.99]. (20 marks)
(e) Modify the VBA code in (a) to keep updating your daily VaR and ES measures until the end of September, and present your results by a time series figure. (20 marks)

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