MFIN6012 Risk Management
Group Assignment
“Implementing Quantitative Risk Management”
K. S. Maurice Tse, HKU ; April 2024
Deadline : April 28, 2024
This is a group assignment. You are required to work in groups and submit a group case analysis report onHedging at Porsche in no more than 10 pages (A4 paper, font size no smaller than Times New Roman 11) including executive summary. Please put down the names and student numbers of all group members on the cover page of the report.
Please follow LIN Zhijing’s (our Course TA) instruction for submitting your group report on Moodle.
The questions you should address in your analysis are listed here.
1. Explain the objectives and priorities of each key player: Jasper Wang, Jianguo Lu and Charles Pan. What is motivating the different players? What tensions existed among their different objectives?
2. Why does Jasper choose to make the VaR model the first step towards rationalizing the trading function? What is the general appeal of the VaR model?
3. Why do Jianguo and the traders resist the VaR model? Is their resistance to risk management unique to China, or might it be found elsewhere too?
4. Using the Spreadsheet “Data and Backtests” provided, run backtests of the VaR predictions against the daily gains or losses for both the S&P500 index and the Shanghai Composite Index.
(a) Starting with a lookback period of 3 months, observe the number of exceptions in all years for both the Shanghai and S&P indices. How do they compare?
(b) Try different lookback periods, say 3, 6 and 9 months, to see if the length of the period changes your conclusions in (a).
(c) Given that Jasper’s VaR model assumes a 95% confidence level, how well does the backtest validate the model?
5. How might Jasper use the backtest results to bolster his case for introducing the VaR model?
6. How successful do you think Jasper will be in his attempt to implement Western risk management practices? What advice would you give to someone in a role similar to his?