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FIN5MRM MARKET RISK MANAGEMENT Individual Assignment Suppose that you own, at the end of 31st December 2020, a portfolio worth $20 million AUD consisting of investments in three stocks traded on the US markets

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Part B4: Marginal VaR in Part B1 is a useful tool for risk management. Discuss how to change a portfolio position to minimise the portfolio VaR while keeping the portfolio fully invested. Generate a new VaR report based on the risk-minimising positions.

[3 marks]

 

Part C1: Use the period 1st January 2021 to 31st December 2021 for VaR backtesting,3 and implement backtesting procedure to evaluate the portfolio VaR determined in Part A2 and Part B1, respectively, with unconditional coverage.

[3 marks]

 

Part C2: Use the period 1st January 2021 to 31st December 2021 for VaR backtesting, and implement backtesting procedure to evaluate the portfolio VaR determined in Part A2 and Part B1, respectively, with conditional coverage.

[3 marks]

 

Part C3: Backtesting is usually conducted on a short horizon, such as daily frequency. Use your own words to explain why.

[2 marks]

 

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 A2.

[3 marks]

 

 

Submission Instructions:

 

1. The submission should include two files: a) your risk report in a Word document and

b) an Excel workbook. Please include all your Excel working in one single Excel file.

2. The assignment is expected to be done in a professional manner, which means that grammar, spelling, and overall presentation will have an influence on the score.

Appendix A

Student ID	Portfolio Info	Stock 1	Stock 2	Stock 3
20421293	Stock Ticker	ETR	GM	CF
	AUD millions	10	4	6
20420974	Stock Ticker	LNT	DRE	AIZ
	AUD millions	4	4	12
20481728	Stock Ticker	AFL	HLT	CRM
	AUD millions	10	8	2
20956686	Stock Ticker	LIN	SHW	KIM
	AUD millions	5	7	8
19663080	Stock Ticker	PAYC	GRMN	PSA
	AUD millions	5	5	10
18055119	Stock Ticker	NLOK	TTWO	BIO
	AUD millions	14	4	2
20650177	Stock Ticker	TEL	FDX	ED
	AUD millions	9	9	2
20342211	Stock Ticker	AVB	CL	CAH
	AUD millions	7	3	10
20593054	Stock Ticker	VTR	HAL	TPR
	AUD millions	8	8	4

This appendix contains portfolio allocation for each individual stock (the first column present students’ IDs), including stock tickers of the three stocks and their holdings in Australian dollar (AUD).