Instructions on Assessment
This assignment accounts for 80% of the overall mark for the module. You must attempt all the parts to meet the learning outcomes.
• Length maximum of 3000 words (with a tolerance level of 10%) which must be stated at the cover page of the assignment.
• Quotations of more than 2 lines must be indented and in italics with the reference and page number stated. Shorter quotations should be in italics but do not need to be indented.
• Tables and diagrams should be inserted at an appropriate point in the text and should be easily readable.
• All the results, their interpretation and discussion should be provided in a single MS Word document.
You recently read the paper by Sollis (2009) where the author provides introductory overview of Value at Risk (VaR) and its weaknesses. This encouraged you to understand more about VaR techniques and on their application. You have therefore decided to study more on VaR and apply related techniques to compute the risk exposure faced by a portfolio of real-world financial securities.
In this section of your report, you are therefore required to critically discuss market risk measurement using Value at Risk techniques and discuss the new developments, displaying your awareness of the methods and limitations by presenting clearly how you derived your results.
Your portfolio should consist of a minimum of five real-world companies and the length of your sample period should be no longer than five years and must end as of 30th November 2021. Please note your answer should not just be an illustration of the methods but you should aim to provide interpretations and comparisons capturing your data and latest published research.
(1,500 words, 50 Marks)
Analyse a portfolio of loans consisting of 3 companies of your choice with characteristics shown in table below. For example, if you choose company 1 to be Tesla, it will have a maturity of 5 years, repayment value of 12 million and annual interest rate of 6%. All computations must be carried out according to such characteristics.
*Sollis, R. (2009). Value at risk: a critical overview. Journal of Financial Regulation and
Loan Company Name
1 Company 1
2 Company 2
3 Company 3
Maturity Repayment Value at Annual Maturity $m Interest
5 12 6% 4 10 7% 3 8 5%
In your report, you should clearly state the composition of your portfolio (i.e., fill in the table above with the names of three real-world companies).
Assume that all three loans are senior unsecured debt denominated in US dollars and that the analysis is conducted on 30th November 2021. The loan will be repaid at maturity date. Clearly state any assumptions you make in your estimations.
Using CreditMetrics (full implementation) and KMV, you are required to compute relative VaR and Expected Shortfall with MonteCarlo simulation for the portfolio above at time horizons of 1-year and 2-year periods and confidence interval of 99%.
Interpret, compare, and discuss your results critically. Do a reality check on all the above calculations. Are your results according to your expectations? Why or why not?
(1,500 words, 50 Marks)
Mapping to Programme Goals and Objectives
Programme (Level) Learning Outcomes that this module contributes to: Knowledge